Bradda Head Lithium (BHL.L), which aims to advance its sedimentary lithium project in Arizona, has announced it was able to sign a royalty and investment deal with Lithium Royalty Corp. The latter will subscribe for $2M in new shares priced at 7.7 pence, and will acquire a 2% Gross Overriding Royalty on the claims for a cash payment of US$8M.
The $8M cash payment will be staged: $2.5M will be paid on closing, an additional $2.5M will be paid once the company has outlined a resource of 1 million tonnes of lithium carbonate equivalent at a grade exceeding 800 ppm while the final $3M will be paid once Bradda Head confirms a resource of at least 2.5 million tonnes of LCE at the same grade.
This seems to indicate how ‘desperate’ Lithium Royalty Corp is to spend its cash. The project it’s investing in doesn’t even have a resource yet so even in a best case scenario, the project is at least a decade away from production. But of course, this bet could pay off nicely as a 2% GOR could potentially be very valuable should Bradda Head indeed define an economically viable project. Should the project produce 25,000 tonnes of LCE per year at an LCE price of $20,000/t (these are just theoretical assumptions of course), the 2% GOR will yield about $10M per year so although it is risky to purchase a royalty on a non-resource stage project, the risk/reward ratio looks interesting for Lithium Royalty.
Disclosure: The author has no position in Bradda Head. Please read our disclaimer.
