Greenland Minerals and Energy Ltd (ASX:GGG) will issue a 12.5% equity stake to a subsidiary of leading rare earth company Shenghe Resources Holding Co Ltd (SHA:600392), which has a market cap of over A$2.5 billion.
Under the subscription agreement Greenland Minerals will receive $4.625 million through the issue of 125 million shares priced at $0.037 to Shenghe.
This will be subject to approval from both shareholders and the Foreign Investment Review Board (FIRB) before November 30, 2016.
The fundamental objective of both parties is to develop the Kvanefjeld rare earth and uranium project in Greenland as a cornerstone to new supply networks.
Dr John Mair, managing director, commented: “It is widely known that Shenghe has been assessing rare earth projects globally for a number of years, so their participation is a very strong endorsement of the Kvanefjeld Project and our company strategy”.
Greenland Minerals' vision is to develop a stable, long-term source of materials for clean energy generation and energy efficient technologies.
Kvanefjeld is one of the world's most advanced rare earth and uranium projects with defined JORC compliant resources of over 1 billion tonnes containing 11.1 million tonnes of rare earth oxide and 593 million pounds of uranium.
As per the updated feasibility study, the net present value of the project is US$1.59 billion and the internal rate of return is 43.4%.
Project financing costs are US$831.9 million and the project has a payback period of 5 years.
Greenland Minerals is exploring the use of hydro‐electric power for Kvanefjeld having signed an agreement with a European multi-national conglomerate to develop a "power concept" based on renewable energy to power Kvanefjeld.
Third party financing, construction, and operation of a port of sufficient scale, accommodation for employees, power supply and supplies of key reagents would enhance strategic partner, offtake and financing imperatives. Build Own Operate (BOO) arrangements would prove a significant value driver.
Shenghe Resources Holding Co Ltd
Shenghe is a leading rare earth company with experience in all parts of the rare earth industrial chain including mining, beneficiation, metallurgy, separation, downstream processing and marketing.
Shenghe also has an extensive financial investment background and solid capital strength.
The Shenghe group:
- Controls domestic sources of rare earth ores and concentrates;
- Controls significant rare earth separation capacity in China;
- Produces rare earth metals and alloys to the highest purities;
- Produces end-use rare earth products such as polishing powders, catalysts, molecular sieves; and
- Has an established international customer base for its products.
Subscription agreement details
The agreement was signed with Leshan Shenghe Rare Earth Co., Ltd, a 99.99%-owned subsidiary of Shenghe.
The two parties commenced a dialogue in late-2015, and recognised a strong alignment of strategy, and complementary strengths at different ends of the rare earth value chain.
The agreement provides for the investment of Leshan Shenghe of A$4.625 million for 125 million shares in Greenland Minerals at $0.037, subject to shareholder and FIRB approvals, which are to be sought prior to November 30, 2016.
Shenghe unconditionally and irrevocably guarantees the obligations of Leshan Shenghe under the agreement.
Once the agreement becomes unconditional Shenghe will have the right to nominate a non-executive director to the board and will have anti-dilution rights to maintain a 12.5% position in Greenland Minerals.
This strategic relationship with Shenghe represents a major landmark for Greenland Minerals and the development of its flagship Kvanefjeld rare earths and uranium project.
With the permitting process underway, the partnership with Shenghe will help to ensure that the project is optimised to integrate with downstream processing, and that customer networks are established.
Shenghe’s leading technical expertise, processing capacity, and strong international customer base make Shenghe an ideal strategic partner for the project.
Shenghe’s experience and skills provide the means to maximise the core strengths of the Kvanefjeld Project, which include scale, processing advantage, and direct shipping access.
The partnership will aim to integrate Kvanefjeld’s rare earth output with existing and new downstream rare earth processing capacity, to generate a cost-competitive and highly scalable rare earth business.
Greenland Minerals remains well-positioned as one of the most advanced, and significant, rare earth and uranium projects globally.
Both rare earth metals and uranium are strongly leveraged to the growth in clean energy generation and efficient energy use.
This has been a strong year for the share price, trading up 70% year to date, currently priced at $0.048.
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