Contentious zero-carbon lithium project Vulcan Energy Resources Ltd (ASX: VUL) share price is moving into the green today after signing a definitive agreement with European automaker Renault Group.
At the midpoint of Monday trading, the Vulcan share price is up 8.25% to $11.02.
Vulcan has been making waves recently after J Capital released a short report on the energy company.
Vulcan locks in supply
After initially signing a term sheet in August, Renault and Vulcan have agreed to a definitive agreement.
The six-year deal will begin once Vulcan has begun commercial delivery of its zero-carbon lithium, currently slated for 2026.
Renault will purchase between 26,000 to 32,000 tonnes of battery-grade lithium chemicals, which will enable the automaker to avoid 300 to 700 kilograms of carbon emmissions.
The agreement forms part of Renault’s aim to offer ‘made in Europe’ electric cars and reduce its 2030 supply chain carbon emissions by 30%.
Vulcan will enable this goal by providing lithium from its yet to be completed energy project in the Upper Rhine Valley of Germany.
For Vulcan, the deal represents 12% of its currently planned output over the six-year period.
Vulcan managing director Francis Wedin said:
“…the agreement is consistent with our strategy to enter into long term, stable supply agreements with companies that share our ethos on sustainability and decarbonisation ambitions”
The deal remains subject to conditions including the successful start of commercial operations and full product qualification.
Materiality questioned
The initial term sheet in August stated that Renault would purchase between 6,000 to 17,000 metric tonnes per year. That deal was for five years, one less than today’s deal.
To compare apples with apples – over a six-year period – this would imply 36,000 to 102,000 metric tonnes bought from Vulcan.
However, the definitive agreement reached today doesn’t even reach the lower end of the range announced in August.
At the max range of 32,000 tonnes, it still falls short.
“The binding term sheet is conditional on the execution of a Definitive Agreement on materially similar terms by 20 November 2021”.
My take
Materiality is a subjective beast. But usually, anything that changes more than 5-10% is considered material.
Even a generous person – using the lower bound from August and the best outcome from today’s deal – would note the agreement announced today is still 8.8% lower.
For Renault, the deal is a nice announcement to flag to shareholders and the market it is trying to reduce emissions.
But any reduction won’t occur until 2026. And is still subject to Vulcan getting its project off the ground, which is currently facing opposition from local communities in Germany.
For now, I’m avoiding Vulcan shares until the business can show material announcements related to the production of its zero-carbon lithium.
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