Energy & Resources

Fuel for thought

The struggle for a “monster” lithium deposit


An investor in AVZ’s lithium mines

Chinese ambitions to take control of the biggest lithium mine in Africa looked dead in the water in April 2020 after Canberra blocked the ASX-listed miner AVZ Minerals from selling an 11.8% stake to Chinese firms including CATL (see WiC584 for a profile of that firm).

The mood soured further when Australian Prime Minister Scott Morrison pushed for an independent investigation of the origins of the Covid-19 virus, which Chinese leaders saw as a plot to blame them for the pandemic.

Relations between the two governments have deteriorated again more recently after the Chinese signed a security deal with the Solomon Islands. Nevertheless, the Chinese interest in the aforementioned lithium mine in the Congo, known as the Manono project, is very much alive.

Earlier this month AVZ announced in a stock exchange circular that the Congolese government had granted a mining licence to Dathcom, a unit through which it plans to develop the $545 million Manono mine.

At the end of the announcement, however, AVZ mentioned that the project is entangled in a legal dispute with Zijin, one of China’s biggest gold miners, which claims to be the legitimate owner of a 15% stake in Manono.

According to OFweek, a Chinese portal that focuses on mining and engineering news, the Manono mine is 100% owned by Dathcom, which is 75% owned by AVZ. Cominiere, a company controlled by Congo’s government, owns the other 25%. 

In July last year, Zijin agreed to acquire a 15% stake in Dathcom from Cominiere and the Chinese firm’s 2021 annual report says Zijin has already invested $50 million in the project.

This is where the legal wrangle is focused, with Perth-based AVZ describing the sale as “spurious in nature” and a breach of its pre-emptive rights as a shareholder in Dathcom.

What’s at stake is “one of the world’s true lithium monsters”, The Australian newspaper has reported, as Manono is expected to support nearly 30 years of mining of 700,000 tonnes of high-quality spodumene every year.

OFweek said Zijin has commenced an arbitration on its claims but the situation could get even more complicated, with suggestions that Chinese firms could end up owning a much larger stake in Dathcom if the court rules in Zijin’s favour.

Why? After the Morrison government vetoed the equity sale to Chinese buyers in April 2020, the consortium came back with another deal for consideration. Last year AVZ was said to have agreed to sell a 24% stake in Dathcom to CATH, a joint venture between CATL and Suzhou TA&A, another Shenzhen-listed firm with interests in lithium mining and clean energy. So if Zijin then secures its stake in Dathcom, Chinese firms could own a combined 39% interest in the Manono project.

Furthermore, some of China’s leading lithium firms are already major shareholders in AVZ. Huayou Cobalt, the biggest of the Chinese cobalt miners, initially invested in AVZ in 2017 and now owns a 6.3% stake. Suzhou TA&A and Tianqi Lithium also hold a 7.3% stake.

“CATL, Huayou Cobalt, Zijin, Tianqi Lithium… nearly all the biggest Chinese firms in the lithium industry have combined forces in the Congo,” OFweek noted, adding that Chinese interests would still be well represented even if the court ruled against Zijin’s deal.

The Manono project also points to a new route for the Chinese to secure upstream resources. In the past it has preferred to pursue mega deals through its state-owned giants. CNOOC’s $18 billion bid for US oil producer Unocal in 2005 and Chinalco’s $20 billion investment in Rio Tinto a few years later both spring to mind (although both of those deals collapsed because of political pressure too).

These days it’s the private sector mining companies that seem to be at the forefront of efforts to take control of  mineral and metal supply, however. The names of potential acquirors like Huayou Cobalt and Tsingshan Holding (one of the world’s biggest nickel producers and traders, see WiC577) weren’t well known only a few years ago. But investors will surely hear much more about them as willing bidders for crucial resources.

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