CATH will earn a 24% equity interest in a multi-faceted joint venture to develop the Manono Lithium and Tin Project
AVZ Minerals secures cornerstone investor for development of Manono Lithium and Tin Project. (Credit: Alex Banner from Pixabay)
AVZ Minerals Limited (ASX: AVZ) (“AVZ” or “Company”) is pleased to announce its wholly owned subsidiary, AVZ International Pty Ltd (“AVZI”), has entered into a transaction implementation agreement (“TIA”) with Suzhou CATH Energy Technologies (“CATH”).
- CATH will earn a 24% equity interest in a multi-faceted joint venture to develop the Manono Lithium and Tin Project (“Manono Project”).
- CATH shall pay US$240 million cash for their 24% equity interest and a further amount to fund their pro rata portion of funding for the development of the Manono Project.
- The transaction in totality will contribute more than US$400 million, subject to final project development costs being verified.
- The funds will be used by AVZI to advance the project into production.
CATH is a private investment entity jointly owned by Mr. Pei Zhenhua and Contemporary Amperex Technology Co. Limited (“CATL”), who both have significant influence in the global lithium conversion and lithium-ion battery industry.
Proceeds from the transaction will fund a majority of the total project financing required, whilst AVZ will retain a controlling 51% interest in the Manono Project post-completion of the transaction and its position as lead developer of the Manono Project.
The existing Offtake Agreement with Yibin Tianyi will be assigned to CATH and expanded in scope to provide offtake of SC6 for the life of the Manono Project.
Furthermore, CATH will enter into a long-term Primary Lithium Sulphate (“PLS”) offtake or tolling agreement in respect of PLS produced from the PLS calcining plant (“PLS Plant”), which will also be developed in joint venture with CATH.
AVZ and CATH have also agreed to evaluate and progress a study to increase annual production, expanding Dense Media Separation (“DMS”) production capacity from a 4.5Mtpa throughput producing approximately 0.7 million tonnes of SC6, as contemplated by the Definitive Feasibility Study dated April 2020 (“DFS”), to a 10Mtpa DMS throughput producing approximately 1.6 million tonnes of SC6 (“Expansion Scenario”).
These studies were commenced in early September and are expected to be significantly progressed by AVZ by end of December 2021.
Under the Expansion Scenario, CATH will fund its equity share of the additional Manono Project development capital expenditure and increase its SC6 offtake commitment to approximately 50% of annual production.
The Expansion Scenario will significantly scale the size of the project and further de-risk the fundamental economics of the Manono Project.
The parties will also assess the feasibility of developing a lithium hydroxide facility once studies currently underway are completed on this process.
AVZ’s Managing Director, Mr. Nigel Ferguson, said: “This is a very significant day for the Company and all of our stakeholders as we move closer to making the Manono Project a leading global producer of lithium products.”
“We are delighted to enter into this deal with someone of the calibre of Mr Pei and CATL both of whom have the financial capacity, technical expertise and credibility within the lithium conversion and lithium-ion battery industry to compliment the world class Manono Project.”
“Our shared strategic vision to develop the vast potential of the Manono Project and further downstream projects, provide an exciting future for AVZ shareholders.”
“Forging of this partnership compliments AVZ’s excellent collaborative relationship with the Government of the Democratic Republic of Congo (“DRC” and “DRC Government”) and the local communities in which we operate”
“We look forward to updating our shareholders in the near future with respect to award of the Mining Licence and execution of the Collaboration Development Agreement, which are progressing extremely well through Government channels.”
“Once this transaction and the associated agreements are finalised, 100% of our saleable lithium products will be accounted for and a significant portion of the Manono Project will be financed via the equity contributions provided by this transaction.
”This is a major credit to the Board and senior executive team who have all contributed to making the Manono Project a reality.”
TRANSACTION SUMMARY
Consideration
Under the terms of the TIA, CATH will acquire a 24% equity interest in the Manono Project for a cash consideration of US$240 million to be used to fund capital development of the Manono Project.
In addition to the consideration, CATH has agreed to contribute their pro rata portion of project development costs in accordance with the terms of the joint venture between the parties.
Conditions precedent to completion
Completion of the transaction is subject to satisfaction or waiver of the following conditions precedent before 30 November 2021
- CATH obtaining the requisite Chinese regulatory approvals for its investment in the Manono Project;
- the Mining Licence for the Manono Project being granted to Dathcom Mining SA (“Dathcom”);
- the entry by Dathcom and the DRC Government into the Collaboration Development Agreement;
- Dathcom board and shareholders making a final investment decision and approving the transaction; and
- entry into a variation deed in respect of the existing offtake agreement with Yibin Tianyi.
Multi-faceted joint venture
In addition to the development of the Manono Project, AVZI and CATH will also pursue the following undertakings through subsidiary joint venture entities, in respect of which each party will have indirect or direct joint venture interests proportionate to their interest in the Manono Project:
• the provision of power, water and logistics services to the Manono project;
• the development, construction and operation of the PLS Plant; and
• the evaluation of the establishment of a lithium hydroxide conversion facility.
The formation of the multi-faceted joint venture will seek to leverage the deep skillsets of both partners to help deliver the joint venture projects.
Break fee arrangements
Following signing of the TIA, CATH will pay a US$20 million break fee (held in an escrow account) which is payable in the event the required Chinese regulatory approvals are not obtained.
A US$20 million break fee is also payable by each party for any material breach that results in the termination of the TIA.
AVZI may access the escrowed US$20 million following a final investment decision for the development of the Manono Project. In the event the break fee is not paid before completion, AVZI must repay the amounts drawn from the escrow account on or before the date that is 6 months following the signing date of the TIA.
AVZI has undertaken not to solicit or engage in discussions in respect of any competing proposal prior to completion of the transaction.
Variation of the Yibin Tianyi offtake agreement and additional offtake arrangements
The Implementation Agreement contemplates several variations to the Yibin Tianyi offtake agreement, including:
- The existing Offtake Agreement with Yibin Tianyi will be assigned to CATH and expanded in scope so that it provides for the offtake of SC6 for the life of the Manono Project.
- Volume will be the lower of 50% of SC6 production or up to 800ktpa, taking into account existing third-party offtake agreements.
- Mutual commitment to agree additional volumes subject to availability.
- Term of the Offtake Agreement continues whilst CATH maintains its shareholding in the Project, reducing in the event of equity dilution.
- Pricing is on USD/CIF China basis, determined by a formula which references various published market prices of lithium carbonate and lithium hydroxide products and underpinned by an agreed floor price.
- Termination rights included for breach of the material terms of the Offtake Agreement including non-payment or failure to supply or take annual quantity commitments.
- Furthermore, CATH will enter into a long-term Primary Lithium Sulphate (“PLS”) offtake or tolling agreement which provides for 46,000 DMT per annum or 100% of the primary lithium sulphate produced from the first train of the PLS Plant.
- As a result of these offtake arrangements, in conjunction with other existing offtake arrangements,
- 100% of the Manono Project’s saleable lithium products produced under the April 2020 DFS will be contracted for at least the first five years from commencement of production.
Source: Company Press Release