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German automaker Mercedes-Benz and German-Canadian company Rock Tech Lithium signed an agreement Thursday for the future supply of lithium hydroxide, the key input material for electric car batteries.

Vancouver-based Rock Tech is committed to supplying Mercedes’s battery suppliers with 10,000 tonnes of the material annually starting in 2026. Some of the lithium ore will come from Canada. According to the company, the annual supply volume could be sufficient to supply around 150,000 electric vehicles with high-performance batteries.

Rock Tech’s lithium hydroxide will play a key role in securing the lithium supply for Mercedes’s battery production in Europe, said Markus Schaefer, board member for development at Mercedes-Benz.

Mercedes plans to go fully electric by the end of the decade. From 2025, the manufacturer plans to offer all drive systems exclusively for battery-electric vehicles.

The strategic partnership is planned for at least five years. Rock Tech Lithium estimates the sales volume of the purchase agreement at almost $2-billion. According to the company, this is calculated on the basis of moderate market forecasts. Currently, a tonne of lithium hydroxide costs about $75,000 on the spot market in China.

Rock Tech is currently developing its first converter in the eastern German town of Guben, which will extract lithium hydroxide from the lithium ore spodumene. To date, there is no refinery of this type in Europe. Converters are only located in China and Australia.

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Starting in late 2024, the converter is expected to run and produce a total of about 24,000 tonnes of lithium hydroxide a year. Rock Tech says it has also reserved three additional factory sites for lithium refineries in Europe.

Much of the raw material for the converter is expected to come from a mine in Ontario that Rock Tech acquired in 2010. The realistic start of operations is 2025, parallel to the ramp-up of the converter.

But so far, no construction permits have been issued for either the converter in eastern Germany or the mine in Canada. In addition, Rock Tech has yet to find investors for the costly construction projects. The development of the refinery alone will cost at least €470-million ($633.3-million). Construction of the mine is also likely to be in the three-digit million range.

The company is constantly looking for partners and investors, Rock Tech chief executive Markus Bruegmann told The Globe and Mail. “We are raising money like a startup.”

Mr. Bruegmann also explains why the lithium ore from Canada is to be refined in Europe: “The market in North America for battery vehicles is about three years behind that in Europe. That is also the reason why we are not yet building a converter in Canada. It makes more sense to build the plant where the lithium hydroxide is processed directly into batteries.” That’s because the white, salt-like powder has only a relatively short production lifespan and must be transported to battery factories relatively quickly.

But the mine in Ontario alone is not enough: “To fully utilize the converter, we need additional material from other sources,” Mr. Bruegmann said. Rock Tech wants to find alternative sources in Australia and possibly also in Canada, where there are already lithium mines in development from which the company could buy the concentrate. Canadian company Snow Lake Lithium, for example, has unveiled plans for a lithium mine in Manitoba. So far, however, Rock Tech has not announced any mining partnerships.

At the moment, the Chinese-owned Tanco mine is the only operating lithium mine in Canada.

“Canadian mine operators are looking for low-risk partners and alternatives to Chinese converters. We can be a sustainable, but above all new and reliable partner in Europe, with which commodity chains can be diversified and thus also made more resilient,” Mr. Bruegmann said.

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