Australian mining company Leo Lithium Ltd. has agreed to sell its remaining stake in the Goulamina lithium property in Mali to China's Ganfeng Lithium Group Co. Ltd., ending an impasse with the local government and putting the project back on track for first production this year.
The agreement is the second case in May of an Australian miner reaching the end of a long trading halt over disputes with African governments. AVZ Minerals Ltd. is set to be automatically delisted from the Australian Securities Exchange on May 13 over a property ownership dispute with the Democratic Republic of the Congo.
Ganfeng will buy Leo Lithium's 40% stake in the preproduction-stage Goulamina project for US$342.7 million, subject to approval by Leo Lithium shareholders and Chinese regulators, the Australian company said May 8.
The deal consideration is equivalent to 43 Australian cents per Leo Lithium share. The company's shares were suspended at 51 Australian cents in September 2023, after trading as high as A$1.25 on July 11, 2023, just before the dispute emerged.
Leo Lithium also reached a US$60 million settlement with Mali's junta government resolving all outstanding issues. The company will lose its offtake rights but will receive a 1.5% gross revenue fee over 20 years from Ganfeng.
The memorandum of understanding between Leo Lithium, Ganfeng subsidiary GFL International Co. Ltd. and the government of Mali also includes Firefinch Ltd., which has a 17.6% shareholding in Leo Lithium. Firefinch has been in a dispute with Mali over its 80%-owned Morila gold mine, after deciding in 2022 to cease funding the operation. The Mali government owns the remaining 20% interest in the property.
Under the MOU, Firefinch will transfer its Malian mining interests to a state-owned mining company for US$1 and will contribute A$11.5 million to the settlement. Firefinch requested to have its securities suspended from trading in mid-2022, and the company expects to be removed from the ASX in late June.
The Goulamina project remains on track to start producing spodumene concentrate in the third quarter, Leo Lithium said. The mine will operate under Mali's new mining code that raises potential government project interest to 30%, from 20%, plus a 5% local stake.
The Australian miner said the outcome was in the best interests of shareholders in the face of "increasingly challenging sovereign and security risks in the country."
"It's not a great outcome for shareholders," Jon Bishop, director of equity research for Australia-based Jarden Group, told S&P Global Commodity Insights, while acknowledging the deal is still likely in their best interests.
"Clearly the number that has been offered and accepted is beneath what I viewed was fair value for their equity interest," Bishop said. "That says to me the Chinese have recognized the alternative for Leo here was they could have stalled the project. But I would suggest that Ganfeng probably said, 'You can, but it will come at a cost.' It was their best and final offer, and [they should] take it."
The sale provides Leo Lithium shareholders "value for their investment after a difficult period for lithium developers, while Ganfeng's purchase is more deeply rooted in ensuring a large resource base for future industry growth," David Merriman, research director for global critical mineral consultancy Project Blue, said via email.
African mining risks
Leo Lithium and Firefinch are not the only miners struggling to bring an African project to fruition.
AVZ Minerals will likely soon be delisted from the ASX after a battle with the Democratic Republic of the Congo over its majority stake in the Manono lithium deposit.
Bishop expects the recent cases to make some Australian investors wary of African projects for the time being, before the "usual cycle of markets" makes them attractive again.
"Eventually the weight of money goes, 'You know what, I'm prepared to take the risk in Africa again,'" when that asset is priced at three times cashflow versus 20 times cashflow outside of Africa, Bishop said. "Eventually the almighty dollar wins. But at the moment, these sorts of events will chasten the market's appetite to invest in these countries."
Merriman said there has been a slowing of investments in Africa by Australian, European and North American operators as low prices make financing more challenging, while China-based developers have kept building ownership of African raw materials and minerals.
"Australia still holds a strong position in lithium asset development, which is likely to see a surge of interest again as lithium prices recover over the coming quarters," Merriman said.