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Zijin’sAVZ move opens new front in race for Africa riches

Nick Evans

1043 words

12 May 2022

The Australian

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Australian

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English

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The corporate shadowwar over China’s access to Africa’s vast deposits of critical minerals hastaken a fresh twist, with ASX-listed AVZ Minerals suspendingtrading amid claims the company could lose control of a major lithium projectin the Democratic Republic of Congo.

AVZ says it owns 75per cent of the giant Manono lithium deposit in the DRC, courtesy of a complexset of deals with the deposit’s original DRC-based owners dating back to 2016.

DRC-based Cominiereholds the remaining 25 per cent stake, but must cede a 10 per cent stake to theDRC government as a condition of the grant of the mining licence for thedeposit.

But AVZ’s claim tocontrol of Manono has now been challenged by Hong Kong-listed Zijin Mining, a state-backedcompany that has been among China’s most aggressive movers on lithium and othercritical minerals over the past few years.

In a release lastweek, Zijin claimed to have bought a 15 per cent stake in Manono from DRC-basedCominiere, one of the original owners of the deposit, in September last year.

AVZ hotly disputesthat claim, saying it had pre-emptive rights to Cominiere’s holding in thedeposit, and any claim from Zijin was “invalid and of no force or effect”. But,with Zijin pressing its claim in arbitration proceedings in the InternationalChamber of Commerce in Paris, AVZ suspended trading in its shares on Thursday as thecompany tries to sort out the mess.

At risk is control ofthe massive lithium deposit, given the ASX-listed company had already plannedto sell 24 per cent of the project to a second Chinese company – Souzou CATHEnergy Technologies – in exchange for funding to back development of the mine.

Under AVZ’s plan for ownershipof the deposit, the ASX-listed company would sweep up Cominiere’s 15 per centremaining holding, sell down to CATH and emerge with a 66 per cent stake in thegiant lithium deposit.

But Zijin claims AVZnever held legal control of 75 per cent of Manono, saying its 2021 deal withCominiere means AVZ effectively holds only 60 per cent of the deposit. Withanother 15 per cent still in play through Cominiere – and presumably bound tothe Chinese state-backed mine – and the CATH selldown still on the cards, AVZcould wind up with a minority interest in Manono as small as 36 per cent.

While the murkydealings will ultimately be sorted out behind closed doors in Paris, Zijin’shardball tactics extend China’s campaign to win a dominant position in the raceto develop Africa’s vast mineral wealth.

AVZ is only thelatest of the run of African mineral rights lost by Australian companies in thefiring line in Africa, as China presses ahead with its long-held desire tocontrol more of the resources needed to feed its massive industrial heartland.

African iron depositshave been at the centre of those plans for more than a decade, as China looksto break its dependence on exports from the Pilbara.

The entry of aChinese state-backed consortium to half of the giant Simandou iron ore depositin Guinea has effectively forced Rio Tinto to accelerate development of itsportion of the long-stalled project – along with its own long-term partner,Chinese state-controlled major Chinalco.

Despite itsreputation as a “Pilbara killer”, Simandou’s output will not damage the Pilbarain itself. But hardball games elsewhere in West Africa offer China theopportunity to open up another 100 million-tonne-a-year province in Cameroonand the Republic of Congo.

In 2020 the Republicof Congo moved to strip Australian-based Sundance Resources of its right todevelop the Mbalam-Nabeba deposit, which straddles the border with Cameroon.

At the same time itconfiscated nearby deposits controlled by ASX-listed Equatorial Resources andUK-based Avima Iron Ore. Together the cluster of iron ore projects could easilysustain a new 100 million-tonne-a-year Africa iron ore province.

Disputes over thosestripped rights have also entered arbitration, but only last month Sundance was forced toseek urgent injunctions to prevent Cameroon from handing its iron ore tenementsin the country to Chinese interests. And the increasing push to end reliance onfossil fuels has opened a new front in the shadow-boxing over control ofdeposits, as so-called critical minerals – rare earths used in hi-tech devicesand battery-making materials such as lithium – become an increasingly importantasset.

Only last month thehead of US military forces in Africa, General Stephen Towsend, warned a UScongressional committee that the superpower was losing the battle for influencein Africa to China – with potentially strategic, as well as economicconsequences. “These resources are the key supplies that America relies on toproduce 21st century technologies and transition to clean energy, includingmobile phones, jet engines, electric-hybrid vehicles, and missile guidancesystems,” he told a defence committee.

“The winners andlosers of the 21st century global economy may be determined by whether theseresources are available in an open and transparent marketplace or areinaccessible due to predatory practices of competitors.

“China continues tofocus on the long game, as its dominant position in African markets has allowedit to buttress autocracies and influence global political norms, technologicalstandards and commercial practices while offering an entry point for theirmilitary.” Zijin’s move on Manono is only one of the company’s recent movesinto critical minerals. Its acquisition of Toronto-listed Neo Lithium causedcontroversy in Canada after regulators waved through the deal, despite havingpreviously signalled it would apply higher scrutiny thresholds for criticalminerals acquisitions under foreign takeover rules. Similarly, ASX-listed Peak Rare Earths is stillwaiting for a response from Australia’s Foreign Investment Review Board overallegations China’s Shenghe Resources breached Australian takeover laws in itsacquisition of a 20 per cent stake in the company – which controls the Nguallaproject in Tanzania, one of the biggest undeveloped rare earths deposits in theworld.

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Chinesegold and copper mining giant Zijn Mining has revealed that it wants to takeAustralian company AVZ Minerals to international arbitrationowner a 15% stake in the Manono Lithium Mine in the Democratic Republic ofCongo.

The Manono mine is owned 100% byDathcom Mining SA. As things stand, AVZ owns a 75% of the company andstate-owned La Congolaise D’Exploitation Miniere SA (Cominiere) the other 25%.

AVZ is planning to sell 24% of theenterprise to Suzhou CATH Energy Technologies, in exchange for a $240mninvestment. Furthermore, Cominiere is planning to cede 10% of its ownership tothe DR Congo government.

However, Cominiere has now revealedthat it has sold its remaining 15% to the Chinese Jin Cheng Mining Company, asubsidiary of Zijn Mining. AVZ says it has the rights to acquire that 15%,putting this stake in dispute.

“Any purported transfer of the 15%interest to Jin Cheng would be a material breach of the pre-emptive rightscontained in the existing Dathcom Shareholders Agreement, invalid and of noforce or effect,” AVZ said in a statement.

Zijin has called for arbitration.If a court rules in favour of Zijin, it is likely that the Chinese company willteam up with fellow Chinese enterprise Suzhou CATH Energy Technologies and willhold a significant stake in the mine.

Manono is “one of the mostimportant new mining projects in the world that will significantly contributeto the global green energy transition”, according to AVZ. Lithium is underincreased demand because of the growth of lithium-ion batteries for electricvehicles.

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