AVZ ups stake in massive Manono lithium project, adds value
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Special Report: AVZ Minerals is so confident it has a first-class lithium and tin project on its hands that it is taking a greater stake.
The DRC-focused explorer (ASX:AVZ) revealed today that it had struck a deal with Dathomir Mining Resources SARL to increase its stake by 5 per cent to 65 per cent.
The deal will cost AVZ $US5.5m ($7.9m) — but it has a few years to pay it off.
The news lifted the company’s share price by 7.3 per cent to an intra-day high of 5.9c.
AVZ says the deal is highly accretive for its shareholders, with minimal upfront payment.
The first tranche payment of $US500,000 has to be paid within 14 days, but AVZ has three years from execution of the deal to pay the balance.
“AVZ is pleased to be able to secure further equity interest in the Manono Lithium and Tin Project, given its Tier 1 status,” managing director Nigel Ferguson said.
“The extra equity in the Manono Lithium and Tin Project will add significantly to the bottom line and net present values (NPV) and it is critical for project financing as AVZ continues discussions with potential financiers and off-takers.”
The increase to 65 per cent is expected to lift AVZ’s share of the NPV by some $US130m to $US1.68 billion, based on the recent scoping study for a 5-million-tonne-per-annum operation.
IRR and NPV are used to estimate the profitability of a potential operation – the higher they are above zero, the better they are.
The extended scoping study estimates that on a 100 per cent basis Manono will have an NPV (before tax and royalties) of $US2.63 billion and an IRR of greater than 64 per cent.
AVZ isn’t stopping at 65 per cent, however, and is in further discussions with its main partner La Congolaise D’Exploitation Miniere (Cominiere) to secure additional equity on similar terms.
“Cominiere, as with all parastatal entities in the DRC, are currently under a ‘suspension of signature authority’ following the presidential elections,” Ferguson explained.
“It is hoped that this will soon be lifted and a positive outcome to purchase further equity in the project, as discussed to date with Cominiere, can soon be achieved for AVZ.”
Even at conservative lithium prices, Manono looks set to be a big money-maker.
The scoping study outcomes are based on a lithium concentrate sale price of $US750 per tonne.
The scoping study has yielded an exceptional and industry leading IRR of 64 per cent even at a more conservative lithium price to reflect market changes in the last seven months.
Just as importantly, the expected capital outlay of roughly $US380m to $US400m (including a capital contingency of US$78m) makes Manono the third lowest cost lithium mine in the world.
The 5Mtpa Scoping Study assessed a 20-year operation at Manono, but there remains significant potential to extend the mine life beyond this.
Metallurgical test work shows the potential for high recoveries of over 80 per cent.
This would deliver around 1.1 million tonnes at a minimum of 5.8 per cent lithium concentrate each year.