AVZ Minerals (AVZ.AX) can look forward to an US$240M cheque from CATH, a private investment entity owned by Pei Zhenhua and CATL, a large lithium conversion company. CATCH is acquiring a 24% stake in the holding company owning AVZ’s flagship Manono Lithium and Tin project in the DRC and will be required to make pro rata contributions towards the development and construction of the Manono project. The DRC government retains a 10% free carried interest in the project, so we are assuming CATH is acquiring a 24% interest in the subsidiary that has the right to own 90% of the project, for an effective economic interest of 21.6% in the project.
The cash injection will also make it easier to investigate the potential expansion of the throughput at Manono. The original plan called for a throughput of 4.5 million tonnes per year which would result in the production of 0.7 million tonnes of SC6 (spodumene, a lithium concentrate with an average grade of 6% Lithium) but the company is now investigating the potential to construct a plant with a throughput of 10 million tonnes per year for a total production of 1.6 million tonnes of spodumene per year. The increased throughput would mean both CATH and the existing offtake partner could be accommodated.
Manono is a very large project as the total resource contains 401 million tonnes at an average grade of 1.65% Li2O and just over 1.5 pounds of tin per tonne of rock. Under the updated 10 million tonnes per annum throughput scenario, the mine life would still be a few decades and even based on the 132 million tonnes in the reserve category, the initial mine life based on the reserves would be around 13 years.
While the DRC still is a risky jurisdiction, having Chinese capital entering the picture will likely help AVZ. The price paid by CATH seems to be very fair and perhaps this is a first step towards full ownership as CATL, a partial owner of CATH, recently announced the acquisition of Millennial Lithium (ML.V) to secure its lithium supply chain.
Disclosure: The author has no position in AVZ Minerals. Please read our disclaimer.
