Technology Metals Australia Ltd (ASX:TMT) has surged after securing the first binding offtake agreement for vanadium produced from its wholly-owned globally significant, long-life, low-cost, large-scale Gabanintha Vanadium Project (GVP) in WA.
Shares have been as much as 92% higher to 15.5 cents intra-day on news of the vanadium pentoxide offtake deal with China's CNMC (Ningxia) Orient Group Company Ltd (CNMNC).
The company's securities are up from 6.1 cents at close on March 24.
"Bodes well for future relationship"
CNMNC’s vanadium alloy production business, CNMC Ningxia Orient Group Special Materials Co Ltd. produces vanadium nitrogen alloys (VN) and ferrovanadium (FeV) for use in the Chinese steel industry.
TMT managing director Ian Prentice said: “We are very pleased to have executed our first binding offtake agreement with CNMNC and look forward to a long, mutually beneficial partnership.
“The collaborative and co-operative approach of the negotiations bodes very well for the companies’ future relationship."
"Key milestone"
He said: “This agreement is a key milestone for progressing the development of GVP, including EPC and financing discussions, and underscores the importance of delivering a very high-quality DFS and a very high purity vanadium pentoxide (V2O5) product.”
The binding agreement is a key step in delivering certainty on volume and pricing of product sales, creating a strong foundation for the project’s financing and development.
The minimum annual sales quantity of 2,000 tonnes per annum, or 4.4 million pounds, on a take-or-pay basis, equates to about 16% of the project’s forecast annual average production.
These sales would generate annual revenue of approximately A$50 million, or A$300 million over the full six-year term of the agreement, based on the current European V2O5 price of US$7.18/per pound and a 0.64 AUD/USD exchange rate.
CNMNC’s vanadium production facilities.
Key terms
Key terms of the agreement include:
- CNMNC has the option to request an additional quantity of V2O5 post the satisfaction of the conditions precedent, with the terms of any additional supply to be separately agreed;
- Agreed pricing structure using an Index Price mechanism based on the published European FOB price per pound of V2O5 in USD, subject to the Index Price not exceeding the Chinese Domestic price per pound of V2O5 in USD, less any applicable taxes;
- A right for TMT to temporarily suspend deliveries in the event of a sustained downturn in V2O5 price, with the parties to negotiate amendments to the agreement in good faith to lift the temporary suspension;
- A three-year term from commencement of production, with an option to extend for a further three years, with the annual quantity and pricing to apply during any extension period to be reviewed on an annual basis and adjusted if agreed by the parties;
- Conditions precedent relating to receipt of approvals, grant of tenure, project funding and TMT board decision to proceed, to be either satisfied or waived by TMT by June 30, 2021;
- A right for CNMNC to terminate the agreement if the first delivery of V2O5 is not made on or before March 31, 2023;
- A right for TMT to terminate the agreement if negotiations to lift a temporary suspension are not successful;
- Mutual rights of termination apply in the event of default by the other party (including any default in payment by CNMNC); and
- The agreement is governed by the law in force in Western Australia, with any disputes resolved by arbitration administered by the Hong Kong International Arbitration Centre.
CNMNC sister company
During the period of negotiating the agreement, CNMNC introduced the company to its parent entity, China Nonferrous Metal Mining (Group) Co Ltd (CNMC), to discuss project support, including scope for financing and EPC arrangements via its sister company, China Nonferrous Metal Ind FE & Const (SHE:000758).
NFC builds, owns and operates base metal mines, processing plants and smelters around the world.
MOU with Shaanxi Fengyuan extended
The company continues to progress offtake discussions for additional quantities of V2O5 production from the project with a range of counterparties, including the previously announced offtake MOU with Shaanxi Fengyuan Vanadium Technology Development Co Ltd.
Offtake discussions are progressing with Fengyuan via teleconference due to travel restrictions imposed as part of the management of the COVID-19 pandemic.
The travel restrictions have also impacted on Fengyuan’s due diligence timeline around its proposed GVP site visit.
As such, the company and Fengyuan have mutually agreed to maintain the MOU in full effect until the end of June 2020 to enable the orderly progression of discussions with regard to the draft offtake agreement, and if travel restrictions permit, completion of the due diligence process.