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From AFR
Tom Richardson
Markets reporter and commentator
Feb 17, 2023 – 4.46pm

Chinese mining giant in secret Africa lithium grab

One of the largest state-owned mining companies in China made a secret bid to seize control of a major African lithium deposit from ASX-listed AVZ Minerals months before officials in the Democratic Republic of Congo stripped the Australian group of its license.

Correspondence from Zijin Mining to a DRC state-run firm known as Cominiere sent on October 21 shows the Chinese company requested it be assigned the northern-eastern part of the Manono project, which AVZ claims a significant ownership interest in.

Shares in AVZ, which investor excitement propelled to a market valuation of $4.6 billion, have been suspended since May amid increasing tensions between the company and Chinese interests racing to secure access to key raw materials for the clean energy transition.

Zijin’s claim to the project gained traction in late January after DRC’s Minister of Mines ordered AVZ’s license at Manono be revoked. The lithium deposit is expected to be twice the size of Australia’s richest, Greenbushes in Western Australia, and could be the largest hard rock deposit in the world.

Zijin did not respond to requests for comment on Friday. In the letter, Zijin said it would not request the return of a $US33.4 million ($48.7 million) payment it had made to Cominiere in 2021 for a 15 per cent interest in Manono if the government agreed to a new joint venture excluding AVZ.

AVZ last month said it was seeking legal advice regarding the cancellation of its licenses and “expediting discussions to clarify the intentions” of authorities in DRC. The company’s managing director, Nigel Ferguson, said he “apologised for the continued frustration being felt by shareholders and our cornerstone investor”. It declined to comment on Friday.

In a separate letter obtained by The Australian Financial Review, Mr Ferguson on February 3 wrote to the Minister of Mines protesting the decision to revoke the license, describing it as a “political decision”.

In the letter, in French, Mr Ferguson said the AVZ joint venture had not been respected, and alleged the decision to revoke the license – a “shock” and “surprise” – was invalid.

Mr Ferguson wrote that he hoped the government could “settle this conflict ... rather than paralyse this great historical project which nourishes the hope of the Congolese people”.

In May, AVZ requested a trading halt and first disclosed its ownership rights to the Manono project had been challenged by Zijin, Cominiere, and a Seychelles entity named Dathomir.

Fight for control

On February 8, theFinancial Reviewrevealed Mr Ferguson authorised a $US1 million ($1.45 million) cash payment to a DRC businessman and political consultant named Marius Mihigo in exchange for his help to obtain a mining license for AVZ.

News of the payment and a plan to offer another $US3 million in cash and $US2 million in shares as a success fee to Mr Mihigo alarmed some members of AVZ’s board of directors, leading them to engaged DLA Piper to conduct a corporate governance review of the plan and the company’s anti-bribery and anti-corruption policies.

“Despite open questions about his suitability as a facilitator, he appears to be receiving a fee that is well above market rate for his services,” a report commissioned into the engagement, delivered to the board, read. However, the report found no red flags against Mr Mihigo as the beneficiary of the payment and said it was acceptable on that basis.

The review advised AVZ to abandon the success fee, found no breach of Australian laws and recommended management attend anti-bribery and anti-corruption training.

AVZ, in a statement, confirmed Mr Mihigo’s engagement, adding he had been employed with “advising on conducting business in the DRC ... managing government and key stakeholder relationships in country, and security arrangements within the DRC”.

“Before and during Mr Mihigo’s engagement, AVZ has carried out appropriate independent due diligence into Mr Mihigo, which disclosed no material probity issues or red flags,” the company told investors last week.

AVZ’s largest shareholders are Chinese mining groups and it’s still trying to secure a $US240 million investment from China’s Suzhou Cath Energy Technologies for a 24 per cent stake in the project. It’s due to provide an update on its trading halt and the status of the proposed deal by February 28 and it maintains it still owns a 75 per cent ownership interest in Manono.

The company also faces a potential class action funded by Omni Bridgeway which allegesit failed to adequately disclose informationwhen making positive statements about its ownership of Manono over the second half of 2021, and engaged in conduct that was misleading or deceptive. AVZ is defending these claims and the action.

END