POSCO buys lithium mining rights in Argentina from Australia's Galaxy

SEOUL/MELBOURNE (Reuters) - South Korean steelmaker POSCO has sealed a deal to buy lithium mining rights in Argentina from Galaxy Resources for $280 million, beefing up the Australian miner’s funds to dig a lithium mine on neighbouring ground.

POSCO said in a statement on Monday that it would also build a lithium plant in Argentina, planning to produce 25,000 tonnes of the commodity per year for 20 years starting from 2021.

Demand for lithium, a critical ingredient for batteries used in electric vehicles, has grown in recent years as some consumers shift away from cars powered by fossil fuels.

POSCO said the move would secure stable lithium supplies for its battery material manufacturing affiliate POSCO ES Materials.

Galaxy, which agreed in May to sell the rights for the Salar del Hombre Muerto salt flat in northern Argentina, plans to use the funds to develop its flagship Sal de Vida lithium project in South America.

Galaxy has shortlisted seven firms as potential strategic partners at Sal de Vida, and hopes to decide on the best option before the end of 2018, Managing Director Anthony Tse told Reuters.

The shortlist includes Chinese, other Asian and non-Asian firms, including lithium end-users, firms already in the lithium industry and materials and industrial firms looking to get into the lithium supply chain, Tse said.

“You probably would be surprised in terms of some of the not-so-usual suspects that you might see on that list,” Tse said in an interview.

He said the deal with POSCO was carried out separately as the South Korean steel giant was focused on developing its own lithium processing technology, but he expected there will be opportunities for them to share infrastructure.

“They wanted to get their hands on a fairly sizable and high quality resource in the region,” Tse said.

Shares in Galaxy, one of the Australian market’s most heavily shorted stocks, jumped as much as 11 percent on Tuesday after the deal with POSCO was signed. The stock last traded up 3 percent outperforming a 0.6 percent rise in the broader market.

Tse said that while the world’s major lithium producers Chile’s SQM, FMC Lithium and Albemarle Corp have mixed views on the outlook for near-term lithium carbonate prices, Galaxy expects rising demand to shore up prices.

“We’re somewhat positive in that we think the raw material consumption will actually step up as (electric vehicle) production has to step up in the second part of the year.”

Over the past two to three years, China’s electric vehicle production has been much stronger in the second half of the year than the first half, driving up demand for battery materials later in the year.

Demand is also expected to rise in Japan and South Korea, Tse said.

Reporting by Jane Chung and Hyunjoo Jin in Seoul and Sonali Paul in Melbourne; Additional reporting by Susan Mathew and Aaron Saldanha in Bengaluru; Editing by Joseph Radford and Richard Pullin