AVZ Minerals Ltd (ASX:AVZ) has signed a binding offtake agreement with Shenzhen Chengxin Lithium Group Co for the supply of spodumene concentrate (SC6) from the Manono Lithium and Tin Project in the DRC.
As a part of the agreement, Chengxin has agreed to purchase up to 180,000 tonnes of SC6 annually for an initial three-year term following the start of production with mutually agreed options to extend.
Chengxin is a leading global battery materials producer that is continuing to expand its lithium hydroxide production capacity.
The news was cheered by investors sending shares 15% higher to A$0.23, approaching the three-year high of A$0.235 set earlier this year while the company's market cap sits at approximately A$563.6 million.
“A massive endorsement”
AVZ’s managing director Nigel Ferguson said: “We are very pleased to conclude our discussions with Chengxin and to sign our second lithium offtake agreement.
“This agreement takes offtake commitments to more than 50% of the Manono Project’s initial saleable SC6 production, which is a massive endorsement for our project.
“We are well advanced with our other offtake discussions, not only for our lithium products but also for our tin and tantalum materials.
“These will be pursued diligently over the coming weeks and I look forward to updating the market once these agreements are finalised.”
Terms of agreement
Key terms of the company’s agreement with Chengxin are:
- Initial three-year term, with extension options by mutual agreement;
- The supply of up to 180,000 tonnes of spodumene concentrate per annum;
- Pricing USD/CIF, China determined by a formula which references various published market prices of lithium carbonate and lithium hydroxide products and underpinned by an agreed floor price;
- Shipment payments via a documentary letter of credit; and
- Termination rights including for breach of the material terms of the Offtake Agreement including non-payment or failure to supply or take annual quantity commitments.
Large lithium hydroxide producer
Chengxin is set to become one of the largest lithium hydroxide producers in China, with an initial annual production capacity of up to 25,000 tonnes of lithium carbonate and 15,000 tonnes of lithium hydroxide.
Future staged expansions are expected to increase production to approximately 70,000 tonnes per annum.
The company will require approximately 560,000 tonnes per annum of SC6 to satisfy its internal demand after commissioning its planned expansions.