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Alliance Mineral Assets completes Tawana Resources ‘merger of equals’

The merged companies had been equal partners on WA’s Bald Hill spodumene mine.
A vessel is loaded up, ready to leave Esperance port with Bald Hill lithium concentrate bound for China
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A vessel is loaded up at Esperance port with Bald Hill lithium concentrate bound for China

Alliance Mineral Assets Ltd (SGX:40F) has joined the Australian market through a buy-up of Tawana Resources NL (ASX:TAW) (FRA:TJR) (JSE:TAW), with the new entity focused on the Bald Hill lithium and tantalum mine in Western Australia.

Tawana and Alliance were previously in a 50:50 joint venture to progress the Bald Hill mine.

The parties started producing lithium concentrate at the mine in March 2018 and shipped their first batch of the concentrate to offtake partner Burwill Commodity Limited in China in May 2018.

READ: Tawana Resources gains on $40 million funds backing Alliance Mineral Assets merger, Bald Hill mine pick-up

Alliance’s backdoor listing onto the Australian market through its Tawana investment was achieved with a $40 million funding package from a consortium led by Tribeca Investment Partners.

Alliance managing director Mark Calderwood called Tawana and Alliance’s marry-up a “merger of equals”, during a video interview with Proactive Investors in September 2018.

Calderwood spoke to Proactive’s Stocktube video channel this week, with the interview published on the day the merged company was relisted on Australian Securities Exchange.

The MD said on Tuesday: “Alliance effectively took Tawana over, but it was a 50:50 merger.

“That’s all been bedded down now, and we’re now operating as one entity, which has been a great relief from a compliance point of view.”

Tribeca’s Global Natural Resources Credit Fund portfolio manager Haydn Smith said last year the fund saw Bald Hill as a strategic investment.

Smith said: “The project has the lowest capital intensity in the sector and produces a coarse product anomalously low in magnesium, iron, mica and other deleterious materials, making it highly sought after by lithium converters.

“We believe that Bald Hill spodumene will ultimately command its own pricing mechanism, much like high-grade iron ore or high-energy thermal coal.”

June 2018 production levels

The Bald Hill mine partners produced 19,218 wet metric tonnes (wmt), or about 18,800 dry metric tonnes (dmt), of spodumene concentrate and 367 wmt of tantalum pre-concentrate at the project in its first half-year as a producer.

Offtake party Burwill took 9,012 wmt (about 8,859 dmt) of spodumene concentrate, as $5.297 million in spodumene concentrate sales was recognised for the sales period of March 12, 2018, to June 30, 2018.

The average shipped concentrate grade for the June 2018 half-year was 6.14% lithium oxide with only 0.55% iron and low potassium, sodium and mica.

 

Next steps

Calderwood noted a plant upgrade at Bald Hill was the next major milestone for the company, with the sign-ups of offtake partners being a second milestone.

He said: “Next big milestones are to upgrade plant and we expect the up-sized plant to be operating in the third quarter of this year.

“Then … news on who our second off-taker will be, or second or third (offtaker) — it’s a matter of keeping a close eye on the changes in this next couple of months.”

Door opens to additional offtake agreements

Calderwood noted the new entity had been negotiating offtake-style agreements for several weeks, holding talks with Hong Kong-based Burwill.

The full exclusivity of Alliance’s arrangement with Burwill will end.

Calderwood said: “There’s been a few positives come out of that for us, and the key one is that we will limit their tonnages.

“They will receive about half the production from Bald Hill, and the other half, we are free to sell to another offtaker, and we’re into dense discussions on those with potential other offtakers.

“This gives us a bit more certainty about where products (are) going and demand going forward.”

FLASHBACK: Tawana Resources ships first batch of Bald Hill lithium concentrate to China

Burwill Holdings agreed to transfer its Bald Hill purchasing rights to chemicals maker Jiangxi Bao Jiang Lithium Industrial Ltd.

Existing concentrate buyer Burwill has a 50% stake in the chemicals venture with Jiangte Special Electric Motor Co.

Jiangte has ambitions to become a significant downstream processing market player in China and is increasing its lithium concentrate conversion capacity.

 

Alliance sets production targets for 2019-20

Alliance’s leader confirmed production targets for the next two years in the merged entity’s latest Stocktube video.

Calderwood said: “We’re looking at a 65,000 to 80,000-tonne production rate for this (June 2019 half) six months, and then that’ll ramp up again.

“We’re looking at about 180,000 tonnes this year, going to about 260,000 tonnes next year, but I’d like to think they are minimum tonnages that we’re looking for, for those two years.”

The corporate leader flagged external factors that affect its pricing mechanism for those tonnes.

“Offtake is now somehow related to the market price for lithium carbonate and lithium hydroxide, so those prices will step up and step down during the year.

“Instead of having a fixed contract price, we’ll have a floating price arrangement.”

Lithium carbonate and lithium hydroxides are used in the lithium-ion batteries that go in electric cars.

The spot price out of China last Friday for battery-grade 99.5% lithium carbonate was 75,000-83,000 yuan (US$11,087.63-$12,270.31) a tonne.

The spot price for battery grade 56.5% lithium hydroxide was 99,000-109,000 yuan (US$14,635.66-$16,114.01).

One US dollar is changing hands for 6.76 Chinese yuan.

READ: Lithium outlook uncertain amid growing demand, oversupply and potential disruptive technologies

The company’s production guidance does not necessarily reflect concerns about future spodumene prices.

Calderwood said: “There’s been a lot of talk in the sector about an oversupply of spodumene in the market (but) we’re actually not seeing that.

“We’re seeing that the good-quality, high-grade premium spodumene is in relatively high demand still.”

The battery minerals executive predicted a big year for electric vehicles this year.

Calderwood said: “We think the underlying market is actually stronger than what the market perceives.

“I think this year, the first six months will be pretty soft, in terms of carbonate and hydroxides, but at some point, you’ll see a pick-up in there, as with the continuing demand for electric vehicles and the production of electric vehicles.

“Last year was quite a big year for electric vehicles, and I think this year will be another big year, in terms of stats.”

Lithium powers electric vehicles

Western Australia is the world’s leading producer of lithium, with 44% of world supply in 2017 coming from the state’s seven operating lithium mines.

Forty-one per cent of the world’s 214,000-tonne lithium carbonate equivalent (LCE) went to batteries in 2017.

The electric vehicle industry is the largest user of batteries made from lithium.

McKinsey&Company wrote in June 2018 lithium demand would triple in the eight years to 2025, increasing by 455,000 tonnes of lithium carbonate equivalent (LCE) to 669,000 tonnes LCE.

The company noted contract pricing varied and was sometimes even 60% of the spot price in China.

Argonaut Limited metals, mining & energy research director Matthew Keane tipped at the Technology and Low Emission Minerals Conference 2018 that medium-term lithium prices were likely to move closer to US$10,000 a tonne of lithium carbonate before returning to the US$20,000 a tonne mark.

Lithium concentrate spot prices for China have remained steady since the November 2018 conference and were at the US$11,087.63-$12,270.31 mark last Friday.

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