A long, painful mission in Mali is about to end for Leo Lithium – which has been dormant for months – but its MD still believes in African lithium plays.
The Goulamina asset was touted as Africa’s answer to Kathleen Valley and when spodumene prices peaked in early 2023, Lithium Leo (ASX: LLL) could seriously claim to be underrated compared to the Aussie developer Liontown Resources (ASX:LTR)as a bid from Albemarle pushed the latter’s value past $6 billion.
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The ‘African discount’ (a term representing the political risks of operating on the continent) – as well as the fact that Leo never held more than 50 per cent of the proposed 500,000 tpa Goulamina asset in Mali after it disengaged from fatal gold mine firefinch (ASX:FFX) – was one of the reasons why Leo never pushed beyond a fifth of the value of Liontown under the chairmanship of Tim Goyder, despite the similar scope of their developments.
And concerns about jurisdictional risk proved well-founded.
While Leo and JV partner Ganfeng Lithium – China’s largest lithium coal miner and lithium processor – were able to build the Goulamina mine through the turmoil, military coups in 2020 and 2021 in Mali that toppled democratic rule changed the goals.
A new Mining Code was proposed in 2023 that could see the state and local businesses claim up to 35 percent of any new mining project in the West African country.
Leo has been in a trading halt for months, settling a dispute that has now been resolved with a $60 million settlement to be paid by the company to the Malian government.
The settlement was reached with Leo selling the remaining 40 percent of Goulamina it still held to Ganfeng for $342.7 million ($521 million).
Leo previously bought 5 percent in Ganfeng for $65 million and had $68.5 million of his Goulamina capitalization covered by Ganfeng for another 5 percent.
The selldown will be completed within the next six months after foreign investment approvals from Mali and China are cleared, with Leo shareholders releasing an initial $10 million before the first major tranche of $161 million is paid to satisfy basic terms and an additional US$171.2 million sometime before June 30 next year.
Offtake rights associated with a later development previously expected to be jointly owned by Leo and Ganfeng will also be converted into 1.5 percent royalties on Goulamina Stage 1 revenues over a 20-year period from the first shipment.
The best result
The sale to Ganfeng will no doubt fuel fears that China is gaining even greater control of the world’s lithium resources to fuel a local electric vehicle industry that now makes up 60 percent of the global market.
It has raised concerns that the country’s government and dominant players could exert extraordinary control over prices, as China does in the case of other critical metals such as rare earths.
This was the case on the African continent, where low-grade lepidolite exported to China was one of the sources of the oversupply that crushed prices late last year.
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Meanwhile, a dispute rages over control of Africa’s largest spodumene deposit – the Manono project in the DRC – from 2022, with the owner of the ASX-listed AVZ Minerals (ASX:AVZ) it has since been suspended from trading and locked in legal disputes with local companies and Chinese giant Zijin.
Prospect Resources (ASX:PSC)on the other hand, he scored a major payday by selling his Arcadia project in Zimbabwe to a Chinese miner for $387 million, the path Leo eventually followed.
Leo argued
Despite possible visuals, Leo boss Simon Hay said Stockhead the company had been strongly supported by Ganfeng during its suspension, saying it should not worry about Ganfeng taking full control of the large lithium mine.
“I don’t think so at all, and I certainly have to say a very good thing here for Ganfeng, he’s been a fantastic partner for us throughout this process,” Hay said.
“We have been very aligned in our dealings with the government from day one to this moment.
“I can’t speak for them about how they see the government, but we are aligned in our approach.
“They have been very supportive of Leo, they are the ones who have invested $307 million in the country so far. Leo has not invested any money, we have sold off our ownership in the project and that money has gone to the country.
“We believe they have paid a reasonable price under the circumstances for our stake here.”
Ganfeng, in particular, already has investments in Australia’s lithium sector, including a 50 percent ownership stake in Mineral Resources’ (ASX: MIN) Mt Marion mine.
It was recently revealed as the successful party in a process to find a downstream processing partner Pilbara Minerals (ASX:PLS)agreeing to sell its stake to meet US and European investment criteria if necessary.
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Pay on the go?
With months to go until the terms of the deal are met, it remains to be seen what Leo will do with the cash.
A dividend, similar to what Prospect paid on the sale of Arcadia, is certainly on the cards.
Hay, previously the boss of Galaxy Resources before it merged with Orocobre to form Allkem – more recently merged with Livent to form Arcadium Lithium (ASX:LTM) – remains bullish on Leo’s management team’s potential to take on another project.
Mali is likely off the table, but he still believes ASX-listed companies can make it in Africa.
News of the sale saw neighbor LLL First lithium (ASX:FL1)which owns the Blakala prospect, rose 6.8 percent yesterday.
Shares in Atlantic Lithium (ASX:A11)owner of the Ewoyaa project in Ghana, was also 3.8 percent higher.
“It’s jurisdiction by jurisdiction, I think,” Hay said. “There are certainly other Australian or Western lithium developers in the area.”
Hay said the capital distribution would be “one of the first things” on Leo’s agenda, but said discussions with major investors would be needed to decide its course.
“I haven’t spoken to all of our major shareholders, so it’s presumptuous to talk about what we’re doing with the money,” Hay said.
“That said, we have a team here that has developed a lithium cell.
“We have a lot of lithium expertise in the company and we have an ambitious board and management team, so we’d like to do something, but it’s too early to set targets.”
Recovery of the lithium market
Another challenge faced by African developers was the lithium price crisis, which saw spodumene concentrate fall from levels of over $8000/t last January to just $850/t early this year.
They have since rebounded above US$1200/t amid hopes that the bear leg of the cycle was short-lived and as high-cost supply from China and Australia tightened.
“Even with EV sales growth slowing in some markets, the entire industry is still growing,” Hay said.
“So I think that’s really positive. If I look at chemicals and pricing over the last five-six years, one good thing about this trough that we just went through is that the trough was about $1000/ton.
“Previous troughs were $400/ton. So I think the market as a whole has picked up and the end market has realized that incentive pricing for new lithium projects is no longer US$400-500/tonne, it has to be US$1000 or more.
“I think this is the maturation of the industry.
“For us, we are selling the project now. Of course it is a big project, it will have future value. We’ve tried to retain some of that exposure to future pricing through that right that we have as well.”
The fine print
Links to Firefinch, the owner of 17.6 percent of Leo and the company from which LLL was spun off, have also persisted in the lithium play.
Among the issues raised by the Malian government, along with Leo’s plans to ship an unprocessed DSO product and concerns about the process of handing over Mali’s 10 percent free stock, was that Leo had to prove there was no partnership between companies.
Subsequent correspondence from the Malian government claimed that the transfer of the Goulamina license to the local holding company had not followed the relevant regulatory procedures.
Mali also wanted Leo and Ganfeng to apply for a new exploration license and bring the project under the 2023 Mining Code.
Leo contested these claims and continued construction of the project, also saying that he should have been exempt from taxes and levies issued under his operating permit.
The settlement has stalled current Firefinch directors and will include a $60 million payment from Leo, with $11.5 million contributed by FFX to Leo as part of the deal.
Firefinch’s shares in the Morila mine will also be transferred to Mali’s state-owned mining company.
In return the title to the project has been secured and the dispute over the “irregularity” of the transfer settled, permits will be issued for the project and the proponents will be exempted from customs and duties during the rest of the construction phase.
The first gathering is expected in the September quarter.
This content first appeared on stockhead.com.au
At Stockhead, we tell it like it is. While First Lithium was a Stockhead advertiser at the time of writing, did not endorse this article.
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