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Exclusive-Australia's Liontown in talks with US Defense Dept on tantalum supply

By Melanie Burton

MELBOURNE (Reuters) - Miner Liontown Resources is speaking with the United States Department of Defense about supplying tantalum from its Australian operations if the U.S. passes a new regulation by year end as expected, its chief executive told Reuters on Thursday.

Lining up a tantalum deal with the U.S. defense department would provide the company a crucial endorsement and potentially future funding as it develops its Kathleen Valley lithium mine, seen as one of the most promising deposits of the metal.

The project in Western Australia will also produce tantalum, a critical material in electronics and for metal alloys to make missiles and tanks more heat-resistant, among other uses.

Liontown is due to start production in mid-2024.

"The company has ... engaged in constructive discussions with the U.S. Department of Defense regarding the potential for the DoD to procure Liontown's tantalum – another designated critical mineral, and a secondary product that Liontown will produce at the Kathleen Valley Project," Liontown CEO Tony Ottaviano said.

The supply deal hinges on amendments to legislation expected to come into place by year end that will classify Australia as a domestic supplier to the U.S.

"The amendments ... shape as a key catalyst to designate Australia as a 'domestic source of supply' which would expand the US DoD's remit as a potential offtaker and funder of allied critical mineral supply," Ottaviano said.

Unlike other Australian lithium producers, Liontown does not have significant Chinese equity ownership, which makes it a potentially attractive partner for the U.S. government as it seeks to ease dependence on China for critical minerals.

The initiative could be included as an amendment to the National Defense Authorization Act annual legislation that determines how the U.S. Department of Defense will use its nearly $900 billion annual budget.

A final text on the bill is expected within days, with the House of Representatives and the Senate due to vote on it by the end of December.

Kathleen Valley is expected to produce around 430 tonnes (950,000 lb) per annum of 30% tantalum concentrate, equivalent to around 285,000 lbs.

The Pentagon is looking to buy 53,000 lbs of tantalum for its current fiscal year, which started in October, according to a statement by the Defense Logistics Agency.

Liontown raised A$1.13 billion ($713 million) in funding for its flagship lithium project in debt finance and a fully underwritten equity issue in October after top lithium producer Albemarle walked away from an A$6.6 billion bid.

Albemarle cited "growing complexities" after Hancock Prospecting, an iron ore miner controlled by Australia's richest person, Gina Rinehart, gatecrashed the deal by raising its Liontown stake to 19.9%, likely enough to block the deal.

(Reporting by Melanie Burton in Melbourne; Additional reporting by Ernest Scheyder in Houston and Patricia Zengerle in Washington; Editing by Sonali Paul)