You gotta risk it for the biscuit: Here’s why ASX lithium players have high hopes for Africa
Africa has a reputation as a risky jurisdiction for miners, but the rewards for lithium explorers could be worth it, with the continent considered highly prospective for the raw materials needed for electric vehicles (EVs).
Zimbabwe, the Democratic Republic of Congo, Ghana, Namibia and Mali have a combined 4.38 million tonnes in lithium resources, according to US Geological Survey data.
While these resources lag behind heavy hitters Argentina, Chile and Australia, Africa is still largely unexplored – and more lithium supply is needed as the world transitions to Net Zero.
The International Energy Agency’s Critical Minerals Market Review released this month flagged that lithium metal demand could scale beyond 1Mt annually by 2040, a level it would hit by 2035 in a Net Zero emissions by 2050 scenario.
So could the continent be the next frontier for lithium?
China certainly isn’t wasting any time securing supply in Africa.
Benchmark Minerals Intelligence (BMI) says Africa’s mined lithium production output is set to increase more than 10-fold this decade, potentially representing 12% of global supply.
“China has invested heavily across Africa to help secure access to its critical mineral deposits, potentially putting Western countries on the back foot when it comes to operating in the region,” BMI said.
In fact, China is set to dominate African lithium production this decade, with over 90% of supply set to come from mining companies partly or full owned by Chinese companies.
Of the 27 planned lithium mines in Africa, Chinese companies are full owners of eight and majority owners of three.
Operating in Africa may not be as secure (with political instability, coups, terrorism, ebola and the like) as doing so in Western Australia and Canada, but the potential to uncover and develop projects of scale is up there with the best in the world.
Stockhead spoke to Alex Hanly, who’s previous experience as CEO at West Africa gold explorer Polymetals (ASX:POL) and new role as CEO with Iggy Tan’s Lithium Universe gives him a wee bit of insight into what it takes for an ASX company to operate successfully in Africa.
“Every jurisdiction has its challenges, in Australia they talk about sovereign risk issues up in Queensland with the coal royalty increase last year by the State Government, for example,” he said.
“In West Africa, there’s a sovereign risk element that everyone’s quite concerned about from an investment perspective.
“Australia and the ASX in particular are quite mature in its appetite and investment in Africa and, and the LSE, the London Stock Exchange has been investing there since it was probably first incorporated.
“So, there’s generally appetite within the right market.”
“The pros about working in the jurisdiction is the reality that it’s largely under explored and you’re looking for a globally significant resource,” Hanly said.
“There has been such an advancement in technology, that those new techniques and best practices that are still currently getting evaluated haven’t really been used in in these territories before.
“So, taking that approach and doing a process driven, methodical, best practice centred Exploration Program, or at least a project generation exercise in West Africa – it’s got a higher reward factor than is present here in Australia.
“Obviously, the risk reward/profile is completely different but that’s the reason why people do go to West Africa and Africa in general.”
Hanly says investors who are looking at putting their money in an African play should consider the team and where exactly the company is operating.
“You want people that have actually been to the country, often you come across executives that haven’t actually stepped foot within the jurisdiction,” he said.
“They need to have experience operating internationally.”
The company also needs to understand the different political and operational environments in each region.
“For example, there is companies with 2-million-ounce resources up in the north of Burkina Faso that are having a hard time developing their project,” Hanly said.
“In contrast, companies like Resolute, AngloGold, Iamgold and Hummingbird have proven to be successful mine builders and operators in neighbouring Mali operating within the western and southern portions of the country.
“That’s the key and that comes with experience and a strong network embedded within the region.”
Hanly also noted there’s several jurisdictions in Africa who’re becoming more pro-mining – and working hard to bring explorers in.
In Nigeria for instance, the new president Bola Tinubu wants to encourage foreign investment within the critical minerals space – which is quite a shift from a historically oil and gas centred country.
“What’s interesting is they’ve obviously got a mature industrial sector, but the country really hasn’t had meaningful exposure to the mining sector, so I think that’s quite a unique situation in West Africa,” Hanly said.
“Ghana would be what you consider a blue-chip West African jurisdiction. West Africa’s best geologists and metallurgical engineers come out of Ghana, and the history of gold mining operations within Ghana is prolific.
“With this strong technical skill base, and the recent Ghanian government support for the growth of the critical minerals sector, this places Ghana in a unique position.”
Ghana is looking to increase its participation in the mineral value chain, following in the footsteps of Namibia which announced in June a ban on the export of critical metals in their raw state.
Then there’s Zimbabwe, who also implemented a raw lithium export ban in favour of a local processing industry.
In recent years Zimbabwe has welcomed increasing Chinese investment in the sector since the US issued trade sanctions, making it a risky for mining companies looking for investment from Western banks.
Hanly noted that there’s a renewed focus on lithium exploration in West Africa, which is a jurisdiction that has been historically and fundamentally focused on gold exploration and gold mining.
“It’s interesting because gold and lithium mineralisation stick to the same types of geological hosts,” he said.
“So, it shows a lot of promise, I think, and it could be the next frontier of lithium, or the next lithium rush outside of what’s currently happening up in Quebec and James Bay.”
MOM owns 15% of CAA Mining who’re acquiring up to 85% of Lithium Resources Ghana, whose six exploration licences cover more than 730km2, and are along strike from explorer Atlantic Lithium’s (ASX:A11) Ewoyaa lithium discovery which has a mineral resource estimate of 35.3mt at 1.25% Li2O, with a definitive feasibility study on its way.
Plus, Piedmont Lithium (ASX:PLL) has an earn-in agreement with Atlantic, and is expected to fund the lion’s share of capex (which we estimate at US$160 million) for a 50% stake in Ewoyaa.
Meanwhile, former fintech stock OOK which is looking to change its name to ‘First Lithium’ and acquire two advanced lithium projects – Faraba and Gouna in Mali – with neighbours including near term miner Leo Lithium (ASX:LLL) and their 506,000tpa (ramping up to 830,000tpa) Goulamina project.
(Notably, LLL is currently suspended from trading, pending correspondence from the government of Mali relating to plans to produce direct shipped ore.)
“That’s quite interesting, because West African investment has historically focussed on gold and these two companies in particular, you could probably say are the new trailblazers following the success of Leo Lithium, the big fellas over in Mali with a high grade, +200Mt resource, and Atlantic Resources in Ghana who have demonstrable resources,” Hanly said.
“But this renewed focus on lithium exploration within West Africa is a different tilt to the typical West African story that’s bound to garner some interest.”
Over a year ago PSC sold its 72.7Mt Arcadia lithium development in Zimbabwe to a subsidiary of lithium-ion battery material producer, Zhejiang Huayou Cobalt Co, for ~$466m net.
The veteran team at PSC is now going back to its exploration roots with the Omaruru lithium project in Namibia. The company will progressively acquire up to 51% in Omaruru, with an option to go up to 85%.
Soil sampling earlier this year at the Karlsbrunn prospect returned 14m at 1.21% Li2O, 10m at 1.35% Li2O and 8m at 1.11% Li2O, which Phase 1 RC drilling currently being completed.
The company also has a project called Step Aside in Zimbabwe, where Phase 2 drilling returned 6.28m at 1.09% Li2O from 67.52m.
A Phase 3 diamond drilling program of up to 5,000m will be carried out over the next three months to both extend the limits of the identified spodumene-rich pegmatite deposits and scout exploration of key lithium soil anomaly targets.
Stockhead spoke to PSC business development manager David Broomfield who said it’s the company’s strong technical team – and track record in Africa – that really gives them credibility.
“We obviously have a track record of being able to turn something into a mine, and people like that credibility,” he said.
“You have to respect the sovereign risk, yet in terms of prospectivity, where else would you want to be but Africa?” he said.
“Obviously, Australia and Canada are extremely prospective for most of the minerals we’re looking for, the problem is they’re expensive jurisdictions to work in.”
This month the company discovered a highly prospective ‘corridor of interest’ following a recent reassessment of project data at the Uis project in Namibia.
Undrilled LCT pegmatites with visible lithium mineralisation have been observed in the field and planning is now underway to focus exploration efforts on the new area.
“Going forward, we will embark on a more traditional and systematic exploration strategy focused on this zone, which will allow us to generate high confidence targets which we will aim to drill test and fast track,” chief exploration and project manager (Africa), Cliff Fitzhenry said.
“The company looks forward to updating our shareholders as we continue our exploration activities, which will give us the best possible chance of unlocking the lithium potential of the Uis lithium project.”
In May, $18bn global battery and cobalt stock Zhejiang Huayou Cobalt Co – the Chinese company who picked up Prospect’s Arcadia project – finalised a $2.5m investment in African lithium explorer Askari Metals (ASX:AS2).
Huayou intends to grow its equity position in the company to 9.9%, AS2 says.
LPD wants to build a lepidolite lithium mine and concentrator at the Karibib project in Namibia, and a 5600tpa chemical conversion plant in Abu Dhabi.
The integrated Phase 1 project has a base case NPV8% of US$530m and IRR of 42% at a long-term lithium hydroxide price of US$22,840/t.
Some fairly conservative lithium price sensitivity analysis sees the NPV8% range from a downside scenario of US$452m ($675m) based on a US$16,800/t lithium hydroxide price to an upside figure of US$703m ($1,050m) based on a lithium hydroxide price of US$32,350/t.
The capital cost estimate including contingency for the chemical plant is US$203m and for the concentrator US$63m for a combined US$266m.
The next step for LPD is to lock in financing and offtake ahead of first production in 2025.
However, there is a bit of a legal dispute underway – but interestingly not as a result of operating in Africa.
Chinese company Jiangxi Jinhui Lithium Co filed a Notice of Arbitration under the Arbitration Rules of the Singapore International Arbitration Centre in connection with the offtake agreement between Desert Lion Energy (subsequently renamed Lepidico Chemicals Namibia) and Jinhui provided for the sale of material located in the stockpile at the Karibib project in Namibia and expired on 16 November 2022.
The notice includes a claim in the sum of US$4,563,149.76 being the payment received from Jinhui in accordance with the offtake agreement.
LPD believes that the arbitration is without merit and has retained Canadian and Namibian litigation counsel to vigorously defend itself and is contemplating counterclaims against Jinhui.
Another example of Chinese investment in Africa is Tyranna, who last month executed a binding offtake agreement for both 50% of the spodumene and 50% of the pollucite from its Namibe lithium project in Angola with Sinomine Resource Group.
The offtake agreement is key condition for Sinomine’s $31m investment into the Namibe Project, as announced in May.
This month the subscription agreement was completed, with all conditions precedent met or waivered resulting in immediate Phase 1 funding received through an investment of $4,500,000 at $0.025 in Tyranna and project level funding of $10,000,000.
This $14.5m will be used for exploration and development of the project, with an accelerated drilling program planned, and two Sinomine drill rigs available to be mobilised to site.
“The company is now fully funded to unlock the potential of this exciting project,” chairman Joe Graziano said.
“The race is on now to systematically explore and define a mineral resource of significance as soon as possible.”
Plus a Phase 2 option for an additional $16,750,000 is now active and subject to a 24-month exercise period.
One standout example of the jurisdictional risk involved in operating in Africa and the grip Chinese business interests have on the continent is AVZ.
The company had been plugging away at its world class Manono lithium-tin project in the DRC which contains the biggest and second highest grade undeveloped deposit in the world — 401Mt (132Mt reserves) at (1.65%) – since 2016 and in 2022, was getting ready to pull the trigger on development.
Then in May last year it was revealed that China’s biggest gold miner Zijin Mining had laid claim to a 15% share of the Manono project, which AVZ said it had the right to buy from Congolese State mining company Cominiere.
Separately, one of the JV partners Dathomir, off which AVZ claimed to have bought a 15% stake, reportedly pulled out the deal, something AVZ said it was not able to do.
The upshot is this: Zijin claims AVZ’s stake in Manono, after a planned 24% sale to Chinese battery manufacturer CATH, will come to just 36%, not the 66% AVZ thought it would have.
The project and its stakeholders have been tied up in ongoing arbitration/legal proceedings since then.
Then, another blow. On February 6 this year, AVZ admitted that a mining licence decree announced May last year had been revoked by the DRC Government.
The embattled company is seeking independent legal advice regarding both Ministerial Decrees dated 28 January 2023, “whilst expediting discussions to clarify the intentions of the competent DRC authorities.”
At Stockhead we tell it like it is. While Prospect Resources is a Stockhead advertiser, it did not sponsor this article.