Hainan Mining to Spend $112 Million for Control of Mali Lithium Mine

Hainan Mining, an affiliate of Chinese conglomerate Fosun International plans to purchase a majority stake at a Mali lithium mine from Kodal Minerals (a British-listed firm) for USD112 million.

Hainan Mining will acquire a 14.81% stake in Kodal Minerals, and 51pc in Kodal Mining UK. The Hainan-based company made this announcement on Thursday.

After the transaction, Hainan Mining will provide a USD 5.7 million shareholder loan for Kodal Mining UK and take over the development and operation of the mine project, according to the agreement.

(Kodal Minerals holds 100% of the Bougouni lithium project. The Mali government has the right to a free carry on 10 of the project and an option to acquire a further 10%)

  • Kodal Minerals has accepted an offer by Hainan Mining for $100m of funding for their wholly-owned Bougouni lithium project in Mali.
  • Fosun holds a 45.9% stake in Hainan Mining alongside the province of Hainan which holds around 20% of the company.
  • The $100m investment is being made into a new joint venture vehicle which will be 51% owned by Hainan with the work being managed by Kodal Minerals.
  • $100m is more than sufficient to advance the DMS ‘Dense Media Separation’ plant being planned by Kodal.
  • Capex for the DMS is estimated at $65m leaving $35m to working capital, further extension drilling, related exploration and cover cost overruns etc….
  • The DMS will start processing material from the Ngoualana resource which has separated well in DMS testing.
  • The Bougouni license area contains multiple pegmatite veins offering ample opportunity for further discovery.
  • Bougouni joint venture: the new Bougouni joint venture will be managed by Steve Zaninovich (Kodal operations director) who will run the day-to-day activities and oversee the construction of the DMS plant.
  • Subscription: Hainan have also agreed to subscribe for $17.75m worth of Kodal Minerals shares at a 108% premium to last night’s share price giving Hainan a 14.8% stake in Kodal Minerals.
  • Suay Chin also have a right to also subscribe for shares to maintain their 14.18% stake in Kodal Minerals rather than being diluted down by Hainan.
  • Kodal will use the $17.75m to further define and explore their gold portfolio as well as assess other opportunities in the region.
  • Construction: The new DMS plant should take around 12 months to complete with geotechnical drilling already underway for the plant foundations.
  • Production: Hainan have tested some 600kg of spodumene samples in China as part of their due diligence
  • Timing: The $100m of funds are expected to be paid into the new joint venture with the subscription for $17.75m worth of new shares paid at the same time. The long-stop date for the payment is 30th April.
  • Conditions: The deal is subject to the creation of the internal reorganisation of Kodal Minerals to put the Bougouni asset into the joint venture subsidiary Kodal Minerals UK and Approvals from the Chinese government. The scale of the deal is relatively small by international mining standards and we think this should require approval at the regional level.
  • Project value: .
    • Modelling shows >$1bn of revenues over 4 years .
    • NPV $420m at a 7% discount rate on a post-tax basis.
    • Assumes:  Lithium price of $2,080/t spodumene concentrate.
    • Production of 120,000tpa
    • Trucking: 10 trucks carrying 350t per day at a cost of under $100/t

Conclusion: The Hainan deal highlights the desperation of lithium processors and their client Gigafactories to lock in lithium supply. Kodal’s decision to go for a quick 12-month DMS plant has attracted >$100m of financing with a don’t-spare-the-horses deal to get lithium concentrates to China for further processing. This is a great deal for Kodal and is also a great deal for Hainan which is locking in yet another supply source for China Inc.

Spodumene is the main product of the Bougouni mine. It has more resources totalling 21.31 million tons in its three mining areas, and an average grade of 1.11pc lithium oxide.

Hainan Mining, which is primarily involved in iron ore mining, announced its entry into lithium processing last August. It stated that it would invest CNY1.1 billion (USD162 million) in a 20,000-ton-per-year battery-grade lithium hydroxide manufacturing project in Hainan province. Construction will take anywhere from one year to 18 months. The plant would use spodumene, an Australian raw material.

After soaring nearly 51%, Kodal Minerals (LON: KOD) was up 2.5pc at 37 British pennies (46 US cents).

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