Kodal Minerals PLC (AIM:KOD) said a major funding package of US$117.75mln has been agreed with Hainan Mining Co Ltd that will provide full financing for the development and start of production at the Bougouni lithium project in Mali.
In response, shares in Kodal soared 51% to 0.36p, a nine-month high, in morning trade.
Under the conditional agreement, Hainan Mining will invest US$100mln to take a 51% stake in Kodal's newly incorporated UK subsidiary, Kodal Mining UK Ltd (KMUK). KMUK will become the shareholder of a new Mali mining company to be formed by Kodal to own and develop Bougouni.
"This is a great outcome for Kodal following a competitive and complex process to ensure we received appropriate recognition for the underlying value of this asset,” said Kodal chief executive Bernard Aylward in a statement. “This investment provides us with a great opportunity to fast track to production of spodumene concentrate in a very strong market.”
KMUK would be fully funded for the US$65mln capital cost of the Dense Media Separation development scenario at Bougouni and is targeting delivery of first production within 12 months of receipt of funds.
Kodal said the additional funds will be used to increase the JORC-compliant resource estimate at Bougouni from its current 21.3 million tonnes at 1.11% lithium oxide and extend production beyond the initial four-year mine life.
“The level of funding will allow us to fully fund the dense media separation plant with mining planned to commence at the high-grade Ngoualana deposit as well as to support major drilling and exploration campaigns to discover and define additional lithium mineralisation to seek to increase the life of the mining operation at Bougouni.
"The Hainan Group have completed extensive due diligence of the Bougouni project and confirmed the potential of this quality project leading to this new partnership," added Aylward.
Kodal’s new largest shareholder
In addition, Hainan will complete an equity subscription into Kodal for US$17.75mln at a price of 0.5p per share, a 108% premium on yesterday’s closing share price.
Together with the KMUK funding, Hainan will become Kodal’s largest shareholder with a 14.8% stake.
The proceeds from the subscription will be used to advance Kodal’s portfolio of gold exploration assets in Mali and Ivory Coast and assess new exploration and development opportunities in West Africa, said Kodal.
Closing of the funding transactions is conditional on approval of certain authorities and regulators in China.
Shanghai-listed Hainan's core businesses are iron ore, through its Shilu iron ore mine, and oil and gas. The investment in Kodal is Hainan's first entry into the mining and processing of hard rock pegmatite-hosted mineralisation.
"This investment in Kodal and Kodal Mining UK Ltd is in line with Hainan Mining's strategy of improving the level of resource and feedstock security, and commencing the building of our lithium hydroxide supply chain,” said Liu Mingdong, chairman of Hainan Mining.
Fosun International Ltd is the controlling shareholder of Hainan with a 45.9% interest.
Kodal’s Aylward noted the positive outlook for lithium: “The lithium sector remains very buoyant with high demand and market prices for spodumene concentrate. The demand is supported by the increasing take-up of electric vehicles ('EVs') and the demand for secure supply is very high.”