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Kodal Minerals soars on lithium offtake talk and Chinese investment

"Anecdotal evidence indicates there is a supply shortage of lithium feedstock in China"

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Chinese firms are positioning themselves ahead Tesla's ramp-up

Kodal Minerals PLC (LON:KOD) rocketed as a Chinese group agreed to buy in at a huge premium to the share price and negotiations began for an offtake deal for lithium from its Bougouni asset in Mali.

Suay Chin, a newly formed lithium trader, is to acquire £500,000 worth of shares 0.3p per share and is undertaking due diligence ahead of a possible £4.3mln injection at 0.38p that would give it a 20% stake.

The off-take agreement relates to 20% of the spodumene concentrate to be produced from Bougouni.

According to house broker SP Angel, Suay Chin’s move is part of a trend currently, with Chinese firms looking to secure lithium assets ahead of the expected explosion in electric car use and renewable energy storage.

Anecdotal evidence indicates there is a supply shortage of lithium feedstock in China ,which is causing prices to rise dramatically particularly for smaller contracts, said the broker.  

It is also prompting Chinese companies to take stakes in promising, higher-grade, lithium projects around the world where processing routes are reasonably well defined.  China’s recent multi-billion purchase of the Tenke Fungurume copper, cobalt mine in the DRC, highlights the trend.

Shandong Mingrui, which has close links to Suay Chin, made an offer to buy another Bougouni region lithium mine owner, Birmian, in January, though this deal eventually fell through. 

Lithium carbonate prices in China have risen from US$6,500-8,500/t last year to between US$10,000-18,000t for larger contracts and US$18,000-21,000/t for smaller contracts, said the broker. 

“We suspect the larger contracts are still being priced towards the lower end of the range but Tesla’s entry into the market for its new Gigafactory and rising demand in China, Japan and South Korea is raising prices significantly for smaller contracts.”

The subscription shows how serious Chinese companies are in securing future lithium supply and confirms our view that the Bougouni area of Mali looks like is may make a meaningful lithium production centre in future years.”

Suay Chin was set up in January this year specifically to act as a trading group for the supply and source of feedstock into the Chinese lithium market, added SP Angel, and is said to be well connected, funded and have support from key Chinese manufacturers as well as Shandong Mingrui, which is already a major supplier in to January.

Bernard Aylward, Kodal Minerals’s chief executive, said the deal highlighted the perceived strategic and commercial value in its development. 

 “Our exploration activity has confirmed the lithium mineralised pegmatite veins at surface and the demonstration of high-grade lithium mineralisation from our drilling has generated a lot of interest in fast-tracking potential development. 

“Suay Chin is very positive about assisting us through the metallurgical testwork and development phase of the project, and with the additional funding we will continue to advance the project rapidly.”

Quick facts: Kodal Minerals PLC

Price: 0.078 GBX

LSE:KOD
Market: LSE
Market Cap: £8.94 m
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