AVZ Minerals Ltd (ASX:AVZ) has secured a cornerstone investor for the development of Manono Lithium and Tin Project in the DRC on entering an agreement with Suzhou CATH Energy Technologies.
The transaction implementation agreement will see CATH, a private investment entity, earn a 24% equity interest in a multi-faceted joint venture to develop the project.
CATH will pay US$240 million cash for this interest and a further amount to fund their pro rata portion of funding for the development of Manono.
The total value of the transaction is more than US$400 million with this amount subject to final project development costs being verified.
“Very significant day”
AVZ’s managing director 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.”
CATH is jointly owned by Pei Zhenhua and Contemporary Amperex Technology Co Limited (CATL), who both have considerable influence in the global lithium conversion and lithium-ion battery industry.
Majority of required project financing
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 project.
AVZ’s 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 a PLS calcining plant to be developed in joint venture with CATH.
“Shared strategic vision”
“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 complement the world-class Manono Project,” Ferguson said.
“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 complements AVZ’s excellent collaborative relationship with the Government of the Democratic Republic of Congo 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."
Plan to expand production
AVZ and CATH have agreed to evaluate and progress a study to increase annual production, expanding Dense Media Separation (DMS) annual production capacity from 4.5 million tonnes throughput producing about 700,000 tonnes of SC6, as contemplated by the Definitive Feasibility Study dated April 2020 (DFS), to 10 million tonnes DMS throughput producing 1.6 million tonnes of SC6.
These studies were commenced in early September and are expected to be significantly progressed by AVZ by the 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 around 50% of annual production.
This expansion will significantly scale the size of the project and further de-risk the fundamental economics of the project.
The parties will also assess the feasibility of developing a lithium hydroxide facility once studies underway are completed on this process.
“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," Ferguson added.
”This is a major credit to the board and senior executive team who have all contributed to making the Manono Project a reality.”