Offtake partner snubs pricey Australian Mines equity buy-in

Australian Mines concedes that Korean battery manufacturer SK Innovation won’t be taking up an expensive share option worth about $80 million – but the battery metals hopeful maintains this will not impact final offtake negotiations.

The Australian Mines (ASX:AUZ) price dropped about 3.8 per cent to 3.7c on the news.

There was already speculation that SK Innovation was not keen on the expensive equity buy-in — 669 million ordinary shares at a 12c per share – which represented a massive premium to the current price.

Fears that the cobalt market was oversupplied had gained momentum and pushed the explorer’s share price down almost 70 per cent over the past year.

By letting the option slide, 100 per cent offtake partner SK Innovation will not get a “commercial-in-confidence” buyer discount on nickel and cobalt production from the $1.4 billion Sconi project.

READ: Supply disruptions are piling up … so why are cobalt prices so depressed?

But the final offtake contract negotiations, crucial to Sconi’s future development, are still proceeding as planned, Australian Mines says.

Under the off-take term sheet, SK Innovation will still buy 100 per cent of the battery-grade cobalt sulphate and nickel sulphate produced from Sconi for an initial seven-year period, with an option to extend the agreement for a further six years, the company says.

Australian Mines wants to finalise this long form offtake agreement in the current quarter.

The Australian Mines share price over the past year.

New deadlines

In January, SK extended the period for Australian Mines to finalise financing to 19 September 2019 – even though the miner said it didn’t need that much time.

“Although we appreciate the extension of the financing condition to September, given the progress we have been making on these negotiations since the Bankable Feasibility Study was released, we plan to have the entire project funding package in place during the second quarter of 2019,” Australian Mines boss Benjamin Bell said.

This extension was also designed to accommodate the North Australian Infrastructure Facility’s (NAIF) current due diligence and investigation into potentially providing financial support for Sconi.

The $5 billion government-backed NAIF initiative is designed to provide concessional finance to encourage private sector investment in infrastructure that benefits northern Australia.