Element 25 Limited (ASX:E25) (FRA:QFP) has agreed key commercial terms to sell 50% of the manganese ore produced from the second stage of the Butcherbird Project development to Singapore-based Semeru Energy Ltd.
As part of the arrangements, Semeru will provide US$5 million in project finance to fund the company’s expansion plans as detailed in the expansion pre-feasibility study (PFS) announced last week.
The non-binding term sheet provides an exclusivity period until June 30, 2021, during which the parties expect to finalise definitive agreements, which will include conditions precedent in relation to due diligence, board approvals, shareholder approvals and any other regulatory approvals that may be required.
Offtake deal
The non-binding term sheet provides for a minimum allocation of 175,000 tonnes per annum and a maximum allocation of 200,000 tonnes.
On a five-year term with provisions for renewal subject to the satisfactory performance by Semeru against agreed key performance indicators (KPIs), the details of which will be negotiated and documented in definitive agreements, still to be drafted.
The offtake terms include obligations on Semeru to achieve the highest price for E25’s manganese concentrate and for E25 to direct that concentrate be placed with certain clients to achieve the optimal pricing.
Semeru will have the right to purchase ore from E25 at a price such that it can book a net margin of 2.4% of the cost and freight (CFR) price achieved.
Project finance
The project finance, once drawn down, will be secured over agreed mechanical equipment and other project assets to be documented in the definitive agreements.
Element 25 is not required to provide security over its mining tenure or over other assets not specifically related to the project operations.
The funds may only be applied to the project’s expansion of manganese production to fulfil the company’s obligations to meet its commitments under the agreed offtake terms.
The debt will attract a coupon rate of 6.5%.
Further, a royalty at 1.5% is payable on the sale of up to 175,000 tonnes of product while the debt is outstanding and then for 15 years after the debt is repaid.
Semeru focus on natural resources
Semeru recently participated in E25’s capital raising by way of a US$1 million investment.
Headquartered in Singapore, Semeru is a private equity investment firm operating across the Asia-Pacific region, with a focus on the natural resources sector.
It deploys capital via equity and debt to companies and directly into projects with a risk profile reflecting late-stage exploration through to development.
Within the Semeru group of companies, Semeru Trading operates as an independent commodity trader with a focus on base metals and bulk commodities.
Semeru Trading maintains a capacity to provide offtake facilities in concert with Semeru’s investment funds on a case-by-case basis.
Butcherbird Manganese Project
The Butcherbird Manganese Project is a world-class manganese resource with current JORC resources in excess of 263 million tonnes of manganese ore.
E25 recently completed a PFS with respect to developing the deposit to produce manganese concentrate for export to generate early cash flow with a modest capital requirement.
The outstanding economics and low capital hurdle of less than A$15 million will allow E25 to develop the project in a relatively short timeframe.
This is envisaged as the first stage of a staged ramp-up for the project and has the advantage of potentially providing early cash flow to strengthen its balance sheet and assist in funding of the larger high purity manganese production hub, which is the subject of a parallel, complementary workstream.
E25 plans to integrate renewable energy into the power solution to minimise the carbon intensity of the project, as well as reducing energy costs, putting Butcherbird at the forefront of sustainable metal production.