On 18 December Volkswagen subsidiary and battery cell manufacturer PowerCo announced a C$69M (US$48M) investment into Patriot Battery Metals (“Patriot”). The agreement states that PowerCo would purchase 9.9% of Patriot’s common shares in return for 100ktyp of 5.5% spodumene concentrate over a 10-year term.

The binding offtake will be from Patriot’s Shaakichiuwaanaan (formerly Corvette) Project in Quebec and represents around 25% of its estimated Stage 1 production, and around 12.5% of its combined Stage 1 and 2 production. The offtake term is 10 years initially with a 5-year extension on the table. The offtake will use a flexible pricing mechanism and applies an undisclosed discount rate to determine the final contract price.

The offtake will likely support PowerCo’s St Thomas gigafactory in Canada, which will have a total capacity of 90GWh. The offtake also represents a strengthening of Canadian supply chains amidst the uncertainty faced by companies over President-Elect Trump’s proposed export tariffs to the USA.

However, before cell manufacturing, the lithium from the project will be shipped for cathode active material (CAM) production. Project Blue forecasts that North America will see significant CAM deficits over the long term due to underinvestment in the sector. Therefore, PowerCo must have strong intensions for where this CAM will be produced, otherwise it risks exporting the lithium and subsequently importing the CAM.

Given PowerCo’s ties with Umicore in Europe, Umicore’s Loyalist facility may be an option, although this project is currently on hold due to uncertainty surrounding the EV market and demand projections.

The deal signifies the need for cell manufacturers to vertically integrate, securing supply to support the expansion of gigafactories globally. It allows PowerCo to secure offtake to support their future activities and the timing is opportunistic with Patriot’s share price being down 73% year-to-date allowing for a strategic investment to be made at a premium, whilst maintaining future upside potential.

Signing long-term offtakes during a subdued pricing environments allows Patriot to raise capital to proceed with development, improve bankability and secure the future of the project during a difficult period.

The deal is subject to a Final Investment Decision (FID), permitting and commissioning.