Welcome to AMG's Capital Markets Day. Today, we'll be focused on explaining AMG's lithium strategy. Dr. Heinz Schimmelbusch, the Chairman of the Management Board and Chief Executive Officer, will begin with our overall lithium strategy. Mr. Fabiano Costa, the CEO of AMG Brazil, will explain the upstream part of AMG's lithium strategy, followed by Dr. Stefan Scherer, who will explain the downstream part of AMG's lithium strategy. At the completion of Dr. Scherer's remarks, Dr. Schimmelbusch will open the call to take your questions. I will now pass the floor to Dr. Schimmelbusch, AMG's Chairman of the Management Board and Chief Executive Officer.
Thank you, Michele. I want to welcome everybody to this day. This is the Capital Markets Day focused on explaining AMG's lithium strategy. I will introduce, and then Fabiano Costa will explain the upstream part of AMG's lithium strategy, followed by Stefan Scherer commenting on the downstream part. Fabiano is with us since 2011, and he's the CEO of AMG Brazil. He built the lithium spodumene business in Brazil on time, on budget, and on yield. Stefan Scherer joined us 2019 from Albemarle, and his first mission was to build a comprehensive team of lithium industry-experienced associates and to build a state-of-the-art laboratory and center in Frankfurt. Now we are active in the first hydroxide refinery in Germany. Here you see that Europe is maybe the fastest-growing market in the EV space.
There are many of such forecasts, but they all sort of tend to have a consensus. We are offering to this market. Our main product offering to this market is lithium hydroxide. Presently, spodumene, later lithium hydroxide as a cathode material, and we are also active in natural graphite for anode materials. The electrification mega-trend we are trying to service has a compound annual growth rate 17-35, estimated to be 25%. Next slide. Here you see the price development, especially focus on the latest spike here. Lithium carbonate and lithium hydroxide prices have increased by a multiple of six beginning compared to beginning of 2021.
By the way, the price rise in 2017 and 2018, with price levels resulting in 17,000 metric ton, was mainly driven by supply shortages. In 2021, it is a combination of very high demand, structural demand, and a short supply. We expect this to be more sustainable than the earlier short-term price rise. Lithium carbonate in China is more a spot business, allowing for quick price adaption, whereas lithium hydroxide is more based on longer-term supply contracts. The reason for this is embedded in the difference in chemical properties, especially shelf life. AMG sells its spodumene under long-term contracts indexed against these prices. One should be cautious with taking published spodumene price information, which contains spot sales like small-scale auctions. Next slide. The price development should be followed immediately by something commenting on cost.
The cost structure you see here, we have put together from a variety of sources. The main takeaway here is that at the price level of 32,000 per metric ton of lithium hydroxide battery grade, the present price level, at that level, the lithium part of the battery represents 11% of the total battery costs. Even at that very high price, it's only a smaller portion of the battery cost. If you have a nickel manganese cobalt, about 7% lithium hydroxide are contained, and in the lithium iron phosphate, it's around 4.5% with no nickel and cobalt. This is why people like lithium iron phosphate. One problem here is recycling.
For lithium iron phosphate, the cost of recycling exceeds the cost of fresh material. Nickel, manganese, cobalt is better from the recycling perspective given the higher metal value. The customers of lithium hydroxide have announced expansions in Central and Eastern Europe, Scandinavia, and France. We have located our lithium hydroxide refinery site with that cluster of customers in mind. We chose Bitterfeld, the center of the German chemical triangle, Leuna, Buna, and Bitterfeld in East Germany, in the state of Saxony-Anhalt. Our potential customers are in trucking distance, short distance at least compared to established Chinese lithium hydroxide converters. The lithium hydroxide complex in Bitterfeld comprises of five modules with a capacity of 20,000 tons per annum for each, totaling 100,000 tons when completed. The EU demand for lithium hydroxide is estimated in 2030 to be 600,000 tons.
The AMG lithium value chain starts in the Mibra mine in Brazil, and there we produce spodumene since 2018, 90,000 tons. Presently, we are expanding that to 130,000 tons. Later on, technical grade lithium precursor is under basic engineering. Presently, I will come back to that, we deliver the spodumene under long-term contracts to customers, creating a base cash flow while we are planning to build a chemical plant in Brazil and while we are constructing a hydroxide plant in a refinery in Germany. Later on, there will be a switch where we don't convert the spodumene in outside converters, but do it in Brazil and deliver to Germany. We also presently are having a lab scale production and sampling operation, a small pilot plant for solid-state electrolytes, our most exciting project.
A larger demo plant is in the basic engineering phase for solid-state batteries. Next slide. This is again, here we have the spodumene. On the left side, we have the 90,000 ton going to 130 spodumene. That project to go from 90 to 130, we call internally Spodumene One Plus. We supply to converters producing technical grade precursors, which, once the lithium hydroxide module one in Germany is finished, will then be sent there. Of course, that hydroxide then feeds what I just mentioned about the pilot plant and later on the commercial production of solid-state batteries. Next slide. Now, in summary form, presently AMG's lithium value chain has a strong base cash flow, and that base cash flow is feeding our various projects.
That in scenario planning leads to a stable balanced equilibrium of cash flow production and use of cash flow. We have, of course, thinking about module two, three, four, five and thinking about what we have to do to feed those modules. We are thinking about how to finance those. We have separated AMG's lithium value chain into a standalone company under a standalone management. We are having three basic strategic alternatives, obviously. One is to keep 100% ownership and finance the growth with current funding of operating cash flow. Second, to invite complementary strategic partners for a significant minority stake if the dilution we would experience in that is being outperformed by the growth aspects. That is, of course, very important analysis.
Third, to envisage an IPO for the lithium value chain business. I would think that at latest at the annual meeting of shareholders in May, we will have more to say about the status of that decision-making procedure. Now I think it's Fabiano.
Thank you, Dr. Schimmelbusch. We can go to next slide, please. For those who doesn't know the famous Mibra mine in Brazil, the mine site, it's located in the southeast region of Brazil in a very blessed position for mining. We are sitting in the middle of a triangle that is the most important economic triangle in Brazil between the cities of São Paulo, Rio de Janeiro, and Belo Horizonte. The mine sits approximately 250 km from the two main ports of Brazil, which is the Port of Santos and Port of Rio de Janeiro. The mine is open pit mine. It has been in operation since 1945, essentially mining a pegmatite, which for those geologists in the call, it's the famous pegmatite in Brazil.
As I said, simple open pit mine with truck and shovel hauling process. The mining process is then feeding high density concentrator, where at the beginning of the mine was producing tin. Nowadays, the main focus is producing tantalum. The tailings of this initial production turns into the feed for the spodumene concentrator, which is up and running since May 2018. This is again a relatively simple crushing mining process. Crushing, comminution, and concentration by flotation. Of course, the mine being blessed with all these minerals, we have a cost structural location which give us the differential of being a low-cost producer for all of these minerals.
The estimated life of mine at this moment, considering that we have some amount of tailings from previous operation prior to 2018 startup of the spodumene plant, it gives a life of mine planning nowadays of somewhere between 17-18 years. We can go next slide, please. Obviously, following the AMG group, the AMG Mibra mine is very committed to the ESG. Our main products, they will be fostering the energy transition with the futures of energy storage materials. There's a business plan that includes obviously CO2 reduction emissions. As one area of interest and/or concern, we have recently updated all of our structured tailings dam protocols, and that has been satisfied several demands around the world, including the Investor Mining and Tailings Safety Initiative.
The mine has been recently certified on the ISO 14001. We have a very committed programs to develop social initiatives around the mine, especially in the communities around us. We are very proud of the programs that we put to develop the community people to be able to work for us. We have increased the number of people from the communities working from us in the last decade in almost 300%. We came from in 2011 from only about 55 people working for Mibra, and nowadays we have nearly 220 people, which is essentially 70% of our population, of our workforce.
Something that we are also very proud, as of November 3, the Mibra mine has completed 1,000 days without a lost time incident, a lost time event, which, considering the hazards of a mining operation, it's quite impressive achievement. Finally, we strictly follow protocols of the AMG Group, which is quite strict itself. On top of that, we have also been certified in quality management system ISO 9001. As I said before, the environmental management system is certified on ISO 14001, and the occupational health and safety management system is also certified on ISO 45001. We can go next slide, please. This is just a picture of the special day we celebrated back in November 30.
This sign, as of today, is showing 1,042 days, and our journey towards the zero accident goals continue. We can go next. On the development of the lithium concentrate, it dates back from development and research since early 2011 when we start to do some lab tests. We moved from lab test to pilot plant, and it was a very comprehensive R&D project until 2016 when we start doing the engineering and all the most detailed features of the project, which envisage the plant to be constructed and starting up in May 2019. I'm quite glad to say that we have reached that schedule pretty much on time. The plant has started in May 2019. We built that on the planned CapEx, but it was on budget.
We have expanded. We are also glad that the plant nowadays is up and running at the parameters that were envisaged during the design and project phases. All these structures in terms of processing parameters has given us the operating cost that we target since day one in this project. We can go next, please. As Dr. mentioned in the introduction of this presentation, we are expanding our production right now, and I'm gonna talk in a little bit in more details in a bit. We're gonna move from 90,000 tons per year to 130,000 tons. This 19,000 tons of spodumene concentrate, it's sold out at the moment.
We have two customers in China that takes respective 60,000 tons per year and 30,000 tons. The expansion, as is already also sold out from 2024 to 2028, all the expansion, the 40,000 tons. Is it to mention that once we finish these two initial long-term supply agreements, we are planning to use our own spodumene to be converted in Brazil into a technical-grade lithium precursor that will be supplied to the refinery in Germany that comes in a bit in this presentation. We can go next, please. Talking a little bit more status of the expansion nowadays, as I mentioned before, we are increasing the capacity in about 45% from 90,000 per year to 130,000.
There's very minimal technical risk in that since this expansion is focused essentially on debottlenecking certain parts of the processing plant nowadays, plus enlarging current processing steps. There will be very few new processing technologies implemented, and we believe this will speed the ramp up very much compared to what we've seen at the ramp up of the plant itself. We expect startup will happen in the first quarter of 2023, and in that year we will likely achieve nominal capacity for the new production volumes of spodumene in plant one. We can go next, please. It gives the status of the current technical-grade lithium precursor project. We are at this moment doing the basic engineering. This basic engineering should be finishing by the end of this quarter.
All things being equal in this project, we are expecting to start up a technical-grade lithium precursor to produce something around 16,500 tons LCE per, which will match pretty much with our production capabilities of spodumene, and will feed the refinery plant at 85%-90% in Germany. We can go next. Just to summarize this section of this presentation. You know, we believe that we are very well-positioned to help develop and commercialize of lithium deposits globally. We have a proven operational experience. We've been producing that since May 2018 with varied success, I would say, meeting all design and project parameters for this plant. That comes with de-risking project developments, and we do have downstream value chain expertise in terms of commercial area, project financing.
We believe that we are very much well-positioned to develop projects similar to us elsewhere in this world. I think that covers my section. I will pass the floor now to Dr. Scherer.
Obrigado, Fabiano. Let's move to the downstream aspects of our business now. As Heinz mentioned already at the beginning of the presentation, our first module here in Germany is designed for a 20,000 metric ton of lithium hydroxide battery-grade production. The plant is located in Bitterfeld, that's in the eastern part of Germany. It is embedded in a chemical park, which has the big advantage of having available a broad range of services and infrastructure, just to mention a few, like electricity, the wastewater, roads and so on. We own enough land there, and we are having the structures in place to support up to a total of five modules, each of them having a target capacity of 20,000 metric ton hydroxide or whatever lithium chemical it might be at the end of the day.
When you look down on the execution timeline here, you can see that the construction of module number one is about to commence in a couple of weeks from now, having a targeted commissioning in Q2 of next year, 2023. We then expect the production to start up and producing commercial quantities sometime in Q3 2023. Let's move to the next slide, Michele. Let's talk now for a couple of minutes about product offtake, which is important, of course. By now we have covered up to 90% of our production capacity through executed MOUs or LOIs with three big customers. The numbers you can see here in the drawing on the left. Two of these customers are European-based. The third one is based in Asia.
Important to mention that all the material under these arrangements will be delivered within Europe, so it will not be shipped around the globe. In this context, in my view, it is worth mentioning that lithium hydroxide for battery applications is neither a commodity nor a simple chemical which is sold to an agreed specification. It's definitely not this. It is a performance material or chemical. This means that the material has to perform and work in customers' processes and applications, even more important, up to battery cell level, at least. In other words, producing such a material requires always a strong state-of-the-art quality management regime, similar to what's known as good manufacturing practice in the pharma industry. Just to mention a couple of things here.
Of course, you need a series of ISO certifications like the 9000 series, the 14000, and ideally also the 17025, which is dealing with quality control. You need to go through extensive and detailed process and system audits with external auditors, but also with your customers. You have to agree on very rigid change control procedures, et cetera, et cetera here. Last but not least, and very important in this regard is you need a formal final approval and go to ship by your customer. You can only get this once you are in production and fully approved. Move on to the next slide. Coming to feedstock. Excuse me.
Our refinery in Bitterfeld is designed to handle different types of feed, which at the end always comes down to a lower-grade lithium hydroxide solution with a defined specification for chemical impurities and other parameters. Pointing back to the previous slide, also here it is important to mention that a proper quality management system is required from the beginning on in order to allow handling such different feed. This will offer a big advantage, in our view, to a classical one-stop production as you have many of them today, in China, starting with a lithium ore concentrate and ending with a battery-grade hydroxide. By having this refinery concept, we believe that we are providing the highest feed flexibility for such a plant. Now we can foresee four major possible sources for feed.
Number one, of course, and most sustainable in terms of transport and CO2 emissions is our mine in Brazil, as Fabiano mentioned just before, converting our spodumene there into a lithium precursor for the refinery in Germany. Number two is purchasing lower-grade pre-precursors on the market. This, for example, also includes out-of-spec lithium hydroxide sitting in European warehouses at cathode paste producers, waiting in worst case for being shipped back to Asian producers, along with all sorts of complications you can think about doing this. Finally, for our growth strategy and further modules, we are already in close discussions with numerous lithium projects and established producers. Here we are preferably looking for partners in Europe, but of course, we are looking also in Brazil and other areas where it makes sense for such projects to cooperate with.
Last but not least, it's quite often in the press also feed coming from recycling activities is for sure a possibility to get fed in, into our refinery. Being realistic, we don't see any significant volumes available for us or others before 2030 or even later to kick in. Okay, next slide. Let's move now to our more strategic downstream development targets. We want to use the advantage of having a high quality and low-cost lithium hydroxide in-house at AMG to also develop further downstream into higher-value lithium materials. That's nothing thrilling. Now why solid-state lithium batteries? We believe, as many others in this industry do, that solid state offers many advantages over classical lithium-ion technology. Just to mention some of them here, like significantly faster charging of your EV.
It's showing increased safety and less fires, and it should provide a longer lifetime of the battery. At the final stage of the development, one should see a higher energy density resulting in a higher driving range. Potentially this is a quickly growing market because it provides many, many positives to the actual car driver at the end. In our brand-new laboratories here in Frankfurt, we have a team of people versed in solid-state technology and focusing on developing sulfur-based materials for peer companies in the solid-state arena. We are intensively exchanging samples and improving material properties via an intensive dialogue with those customers. By the way, I want to mention here that my guys in the labs have filed already a couple of patents around our processes in this area. Our customers are further telling us to start their commercialization of solid-state batteries by 2025.
This, together with having just a few players around supplying the market with sulfur-based materials and having access to low-cost lithium, makes us pushing on getting samples out and planning to build as a next important investment, a 100 metric ton demo plant. Michele, next slide, please. As you can see on this slide here, this timeline shows we are currently operating a kilo-range pilot equipment in Frankfurt, and we have just completed the feasibility study for this just mentioned 100 metric ton demo plant. This plant will be able to produce both sulfur-based precursors for solid electrolytes and solid electrolyte itself. Our final target, of course, depending on final market needs, et cetera, is to start producing with that demo plant by the end of 2024.
Overall, we believe that we are well underway here to serve our customers' needs and to support them with high quality materials. That's it from my side, and I guess the next slide is for you again, Heinz. Thank you very much.
Yeah. You saw that. Thank you, Stefan. You saw that slide before. That's our situation. We have focused on taking all these assets in the value chain under one corporate roof with kind of a co-CEO structure between Fabiano and Stephan, and a very dedicated close strategy monitored intensely by the Management Board of AMG. I said that the option to find opportunities and to finance them maybe if attractive by outside equity. This option is under analysis with a timeline to finish that analysis before or maybe considerably before the annual meeting in May. That said, please, we are prepared to try to answer whatever question you have.
Our first question comes from Mr. Visser, and the question is: Could you give an update of the progress with the LIVA battery?
Yeah. The LIVA battery, lithium vanadium or LIVA battery, we formed a company for that. We acquired certain proprietary software packages into that. We are under construction with in-house capabilities. We are, after all, an engineering company. We selected one project, think about 3 MW size of an industrial plant battery, which is dedicated to reduce the energy cost of the plant where it is installed. That's where lithium comes in because vanadium, the vanadium part of the battery is the low cost part of the battery, and the lithium part can handle fast discharge. We combine the two, and that's where the software comes in. We believe we can be in operation in the second quarter this year in our own plant.
We have decided to go the battery route, the energy storage route vis-à-vis the alternative. The alternative would be to lower the electricity cost by a standby in-house diesel engine power plant of the same size. We decided against that because after all, we are a company dedicated to reduce CO2, so it would, in our sustainability, would not look very convincing when you suddenly start to incinerate diesel. Which brings me to the market. We are building this plant as a demonstration plant. The second demonstration plant is under engineering in the United States. It will be somewhat larger. We have the demo plant means we are then in demonstration mode, and we can market the LIVA battery concept in competition to standby diesel engine power plants worldwide. The market for that is very large.
Our next question comes from Howard Klein. Where will you source the spodumene technical grade precursor for expansion beyond 20,000 tons hydroxide?
We have addressed that in the presentation. We are in contact and in negotiations with a number of resource projects which find us to be a very complementary partner. In one case, we are awaiting a signature under such a concept. It is a European project where we are already in a status of like a MOU which has the size approximately of one module. There are other projects. By the time we are in production, we believe we will have a concept for the feeding of the second module in place.
The next question comes from Frank Claassen. Could you give a rough indication how big the investments are to build the demo plant for the solid state batteries?
That is between $20 million and $30 million.
The next question comes from Arnoud. Is AMG currently talking to potential external minority shareholders? Is there an interest in this option?
The most interesting partial answer to that is that one of the customers on our priority list has recently approached us whether he could have an exclusive module. He wants to joint venture a module in order to secure the technical interface between the production of battery-grade lithium hydroxide and the feed specification of his specific cathode plant. That's a very interesting. It validates this negotiation, validates what we are doing, the basic concept of our battery-grade lithium hydroxide plant in Germany is a battery refinery. Now, as regards the larger question, of course, we have been approached by interested parties.
We are in talks because otherwise we cannot evaluate the potential economic benefits in association with potential other benefits. Because of course, it is intriguing to think about partners which are beyond, which are industrial, which are not only would contribute financial resources, but expertise and other complementary elements. In other words, we are not talking to private equity.
Our next question comes from Christian Faitz at Citi. Are you able to discuss your cost position for the mine with spodumene production in 2021 in the context of your target of $250 per ton?
Well, I think, Fabiano, you should answer that, but from my side, we are below EUR 250. Fabiano, say something.
Yeah. Thank you, Dr. Schimmelbusch. Thanks for the question. Yeah. Yes, you're absolutely right, Dr. Schimmelbusch. We are below the target at the moment. You know, I wouldn't treat this number as a fixed number, but mostly a range, and I would say the range is ±10% on the 220 level. In Brazil, inflation has been quite unusual over the last year, and that's why I'm talking about the range. The several components of the cost that is highly dependent on inflation a year, and 2021 was an unusual year for inflation.
I would say yes, below the EUR 250 level, about EUR 220 during 2021, and ±10%, depending on the level of inflation. By the way, we are projecting similar situation through 2022, and if the inflation is kind to us, I would say that we're gonna be closer to 200, more than 250.
Our next question comes from Stijn Demeester at ING. Can you discuss the potential returns of the discussed downstream projects in Germany and Brazil?
Jackson, I think that's something for you.
Thanks, Heinz. So as you know, Stijn, we look at a variety of prices and scenarios in calculating our returns. The returns that we currently see for those two projects are extremely good, and will likely result in a positive decision, in particular, to pursue the technical grade plant in Brazil. As we've said in the past, our target run rate EBITDA to CapEx formula is always less than five times. I can affirm that in both of those cases we are below that number.
The next question is also from ING, and it's, can you elaborate on the MOUs for Germany and the contract structure, the duration and pricing?
The contract structure is varying. It is in principle long-term contracts. There are different structures as per different customers. We are not going to in detail to go through a term sheet here because that is highly competitive.
The last question from ING. There's an increasing focus on carbon footprint of battery materials. How is AMG positioned, for example, via the use of renewable energy resources? What initiatives could reduce the carbon footprint?
Well, first of all, the energy storage sector is critical, and it's highly underestimated by politics. It's critical for the increase of the capacity utilization of the renewable energy. To give you an example, the initiatives are innumerable for the examples for that. Germany has average capacity utilization of the solar industry of a little above 10%, which is close to absurd. Part of that is lack of storage capacity facing the intermittencies of those renewables. Storage is essential. We are facing the storage area in three materials, theoretically, plus graphite. It's lithium, vanadium, tantalum for the capacitor part of the storage and graphite for the anode part of the battery. As regard to vanadium, we are focused on stationary batteries.
We are a low-cost producer, 100% circular in vanadium. We are having a big project on enlarging our presence in the vanadium oxide market. Part of that leads then also to the LIVA battery. The examples are innumerable. For example, when you want to produce clean hydrogen from solar and you have to shut down because there's no sun at night, you need a battery. We are talking about a vertical integration of our battery storage systems with hydrogen producers. The examples are very manifold. Right now, in order to focus, LIVA is very much in the forefront of this. In vanadium, it is the pure vanadium stationary battery.
The next question comes from Faiza with Jefferies. If you were to consider a listing, do you have any preferences for where the listing might be? The second question is, considering that the life is about 17 years of the mine, are there any plans to grow your resource base via M&A or organic exploration for new mines?
Yeah. To start with the second question, there is a very intensive exploration program ongoing in Brazil. It is also ongoing beyond Brazil. We have formed an extensive exploration strategy not recently, fairly long ago. We are very confident that will lead to longer life of our resource or larger size of our resource base. We will come back to the markets as this solidifies. As regards to venues, if number three on the summary slide becomes reality, it is logical to prioritize two locations in a competitive way. The one is Amsterdam. We are feeling very well in Amsterdam. We know the drill in Amsterdam. We have the right lawyers, the right bankers, the right infrastructure.
We have a very dedicated investor base. Then of course, Frankfurt. Germany, the whole of Germany, the industrial base of Germany is in a transition phase from one automotive value chain to another one. That is a very intensive discussion in the whole industrial base of Germany. The background for Lithium IPO in Frankfurt, I think is self-explanatory. That is Amsterdam and Frankfurt. We are dedicated to that European idea of four venues.
Our next question comes from Martijn den Drijver with the idea: To complete the lithium value chain, how much does AMG still have to invest? If AMG would be willing to allocate amounts to building blocks, that would be very much appreciated.
Yeah. This is a very complex question. I would say the base case scenario consists of two modules. Module one and module two. It consists of the Brazilian plant to produce precursors, and it consists of the ASSB. That is the solid-state battery strategy. When you put this together, and when you look at the cash flow generation of the spodumene operation, including the highly profitable expansion plant, because the expansion from 90,000 to 130,000 tons is very financially attractive because there is a cost cutting. Not only we increase our production, but also we reduce our cost base because of the way we increase this. Fabiano has mentioned the debottlenecking here.
That base cash flow, including all those plants and the equity portion of the Brazilian plant, leads to a balance. That's balanced. That plant doesn't need any outside equity. The outside equity comes in module three, four, five. It comes in acquiring resources in many ways, in cooperative ways, but also in joint ventures. Here we see very attractive projects. That has triggered our evaluation of third-party equity strategy.
Our next question comes from Henk Veerman. The spin-out, is that only the Brazilian entity or also including the technical and chemical plant in Germany?
It includes the whole value chain, our presence in the value chain. Presently, this is done through corporate entities. Our value chain is incorporated in corporate entities, which are now being transferred to one holding company, which is then owning all our assets. We only have to do a few tax optimizations here in order to pinpoint the location of that entity. That entity will have two co-CEOs. They are sitting on this table here or on this panel here, upstream and downstream, and it will have the AMG management board as board. We are approaching a situation where we simulate how to act as a separate company, not only statistically, but all the way with the balance sheet and the total financial statements perspective.
It's a serious preparation of a spin-out. We see the main reason, if we stay 100%, it's also very beneficial because it's a totally dedicated lithium strategy. It logically implies that we will separate the energy storage segment, Clean Energy Materials, which is presently lithium and vanadium into lithium and vanadium, which increases the transparency of our company vis-à-vis the investors.
Our next question comes from Gunter Lowe. You must be in talks with banks regarding a potential IPO. Can you give us an idea of how high the banks estimate this business?
No.
The next question comes from Howard Klein. Your EUR 120 million CapEx for the hydroxide in Germany seems low, considering others like Northvolt have suggested a EUR 700 million for a similar plant. How is your CapEx so low?
I think the mistake here is the word similar. I don't know what the definition of the Northvolt. I don't wanna comment on other people. We have a very thorough calculation, and this very thorough calculation is based on engineering offers. For example, we have a very prominent engineering company for the crystallization part, the most important part of the refinery, and all of that is done in a professional engineering way. After all, we are an engineering company. That's what it is. How other people define what they are doing, I don't know. Actually, you're very welcome to analyze that.
Our next question comes from Christian at Citi. At current spodumene prices and your cost below $250 a ton, is it fair to assume that your lithium business alone is running at spot EBITDA run rate of $80 million-$90 million or maybe $100 million annually?
Well, first of all, let me say that Fabiano said EUR 220 ±10%, not below EUR 200. That's one. Two, of course, we have to ship that thing to China. Yeah. There's some logistics cost involved. But if I was a model, you know, I started my life in doing such models. I have a certain understanding for what you just said. It is, it's not far off.
Our next question comes from Paul-
Yeah. Am I allowed to say that, Jason? Jason, was I allowed to say that?
Oh, yeah. I mean, it's you could look at it, Christian is saying EUR 100 million of EBITDA. If you divide that by 90,000 tons, that would be a quote, unquote, EBITDA per ton number of 1,100, which given current spodumene prices and our costs seems eminently achievable.
Our next question comes from Paul Weigling. Oh, Heinz, did you wanna go ahead?
No, no. Please, what question?
How do you see demand for lithium-based stationary batteries develop relative to vanadium-based stationary batteries in the next five to 10 years?
That's an interesting question. The vanadium battery is very competitive or the less competitive, depending on with what price, vanadium price you enter the field of competition. The vanadium price, for example, right now is on a ten-year average, but it shows sometimes signs of life. For example, in 2018, it went up five times. One unfortunate battery company was caught short in that moment because they didn't cover their vanadium needs and built the battery, and then they had to cover in their squeezed market. It is a question of vanadium price. Therefore, it is highly important to see that in context of long-term pricing strategies. We have a vanadium price base which is lower cost than any mine.
We are recycled and we get fees in order to take waste, and that is, in a way, a negative component of mining costs. A mine doesn't get a fee for taking waste. We can evaluate long-term strategies by saying, if we, for a portion of our vanadium production, provide long-term price security in a competitive vanadium price area, in an area which makes the vanadium battery competitive, and if that then integrally has an incremental cash flow because the earnings of the vanadium battery at that price exceeds the earnings foregone in order to secure that low price option or fixed price option. That is a very legitimate strategy, and we are determined to enter that market.
Our next question is from Brahm. How is the market reacting on the rising cost of lithium? Is this a concern to the automotive market?
We have developed, as I said earlier, this cost structure in which we showed the battery cost. At the present 32,000 ton price of hydroxide, it's 11% of the battery. The lithium portion of the battery is 11% of the total battery cost. I think it counteracts in a small way the otherwise development in lowering battery costs, but in a small way. Of course, it's of concern, but I think it's not in any way concerning. There are certain facts, and the facts are that there's no substitute for lithium as regards EV batteries. That's what it is.
Our next question comes from Mr. Martins. Considering the recent shift in demand towards LFP batteries, do you still fully commit to the refinery of lithium hydroxide?
I want this question, please. Stefan, it's yours.
Yes. I try to answer it shortly and keep it simple. LFP is, as Heinz mentioned at the very beginning of today's call, a relatively low cost material for cathode paste. Of course, this helps to bring down the cost of the battery. The only issue with LFP is you have a low driving range, so it might be working in cars, you know, in city cars where you have to drive short distances. On the other hand, which is the shadow side of this, you have issues in finding a competitive way to do recycling because it's only low amount of lithium contained. Iron and phosphate is worth zero, I would say. We still believe that high nickel cathode materials will play a role, at least in the markets in Europe and the U.S.
Also it's not said that in the new generation of LFPs under development, it will be used, for example, lithium carbonate. I know of LFP materials which use hydroxide also as lithium precursor. Yes, we firmly believe that we are still on the right track in going into hydroxide.
Our next question comes from Martijn den Drijver from ABN AMRO. In your base case lithium value chain, as you discussed earlier, at what kind of run rate, EBITDA and revenue should we think about?
There was a previous question, which Jackson has elaborately answered. I think the question was from somebody from Citi about the run rate. Now, that answer was based on 90,000 tons, not on 130,000 tons. If you make that calculation, then I think that should guide into the right area.
The next question comes from Martijn den Drijver, an ESG analyst at ABN. Did you do a GHG life cycle analysis of the battery grade lithium you produce, taking into account mining and processing? What quantity of energy is needed to produce 1 ton of Lithium?
Yeah. A very comprehensive value chain analysis is underway. We have an in-house version, which I don't want to quote. We have to do an out-house certification. To give you one element here, the CO₂ load is reduced radically when switching from converting outside Brazil into converting inside Brazil of spodumene into precursor material and delivering to Germany. There is, I think, 80,000 tons per year reduction of CO2 footprint. The stats which based on the production level. The financial benefit is $16 million at present prices. I don't know exactly the price, but it's about $16 million.
When you apply the cost reduction of $16 million to a multiple, an EBITDA multiple of 10-15, as used in lithium industry multiples, then you have a very high number, and that number exceeds the investment cost of the chemical plant in Brazil.
The next question comes from Fazil with Jefferies. If I may just ask with reference to Custer's question, is the $250 per ton cost inclusive of shipping cost, or is it just the cash cost, operating cost to which we would add shipping costs?
It is the second. It is. By the way, it's 220 ±10%, yeah. It excludes the logistics costs in present terms to China.
Our next question comes from Paul. Do you expect most of AMG's vanadium production to eventually end up in vanadium stationary batteries instead of steel production and other end uses?
No, we are sold out in vanadium, ferrovanadium for steel production for years. We don't have any idea to convert ferrovanadium into vanadium oxide. You know, we are sold out. This is a very profitable business, and it's a very stable business. We are the sole producer of vanadium, ferrovanadium in the United States, 100%. The rest has to import. It's always good to produce. In the book of rules of commodities it says, produce in a region which is a net importer. That's ferrovanadium. We also produce vanadium oxide, and we also produce electrolytes. That is fairly small, and it's happening in Germany. We are presently expanding that plant substantially.
That plant is taking gasification ash as a feedstock, because when you gasify heavy fuel, then the vanadium ends up in the gasification ash. We take, under long-term contracts, gasification ash from gasifiers and extract the vanadium into vanadium oxide. That's a new way of sourcing the vanadium battery material in 100% circular. We add to the circularity of spent catalysts into ferrovanadium. We add now a second stream, namely we take vanadium contained in gasification ash, and we turn it into vanadium oxide. For that, you need a different technology, which we have proprietary, which we own in a proprietary way, and that is a hydrometallurgical conversion from this one feedstock into V2O5, the vanadium oxide, and then later into electrolytes for batteries.
We have a very large project in this area, which we are not commenting on, but might comment on rather shortly. We are developing the market for that. It is interesting to note that there are regions with very large ambitions as regards vanadium batteries. In the Middle East, for example. Such things are only realistic if you have a domestic and relatively large source of gasification ash.
Our next question comes from Howard Klein. What exactly is the technical grade precursor you are making in Brazil? Is it lithium carbonate? And what is the CapEx for the chemical plant in Brazil?
Fabiano.
Yeah, thanks for the question. We are still in trade-off phase of the project. There's a trend to be a carbonate, a technical grade carbonate, but this is not 100% decided yet. Having said that, in this phase of the project, a ballpark number, it's around $200 million investment here.
That was implied in my answer of the EUR 16 million cost reduction decision combined with a multiple of 10-15.
It looks like our last question at the moment is from a Mr. Custer. Who is your engineering partner with the crystallization process and the battery grade lithium hydroxide manufacturing process in Germany?
Yeah.
One more time.
We couldn't-
Thank you.
It's a leading engineering company in Germany, trust me.
One last question just popped up, Dr. Schimmelbusch. It's from Christian at Citi. He's at the top of almost every aspect of AMG Lithium business dynamics, which is a great attribute, and he brings as the group CEO. Having said that, how much time is he able to allocate to other businesses, so the value creation here is not left on autopilot?
We are workaholics at AMG, and we are able to do multitasking. I'm personally trained to do many things. I'm actually feeling more comfortable in larger entities than in smaller entities, and that's why we want to turn AMG into a larger entity. The question is an interesting one because the first thing which we did, and I think it's a very good thing to do, to answer that as the last question. When we started to develop the idea many moons ago to mine first the tailings and then original ore and extract lithium in Brazil, the first thing which we did, we built a very large management team around Fabiano, hiring the leading senior engineers from the engineering companies, by the way, on a permanent basis and building an engineering capacity.
Long before the project, it was very costly, but it was a very good move because we recognized that even negotiating with engineering companies providing the process technology for the spodumene production, we needed to have intensive know-how. We built that team. Today, that team is existing and ready to service junior mining projects, for example, because we are long in those capabilities. That is a very important statement. That's upstream. Downstream, when we started to develop how to enter the service of this upcoming huge market of battery-grade lithium hydroxide in Germany, we were lucky enough to be able to hire Stefan Scherer from Albemarle and Chemetall to join us. He then...
His first target, that was very important. I mentioned it earlier. We now have a large team of over 20 highly industry expertise, lithium industry expertise people on all levels of a flow sheet, of a technical flow sheet. People who have their lab jacket in the lithium downstream area. We did that was the best thing we could do because now we have a presence in this industry with people who the customer knows. An extremely important part of, for example, an audit later on of are these people experienced people? Do they know?
Because the lithium industry is a complicated industry. The lithium technology is a complicated technology. Chemetall, in which I was CEO of the parent company one day, by the way. Chemetall was the absolute technology leader in the lithium industry since 1922. It was actually the first company who produced lithium salts in the world. We are blessed by having a very large, sophisticated and motivated team with industry expertise. Don't you worry, we built capacity, management capacity long before we built projects. I think, Michele, since that was such a important question and I tried to answer it, let's make that the last question. Let me, on behalf of the speakers here, please thank you for attending the Capital Markets Day.
Let me thank you also for the very, I think, very good questions which you have asked. Thank you very much.