AVZ Minerals Ltd (ASX:AVZ) recently completed a $10.68 million equity placement to China-based Yibin Tianyi Lithium Industry, paving the way for AVZ to progress with early development works at the Manono Project in DRC.
RM Research (RMR) has maintained its Speculative Buy on AVZ underpinned by securing project financing and a favourable financial investment decision to follow.
Following is an extract from RMR’s research update:
Approaching Final Investment Decision ...early works commenced
Definitive Feasibility Study of Manono confirms outstanding metrics
- The DFS of the Manono Project (AVZ 60-65%) has returned a post tax NPV10 of A$1.6b (A$0.965b attributable to AVZ) generating a NPAT of A$5.9 billion (A$3.54b attributable) based on a A$839 million CAPEX with a 2.25 year payback.
- The DFS base case contemplates a 700,000 tpa operation producing high-grade SC6 Lithium over a 20 year mine life together with 45,375 tpa of primary Lithium Sulphate.
- The DFS assumes a lithium spodumene concentrate price of A$1,037/tonne, while the high-value added Lithium Sulphate product fetches A$11,315.
- What makes the Manono Project impressive is its sheer size and high grades. The Roche Dure JORC Mineral Resource comprises JORC Resources of 400 Mt @ 1.65% Li2O (spodumene) compared to Pilbara Minerals’ Ltd (ASX: PLS) Pilgangoora JORC Resource of 223 Mt @ 1.27% Li2O and the Early Grey deposit of 189 Mt @ 1.5% Li2O of which a 50% stake was purchased by Wesfarmers in 2019 for A$776 million.
- In addition Roche Due contains a moderately high grade tin deposit of circa 275 Kt @ 962ppm Sn.
- Further upside potential to the Project metrics includes significant resource upside potential at Carriere de L’Este, additional revenue from tin and tantalum credits and a reduction in pricing for transport and the Government approval of the Special Economic Zone at Manono, which would provide a discount on VAT and other taxes.
$10.7M Strategic Investment and $5.3M Underwriting AVZO
- Yibin Tianyi have committed A$10.7 million in AVZ for a 9% stake on completion of the placement.
- Underwriting agreement executed with Canaccord Genuity (Australia) Limited to underwrite the exercise of 177,622,382 listed options expiring 24 May 2020 (A$5.3M).
- Funding together with existing cash reserves strengthens AVZ’s balance sheet and positions them with ~A$19.5 million (pre costs) to progress the Manono Project.
- A global reduction in EV sales attributable to COVID-19 has put a break on lithium demand growth, however longer term scenarios continue to show strong growth for lithium demand in the coming decade. Roskill expects there to be challenges and setbacks in developing lithium mining assets highlighting both technical and financial hurdles bringing sizeable volumes online culminating in a tight lithium market moving into sustained deficit in mid 2020s.
- Strategic investors/partners, conversion of MoUs with various Chinese Groups to binding offtake agreements for lithium concentrate and other products.
- Securing Project financing through both Debt and Equity.
- Completing the successful negotiation of the Special Economic Zone and Private Public Partnership agreements with DRC Government.
- Final Investment Decision.
Action and Recommendation
- RMR is maintaining a Speculative Buy on AVZ underpinned by securing project financing and a favourable financial investment decision to follow.
- Our near term price target post a successful FID is 12 cents, based on an average 20 year concentrate price of A$1,037/tonne and converting the Manono Special Economic Zone MOU into a binding agreement with the Congolese Government, which would significantly reduce taxes.
- The project is a standout among ASX and TSX listed lithium companies based on the EV / Tonne of contained Lithium and AVZ’s current share price.