Australia-based mineral exploration company AVZ Minerals Limited (ASX:AVZ) is entangled in a legal dispute related to the ownership of the Manono Lithium Project, probably one of the most significant lithium deposits in the world.
Shares of the Company have been on a trading halt for more than three weeks and were scheduled to return to trade on Wednesday. However, the trading of securities couldn’t restart during the week.
Let’s try to understand the issue in a simple manner.
Lithium’s never-ending demand
Lithium has become an important component of the low-carbon energy transition. It has been extensively used in the manufacturing of lithium-ion batteries to power various portable devices and electric vehicles.
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As a result, demand for lithium is rising and due to its limited supply, prices of battery metal have surged more than 400% in the last one year alone. To capitalise on these gains, Chinese mining companies have been on a spending spree for last few years, acquiring lithium mining assets across the globe.
Congo has been a centre of attraction for many Chinese miners with the country producing the largest volumes of cobalt in the world.
AVZ’s tussle with Jin Cheng Mining
AVZ’s Manono Project is just one of the many projects located in the Democratic Republic of the Congo (DRC), Africa. In May, the Democratic Republic of Congo’s Minister of Mines had awarded a mining licence to Dathcom Mining SA- (AVZ holds 75% stakes) owned business for the flagship Manono Project.
The licence covers the complete Roche Dure-proven resource, which alone contains 402 million tonnes with a grade of 1.65% Li2O and 715ppm tin, making it one of the most significant and untouched mineral deposits across the globe.
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The remaining 25% stake at Dathcom is owned by Congolaise D’Exploitation Miniere SA (Cominiere). With the mining licence granted, Cominiere was expected to hand over its 10% interest to the DROC government, as per laws. At the same time, AVZ also holds a contractual option to overtake 15% of the remaining stakes from Cominiere.
Although a binding contract is yet to be signed, AVZ has also agreed to sell its 24% interest in Dathcom to battery marker Suzhou CATH Energy Technologies for US$240 million. Assuming this deal was signed, Suzhou would own a 24% interest in Dathcom, the DRC government (10%), and the remaining 66% would be owned by AVZ.
However, Cominiere wants to sell its 15% interest to China’s Jin Cheng Mining Company, which has become a prime reason for this mess.
Regarding the sale, AVZ argues that the sale of 15% interest to Jin Cheng would be a material breach of the pre-emptive rights contained in the existing Dathcom Shareholders Agreement.
Dathomir Mining, the previous owner of 15% stakes in Dathcom has also raised questions about the validity of the share certificate held by AVZ. Additionally, Jin Cheng has also confirmed to take action against AVZ to secure the stakes.
Bottom Line
The fate of the highly prospective Manono Lithium project remains ambiguous as the involved parties fight it out legally. All in all, it is a challenging time for AVZ and its shareholders.
