Counter-cyclical buy by AVZ increases stake in Manono
As the lithium market suffers through a period of strong supply and weak demand, AVZ Minerals has secured rights to another 10% of the potential world-scale Manono lithium and tin operation in Democratic Republic of Congo for US$15.5 million.
AVZ Minerals: DRC’s lithium front-runner on the cusp of development
AVZ Minerals’ will soon reach the turning point at its Manono lithium and tin project in the Democratic Republic of Congo (DRC) as it begins development of the country’s most significant lithium discovery.
Chantelle Kotze speaks to MD Nigel Ferguson about how it all came together.
Four years since the acquisition of the Manono project in December 2016, around the same time that electric vehicles became mainstream and demand for lithium resultantly picked up, AVZ Minerals has progressed at pace with project development.
After making a name for itself on the back of record pegmatite intersections of between 299 m and 341 m at Roche Dure – one of two main pegmatites within Manono, Carriere de l’Este being the second, the company hasn’t disappointed and has worked diligently towards the Manono definitive feasibility study (DFS), which it released in April 2020.
The highly-anticipated DFS proved that both the 2 Mtpa and 5 Mtpa scoping study models were feasible and that the Manono project would not only be economically viable, but highly robust with strong financial metrics.
Despite the positive 4.5 Mtpa DFS outlook, Ferguson says that the duration and effects of COVID-19, are likely to be used as a yardstick to measure which of these development models would be most feasible going forward.
The DFS indicated that Manono could produce a product mix of 700 000 tpa of lithium spodumene concentrate, or SC6 concentrate (containing 6% lithium) and 45 000 tpa of highly-valuable primary lithium sulphate (containing 80% lithium) over a 20 year life of mine based on a 4.5 Mtpa operation.
The addition of the primary lithium sulphate product will see 153 000 tpa of the 700 000 tpa of SC6 concentrate being used as feedstock to produce 45 000 tpa of primary lithium sulphate.
To do this, the DFS plots out a plan to develop Manono in potentially two stages – the first stage entailing a dense-media separation (DMS) recovery producing SC6 concentrate, with an added calcining circuit to produce a lithium sulphate and the second stage combining additional processing by adding a carbonate or hydroxide circuit to the plant, to produce the lithium carbonate or hydroxide product.
A cost US$179 million, the lithium sulphate plant will be easily repaid by producing a higher value lithium sulphate for use in hydroxide conversion plants – a product that fetches a much higher price of about US$7 400/t, compared to SC6 prices of around US$430/t as modelled in the DFS.
The addition of the primary lithium sulphate concentrate could result in a massive transportation cost saving, as transport currently makes up a significant portion of the company’s operating costs, explains Ferguson.
AVZ Minerals therefore aim to increase the ratio of primary lithium sulphate production while decreasing the amount of SC6 product as the project progresses.
Moreover, the processing flow sheet also allows for the recovery of an estimated 828 tpa of tin as well as additional tantalum and niobium from hard rock ore, plus an additional estimated 600 tpa of alluvial tin and tantalum, which will be secured from local artisanal miners.
Of this total product mix, AVZ Minerals expects the SC6 concentrate to account for 50% of revenue, the primary lithium sulphate to account for 45% of revenue and the hard rock tin to account for 5% of revenue.
The tantalum and niobium credits have not been modelled as yet, says Ferguson.
Expected to cost US$ 545.5 million (including a 10%, or $49.59 million contingency) to build, the Manono project would have a post-tax net present value of US$1.028 billion and an internal rate of return of 33.15%, with life of mine net profits after tax estimated at US$3.779 billion on a 100% basis.
The pay-back period, post tax is 2.25 years.
AVZ Minerals is currently underway with encouraging project finance discussions with several Australian and international financing groups, from which the company received a number of preliminary indications of possible financing structures including bonds, equity and loan instruments.
Offtake agreements are also being negotiated with several companies.
The company’s major shareholder, Yibin Tianyi, is showing interest in securing significant tonnages of SC6 product, while several other lithium convertors are either approaching AVZ or vice versa, regarding securing offtake agreements not only for the lithium products, but also for tin, tantalum and niobium, says Ferguson.
Moreover, he believes that the 46 000 tpa of primary lithium sulphate produced will be suitable for off-takers who are looking to reduce their own supply chain cost through buying already processed lithium products to reduce their own operational working capital risk.
As the company edges closer towards development, it issued pre-mining infrastructure tender packages worth approximately US$300 million in June.
The tenders, which will be awarded once AVZ Minerals makes a final investment decision to mine at Manono, includes the process plants EPC package, the Kabondo-Dianda intermodal staging station, diesel storage facilities and supply package, site buildings and enterprise resource systems.
“Final pricings on the various tenders are expected back this quarter at which point we expect to be in a position to award these contracts, pending COVID-19 travel restrictions being lifted and a financial investment decision being reached,” says Ferguson.
SEZ discussions progressing well, indicating positive upside at Manono
Following the execution of a binding MoU with the Ministry of Industry for the development of a Special Economic Zone (SEZ) in the Tanganyika Province, Ferguson says that discussions with the DRC government are progressing well.
The purpose of the MoU is to set up the terms for collaboration and negotiation between the Ministry of Industry and AVZ Minerals with a view to establishing the ‘Manono Special Economic Zone’ in the Tanganyika Province and the development of basic infrastructure within the zone.
Development of the Manono project and associated infrastructure for mining operations including the export of lithium, tin and tantalum product, would be at the core of these developments.
The defined geographical area of the SEZ will initially include all essential infrastructure such as water, power (the Mpiana Mwanga hydropower facility) and roads including the Manono licences to facilitate a successful mining operation.
The company expects some of the applied taxes, customs and duties in the modelling to be waived or significantly reduced under the AVZ and DRC Government’s Special Economic Zone agreement, which is still currently being negotiated.
Tin and tantalum– two of the 3T minerals (tin, tantalum and tungsten) – represent beneficial future by-products of lithium ore processing at Manono.
As a result, AVZ Minerals obtained preliminary iTSCi membership in June, which is aimed at assisting upstream companies to implement OECD guidelines, thereby enabling continued access to international markets and economic and social development for miners and communities across large areas of Central Africa.
The company’s iTSCi membership aligns its practices with OECD guidelines on 3T supply chain responsibilities and the American Dodd Frank Act 1502 for conflict mineral and metals supply chain management.
Ferguson says that by joining and being recognised by the iTSCi due diligence and traceability programme and its adherence to the OECD due diligence guidance for Responsible Supply Chains is a key part of AVZ’s focus on local community and government engagement, a guidance that is more targeted towards artisanal mining.
Moreover, AVZ Minerals is further ensuring responsible sourcing and supply of tin and tantalum by formalising the mining of artisanal-mined alluvial tin and tantalum deposits on its mining lease.
It is the company’s intention to create a local artisanal mining co-operative of registered and approved artisanal miners in order to create as many jobs as possible to local Manono people who will not otherwise be able obtain jobs at Manono and to legalised the mining activity under its mining licence.
By doing so, the artisanal miners can be assured of an income, while AVZ Minerals would ensure that their health and safety would be taken care of and ensure that no underage mining takes place.
AVZ Minerals would then secure the tin directly and exclusively from compliant miners who have authorisation to work in artisanal areas on the mining lease. This will enable the company to comply with all the conditions required to meet international ethical standards of mining.
