AVZ Minerals signs first five-year offtake agreement with Ganfeng Lithium

Mineral exploration company AVZ Minerals (ASX: AVZ) came out of a trading halt this morning to announce its first ever offtake agreement for its Manono Project in the Democratic Republic of Congo (DRC).

AVZ has signed a long-term offtake partnership with GFL International, a subsidiary of China’s largest lithium compounds producer, Ganfeng Lithium.

In a statement to the market, AVZ said it had penned an offtake agreement for spodumene concentrate with GFL, for an initial five-year term including an option to extend for a further five years.

The mineral company’s managing director Nigel Ferguson explained that one of the key highlights of the agreement is Ganfeng’s commitment to buy 30% of the Manono Project’s saleable yearly tonnage and described the deal as a “massive endorsement” of the project.

Agreement key terms

The five-year offtake agreement announced today stipulates an annual supply of 160,000 tonnes of spodumene concentrate, at a grade of 6%, from 2023.

In terms of pricing, the two parties have agreed for prices to be determined by a formula which references the pricing of lithium carbonate and lithium hydroxide, with appropriate adjustments for quality and includes a “scaled collar price mechanism”.

If the term is extended for a further five years, a review of the pricing formula may be triggered with reference to agreed market parameters, AVZ said.

Importantly, the agreement makes provisions for both parties to focus on environmental, social and governance (ESG) development.

As Small Caps reported in October, AVZ re-started geological diamond core resource drilling at its Manono lithium-tin project in the DRC after officials lifted travel restrictions the month before.

In the same month, AVZ commenced drilling at the Roche Dure pit floor with a planned total of 10 new geological holes for 1,700m, as part of a four-week drilling program.

AVZ now owns 75% of Manono while the DRC Government holds a 25% stake. In September this year, AVZ elected to increase its stake in the project to 75% by buying out a 10% stake from a Congolese entity for US$15.5 million (A$20.1 million).

Dealing with a giant

Ganfeng is a prominent global battery materials producer that is continuing to expand both its lithium carbonate and lithium hydroxide production capacity.

The company is the world’s third-largest and China’s largest lithium compounds producer and the world’s largest lithium metals producer in terms of production capacity, in 2017.

“We are very pleased to finalise these discussions with GFL and to sign our first lithium offtake agreement,” said Mr Ferguson.

“The fact we have signed our first offtake agreement with China’s largest lithium compound producer just reinforces our belief that the Manono Project is world-class,” he said.

With the offtake deal now signed and production coming online, AVL is already looking towards the horizon.

“Over the coming months, I look forward to finalising other offtake agreements which are currently under negotiation, not only for our lithium products but also for our tin and tantalum materials,” said Mr Ferguson.

“This SC6 offtake agreement with GFL will also greatly assist the company in meeting any conditions precedent that are required for our prospective financiers,” he added.