Ioneer (IONR -6.31%) (GSCC.F 1.85%), a development-stage miner, announced on Friday that the U.S. Department of Energy (DOE) will lend it up to $700 million to build its Rhyolite Ridge lithium mining project in Nevada.
The Australian company's American depositary receipts (ADRs) that trade on the Nasdaq Stock Market under the ticker IONR surged more than 20% on heavy volume on the DOE loan news. They have since given back some of their gain, but as of Wednesday remained more than 6% higher than they were before this news was released.
Ioneer shares are also listed on the Australian Securities Exchange (ASX) under the ticker INR, and its foreign ordinary shares trade over the counter (OTC) under the ticker GSCC.F.
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Developing a U.S. EV supply chain
The $700 million loan earmarked for Ioneer's Nevada lithium mining project reflects the Biden administration's aim of developing a domestic supply chain for electric vehicle (EV) batteries. This goal is part of the administration's broader priorities of moving the country toward energy independence and fighting climate change.
There is just one operating lithium mine in the United States -- the Silver Peak brine mine in Nevada, owned by North Carolina-based Albemarle. It's estimated it produces less than 2% of the world's lithium. Most of the world's lithium is mined in South America (brine mining) and Australia (hard-rock mining), while China largely controls the refining of lithium and EV battery production.
The price of lithium has soared over the last year because supplies have been tight relative to demand. Automakers are concerned about being able to source enough of the critical material to meet their longer-term EV production targets.
The DOE loan and Ioneer's Rhyolite Ridge project
The DOE loan would have a term of 10 years and is contingent on the project meeting conditions related to environmental review, permitting, and finances. The loan's interest rate will be fixed from the date of each advance at applicable U.S. Treasury rates.
Ioneer is a development-stage company and does not generate any revenue from sales. So, it's extremely unlikely that it would have been able to secure a loan of up to $700 million at a low interest rate from a traditional lender.
Along with mining, Ioneer's project involves refining of the mined lithium into lithium carbonate, which the company had originally aimed to start producing by 2025. (It seems to me that this timeline might prove too optimistic, as is often the case with new mining projects.) The project has the capacity to produce enough lithium carbonate to support the manufacture of approximately 370,000 EVs each year, according to the DOE.
Like Albemarle's U.S. lithium mine, Ioneer's Rhyolite Ridge is also located within the Silver Peak Range in Esmeralda County, Nevada. However, Ioneer's project will be a hard-rock mining operation -- the deposits are lithium-boron -- not a brine mining operation like Albemarle's.
Ioneer touts that its Nevada project has the potential to be one of the lower-cost producers of lithium. The reasons it cites relate to its planned processes and the fact that it will also generate revenue from its sales of boric acid, which it plans to produce from the boron it mines.
Ioneer's likely joint venture partner on the project and its offtake agreements
In September 2021, Ioneer reached an agreement with major South Africa-based miner Sibanye Stillwater to establish a 50%-50% joint venture (JV) in the Rhyolite Ridge Project, with Ioneer to run the operation. The company expects to receive Sibanye Stillwater's equity contribution once all conditions for the formation of the JV have been fulfilled or waived.
Ioneer has some buyers lined up for its expected lithium carbonate production at Rhyolite Ridge. It has offtake agreements with terms of three to five years in place with Ford Motor Company, Prime Planet Energy & Solutions (a battery manufacturing joint venture between Toyota and Panasonic), and South Korea's EcoPro Innovation, a major manufacturer and supplier of battery cathode materials.
Promising, but still speculative
Certainly, it's a big positive that the Energy Department spent nearly a year reviewing Ioneer's loan application and determined that its Rhyolite Ridge project has enough promise for it to loan the company up to $700 million.
That said, this doesn't mean this lithium and boron mining project is a sure thing. Ioneer stock is still speculative and has the potential to be very volatile due to its small-cap size and relatively light average trading volume in the U.S.
Most long-term investors who want exposure to lithium should stick with one of the well-established large lithium producers listed on a major U.S. stock exchange: Albemarle, Sociedad Química y Minera (SQM), and Livent.