Running discussion on SP, page-29853

Maybe we need a funding thread, as this is an important discussion to have. To have a proper debate, maybe we need to think about what we are currently dealing with on a structure basis, and transpose how funding will work. My view is that without Offtakes funding is unlikely because of ownership structure IMO. In part, in my own mind it is drawn from the structure we are dealing with.

Manono ownership
1. Manono is held in a JV arrangement between AVZ (65% currently but could got to 70%) DRC Governmet (currently 30%, but could go 25%) and Dathomir (5%). The DFS relates to this project.
2. In terms of surrounding tenements AVZ owns 100% of those.

Project funding
1. A key question is who will be stumping up the initial capex?
2. Is the capex spend based on i.) project ownership share with or without tax holidays/SEZ or ii.) does AVZ fund the lot and get a tax holiday/SEZ benefits or iii.) does AVZ /Dathomir fund it and DRC Government funds nothing but provides tax concessions/SEZ benefits as compensation etc

Assessment: Who bears what and how much will impact funding options IMO from bank finance to what others are suggesting herein been private financing to syndicated financing if AVZ is required to stump all the monies but owns only 65% of the project. Obviously tax concessions help btw.

2. Australian JV arrangements in lithium - take SQM/KDR or even Mt Marion will see capex funding based on equity share, so easier IMO for bank lending in that regard, noting the entities themselves are backed by income producing assets elsewhere (unlike AVZ who does not currently have income producing assets but has significant potential to derive profits from those assets as per the DFS). The above is an important question to the finance question btw, but if AVZ is required to fund the bulk of the capex - i.e. greater than 90%, then it will need to have all its assets as security, albeit as an entity that does not have income producing assets IMO it will need Offtakes IMO IMO.

Question to @Royal_Viking how doe the above in your opinion impact financing from syndicated players - is that why you are thinking finance on that basis?. Will ta private syndicate seek (guarantees on) financing through Dathcom or AVZ? A renowned bank will probably ask the same questions, I suspect IMO

Traditional JV arrangements
1. Projects can be developed in the following ways:
i.) Incorporated JV - that is the entity is a tax paying entity and all profits from the project are split based on share ownership. I have a strange feeling, Mt Marion operates under an incorporated JV structure.
ii.) Unincorporated JV but joint selling - ineffect all contracts are all co-signed by the JV entities and costs, revenues and profits are shared on a JV shareholding basis and they pay tax on their own 'head entity' basis - the NWS LNG project in the past operated like this. If Mt Marion doesn't operate under an incorporated JV structure it operates like this IMO because they publish the price received on their sales.
iii.) Unincorporated JV and separate selling - the JV allocates costs only of production to each JV partner based on project share, but each entity enters into there own contracts with end customers based on their project share and book their own revenues and profits from those sales to themselves, and the other JV partners have little idea what the JV partner is selling their product for price wise. Most Australian LNG projects operate like this btw.

Assessment: My gut feel is that Manono will operate under an incorporated JV structure. This has implications for funding options IMO as well when you relate that back to teh initial question of who funds capex?.

Equity for Offtakes or just Offtakes:
1. A number of the Australian lithium producers, who have 100% ownership of projects, entered into these types of Agreements - equity, been a stake in teh company, for Offtakes.
(Note and a separate issue: Similarly JV arrangements operated on a similar principle except, rather than an entity having a stake in the ASX listed company itself, they took a stake in the project itself in a JV arrangement for that project (i.e. SQM initially with KDR for Mt Holland, Ganfeng and NeoMetals with Min Resources for Mt Marion, Albermale with Min Resources in Wodgina etc). Note: these JV players operate either in downstream or upstream markets, noting Albermale operates in both.)

2. Some projects are developed by what we call trading entities and the miner - for example, in a Brazil vanadium project I recall Glencore stumped capex monies or financing but in return it had a 6 year full project production Offtake Agreement and it was Glencore who had the end contract with end customers. This can also be a funding option, but I doubt this is one been contemplated as not in our interests (i.e. Offatke Agreement for full production with a trading entity who has the Offtakes with end customers with project finance attached etc). In note teh vanadium project did not renew teh contract when it expired btw.

3. I suspect the equity for Offtakes will be with Dathcom as the legal and tax paying entity of Manono assets, albeit negotiated by AVZ. On that basis, equity for Offtakes involves either: i.) a stake in Dathcom itself or a stake in AVZ itself.

4. Just straight Offtakes with no equity will IMO be with Dathcom also, albeit negotiated by AVZ. If ithis does happen, this opens up t bank lending options (my view) or private consortium funding option (other's views)?

How you view the questions above, IMO determines you might sit, but I feel it will be equity for Offtakes or Offtakes with bank lending or now that I have thought more about it a new entrant into Dathcom providing funding (likely to be initial foundation customer). And one funding option is Offtakes with prepayments, albeit what that means is taht the foundation customers are given 'concessions' on their sales unlike later players in return for the prepayment that helps fund (some) capex.
Refer: https://www.wrightlegal.com.au/offtake-prepayment-financing.htm

Obviously, how these matters are dealt with will determine funding. Obviously we can speculate all we like, but at the end of the day, the demand will be there, it is how AVZ plays poker with a straight face that matters, and doing so by ensuring we get to market at the right time to take up the opportunity.

VBs downed. Return to sitting on fence with splinters LOL, albeit 70% suspect funding will be by Offtakes, followed by bank lending LOL. Likely to be wrong as always.

All IMO