Leo Lithium has signed a binding agreement with Chinese lithium producer Ganfeng Lithium to secure A$106.1m ($70m) by issuing 131 million new Leo Lithium shares, at an offer price of A$0.81 ($0.5) per new share.

The new fully paid ordinary shares represent 9.9% of the Australian mining company’s total shares.

The offer price represents a 6.5% premium to Leo Lithium’s five-day volume weighted average price (VWAP) of A$0.76 per share up to 26 May 2023.

The placement is subject to receiving regulatory approvals in China, along with the execution of a binding cooperation agreement.

Upon completion, Ganfeng will become a substantial shareholder of Leo Lithium with a total of 9.9% shareholding, alongside Firefinch which owns around 15.9% stake.

Leo Lithium will use the proceeds from the strategic placement to support its share of the first stage of Goulamina development and operational ramp-up costs.

Leo Lithium managing director Simon Hay said: “The Strategic Placement and terms of the proposed Cooperation Agreement with Ganfeng represent a transformational opportunity for Leo Lithium and provide further validation of the tier-1 quality of Goulamina, including the significant potential upside of our development pathway.

“The Strategic Placement was priced at an attractive premium to recent trading levels, being a 6.5% premium to Leo Lithium’s 5-day VWAP, and 1 cent off our all-time share price high.

“Upon settlement, the Company will be fully funded for its share of Goulamina Stage 1 development costs and operational ramp-up, and well-positioned to progress its various co-commitment activities with Ganfeng.”

In addition, Leo Lithium and Ganfeng have agreed on various co-commitments for the Goulamina project.

The two companies will conduct a study to expand the production capacity of the Goulamina project stage two to around 500,000 tonnes per annum.

They will jointly fund the study, which will be conducted in Australia, and examine opportunities to advance the timing of Goulamina Stage-2.

The two companies will jointly study the concept of co-investing in a downstream conversion facility in Europe or another suitable region within a reasonable distance of West Africa.

Amending the offtake agreement for Goulamina Stage 2 for the potential future downstream conversion facility to produce lithium hydroxide.

Establishing and jointly funding an exploration joint venture to focus on opportunities in Australia.

Simon added: “Leo Lithium and Ganfeng will enter into a binding Cooperation Agreement. The Cooperation Agreement will deliver a range of key strategic benefits to Leo Lithium, including a commitment to expand the capacity at Goulamina Stage 2, as well as a framework for further cooperation on a downstream conversion facility and other business opportunities.

“The proposed tolling arrangement with Ganfeng provides Leo Lithium with a highly beneficial, low-risk solution to gain exposure to lithium hydroxide production and the attractive margins that are available from moving further downstream.

“Ganfeng has long operated a number of conversion facilities in China and is already producing a large volume of high-quality battery-grade product that is being supplied to tier 1 OEMs.

“By utilising the tolling arrangement with Ganfeng, Leo Lithium stands to benefit from Ganfeng’s existing strong market relationships and technical reputation, enabling enhanced cost savings and operational efficiencies in tolling the Goulamina Stage 2 product to lithium hydroxide.”