KGL Resources Ltd (ASX:KGL) is trading higher after entering into a binding sales agreement with Glencore International AG for the sale of 100% of the copper concentrate to be produced from its high-grade Jervois Copper Project in the Northern Territory of Australia.
The sale agreement is evergreen and will continue beyond the minimum five-year term after commercial production until either party terminates it by giving a two-year prior notice.
Looking ahead, the Jervois Project is fully approved and poised for development, with the feasibility study nearing completion and to be delivered within the June quarter of 2022.
Shares have been as much as 17.8% higher intraday to A$0.53.
“Major milestone”
KGL managing director Simon Finnis said: "The execution of the binding offtake agreement with Glencore is a major milestone for KGL and the Jervois Project.
“It brings certainty to the sales program and Glencore is a well-credentialed and bankable counterparty.
“Having benchmarked pricing in this strong commodity environment is comforting.
“This agreement is a key component of KGL's plans to procure funding for the development of Jervois.
“Work is continuing on the feasibility study which will incorporate the terms of this agreement, as well as the new resource data from the Bellbird, Reward and Rockface deposits."
Key terms
The agreement is subject to customary terms and conditions, including processes for assaying, weighing, sampling and moisture determination in relation to the concentrate, and contains relevant force majeure clauses.
Notably, KGL will deliver the copper concentrate to Glencore’s Mount Isa copper smelter in Queensland.
The current schedule will be confirmed as part of the feasibility study, and Final Investment Decision has the project in the development phase this year, however, the sale contract is conditional upon finance being secured no later than September 30, 2025, or commercial production by no later than December 31, 2025.
Project benefits
The key benefits the offtake agreement will bring to the project include:
- Materially simpler logistics chain for the project – reducing emissions;
- Significant working capital benefits, particularly in the ramp-up phase;
- Provides certainty of concentrate sales for the project; and
- Sales within Australia support local and broader economies.
Finnis adds: "We expect this will result in favourable annual production and mine life outcomes.
“It is also very satisfying to us to be selling our material within Australia, which obviously assists with the Australian economy, supports the local area and de-risks our project by eliminating the need for rail and ocean freight transportation of our finished product.
“We should also not discount the benefits this brings to our environment by minimising transportation and therefore emissions.
“We believe this agreement is a validation of our project and thank Glencore for agreeing to purchase our copper concentrate.
“We very much look forward to delivering into the contract in due course.”