Junior lithium stock European Lithium [ASX:EUR] signed a non-binding memorandum of understanding (MoU) with automaker BMW AG.
EUR shares were up 8% in late afternoon trade.
Despite the spike today, EUR shares are down 30% year to date.
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European Lithium enters MoU with BMW
Junior lithium developer European Lithium signed an MoU with automaker BMW AG.
While EUR said it was its first offtake of battery-grade lithium hydroxide, the agreement is non-binding.
An MoU does not legally bind the involved parties to a contract, but it does indicate a willingness to negotiate and come to binding arrangements down the track.
EUR stated:
‘Under the MoU, EUR and BMW AG will work together to negotiate suitable commercial terms for BMW AG to purchase the LiOH produced by EUR. EUR grants BMW AG the first right to purchase 100% of the LiOH produced from the identified resources.’
If EUR and BMW agree to a binding contract, BMW will pay US$15 million upfront, which EUR will recompense through ‘equal set offs against lithium hydroxide delivered to BMW.’
If received, European Lithium will use the US$15 million to develop its Wolfsberg Project.
Negotiations on terms and specifics are still ongoing, with EUR cautioning:
‘The parties are currently negotiating binding agreements, and no assurance is given that the any binding agreements will be entered into.’
EUR commented on the MoU:
‘Securing our first offtake with BMW AG is another key milestone for the Company. Partnering with BMW AG is an ideal fit for EUR.’
EUR share price outlook
While lithium stocks have entered a correction in 2022, the long-term outlook for the lithium sector looks strong.
Electric vehicle (EV) sales are only set to rise from here, meaning demand for battery metals is set to remain strong.
However, that doesn’t mean that every lithium stock will succeed.
Mining is hard going, and developers have plenty of hurdles to overcome to get to a functioning, operating, and profit-generating lithium mine.
Securing offtakes with key players like BMW is important in derisking a project, but investors will look to see whether EUR can make this MoU into a binding offtake.
Ways to play the EV revolution: lithium is just one
The EV market is rapidly expanding, boosted further by government initiatives and funding programs supporting production across the globe.
But our energy expert, Selva Freigedo, thinks the global transition to EVs means the industry faces a supply crunch, which can send prices for battery materials soaring even higher in 2022 and beyond.
If you’d like to know more, I suggest checking out Selva’s battery tech metals report for free here.
Regards,
Kiryll Prakapenka,
For Money Morning
