Clean TeQ Holdings Limited (ASX: CLQ) was one of the biggest movers in the local market on Thursday morning's trade, with shares up 7% to $1 after the company gave an update on the development of its Sunrise project.
Sunrise, located in New South Wales, is a large high-grade deposit of nickel and cobalt – two important inputs in the production of lithium-ion batteries for electric vehicles.
Estimates reported by the company indicate that in the next eight years the demand for cobalt from this sector will triple and the demand for nickel will quadruple – with emission control legislation poised to boost demand from China.
Two years after ramping up production, Sunrise could provide between 4,000 tonnes and 5,000 tonnes of cobalt per annum, becoming one of the biggest cobalt mines outside of Africa. The company also points out that class 1 nickel – the one found at Sunrise and suitable for battery applications – will end up being undersupplied within a few years, leading to a big price premium for the product.
However, to benefit from the potential boom, CleanTeQ must first commence production. The company recently raised $150 million of capital to accelerate preparatory work, and announced further developments today.
In June CleanTeq will complete a definitive feasibility study that embeds increased processing capacity to take full advantage of the expected increase in metal prices. The additional costs brought about by the change in scale should be compensated by higher revenue.
The next step would be finalising offtake agreements for the majority of annual nickel and cobalt production. A final investment decision will be made at the end of the year, and construction should commence in 2019, to achieve first production in 2021. The company has already signed a five-year binding offtake agreement for 20% of production with battery manufacturer Beijing Easpring.
Foolish takeaway
CleanTeq's prospects depend on the evolution of the electric-vehicle market and on the success of lithium-ion batteries within that industry. For those willing to bet on a big role for lithium-ion batteries in the clean energy revolution, the stock could deliver great growth – possibly even more than lithium miners, who might face a lithium glut in the near future.
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