Tesla considers buying Sigma Lithium to secure EV battery metal supply

Electric vehicle powerhouse Tesla (NASDAQ: TSLA) is considering buying Canadian miner Sigma Lithium (NASDAQ, TSX-V: SGML), according to news reports circulating over the weekend.

The Elon Musk-led automotive giant has been eyeing multiple mining options as it considers its own refining and sources close to the matter claim the company has been in talks with potential advisers about a bid.

Sigma is on track to begin commercial production this April from its flagship Grota do Cirilo project in Brazil, which will produce spodumene concentrate that can be used to make lithium hydroxide. This is then used in the production of cathode materials for EV batteries.

In the last month Tesla has also inked a deal with Piedmont Lithium for the supply of spodumene concentrate from Quebec, starting later this year.

Tesla is one of a few automakers that have weighed up mining investments in an effort to secure supply for the metals needed for EV batteries. General Motors Co is reported to be competing for part of Vale SA’s base metals unit and recently acquired a stake in Lithium Americas Corp to help develop a mine in Nevada, United States.

Reports have not been confirmed at this stage, with Mr Musk and his Tesla representatives so far not responding to requests for comment. Meanwhile Sigma co-chair and co-chief executive officer Ana Cabral-Gardner declined to comment on the “rumours”.

Grota do Cirilo lithium mine nears completion

Battery metals miner Sigma is currently developing its 100% owned Grota do Cirilo project in Brazil, where it has been producing battery-grade lithium concentrate on a pilot scale since 2018. Construction of a larger-scale commercial mine is nearing completion and is expected to be in operation in April.

Grota do Cirilo is deemed the largest lithium hard rock deposit in the Americas, and last month Sigma released an updated technical report to expand production at the mine from an initial 270,000 tonnes per annum to 768,000tpa in the second year.  This was in support of a previously announced 60% increase in mineral reserves to 54.8 million tonnes grading at 1.44% lithium oxide.

Sigma’s owners look for an exit

At a 46% shareholding, Sigma’s biggest investor is A10 Investimentos, a Brazilian private equity fund that was partially established by Mr Cabral-Gardner. Sigma is also partly owned by the other co-chief executive officer Calvyn Gardner.

According to sources cited by Bloomberg, A10 Investimentos has been exploring a potential sale of Sigma and gauging interest from minerals and carmakers.

However, the sources noted that potential suitors may hesitate to bid after Sigma shares tripled in the last year on high price expectations. Sigma’s owners could also wait to develop Grota do Cirilo further before seeking an exit, they added.