The AVZ Minerals Ltd (ASX: AVZ) share price jumped 17% today after announcing a lithium deal.
AVZ is a mineral exploration company focused on developing the Manono Lithium and Tin Project located in the south of the Democratic Republic of Congo (DRC) in central Africa. AVZ has a 60 per cent interest in the Manono Project.
The deal
AVZ announced that it has signed an offtake agreement with GFL International, which is a subsidiary of Ganfeng Lithium, China’s largest lithium compound producer. AVZ said that GFL is a leading global battery materials producer that is continuing to expand both its lithium carbonate and lithium hydroxide production capacity.
The company and GFL’s agreement is for an initial five-year term, with an option to extend for a further five years, for spodumene concentrate from the Manono Lithium and Tin Project.
The annual supply ramps up to 160,000 dry metric tonnes from the third year onwards. The price will be determined with a reference to pricing of lithium carbonate and lithium hydroxide, with appropriate adjustments for quality and including a scaled collar price mechanism.
Management comments
AVZ Managing Director Nigel Ferguson said: “We are very pleased to finalise these discussions with GFL and to sign our first lithium offtake agreement. The fact we have signed our first offtake agreement with China’s largest lithium compound producer just reinforces our belief that the Manono Project is world-class.
“GFL has signed on to take 30% of the Manono Project’s initial saleable spodumene concentrate yearly tonnage, which is a massive endorsement for our project.
“Over the coming months, I look forward to finalising other offtake agreements which are currently under negotiation, not only for our lithium products but also for our tin and tantalum materials.”
Summary thoughts
This is a good deal, but I don’t know enough about lithium or the company to know how much further it can rise. I usually avoid commodity shares because they don’t have much pricing power and it’s hard to know where we are in the commodity price cycle. In the resources space, I think I’d only go for something like RPMGlobal Holdings Ltd (ASX: RUL).
