Alliance Mineral Assets signs lithium offtake deal

Catalist-listed Alliance Mineral Assets Limited (AMA) has secured an offtake agreement with Burwill Holdings Limited to supply the Chinese steel trading and mining firm with lithium concentrate for an initial five-year period.

This marks a major milestone for AMA as it looks to start lithium production at its Bald Hill project in Western Australia by the end of this year. With this, the project has turned from being merely "a story" to reality, said its CEO Tjandra Pramoko in a phone interview with The Business Times.

Under the agreement signed with BCL, a wholly owned subsidiary of Burwill, AMA will sell all of its production between March 15 next year and Dec 31, 2019 at a fixed price of US$880 a tonne for lithium oxide with a concentration of 6 per cent, according to an announcement by AMA's mining partner Tawana Resources on Wednesday.

Burwill will provide prepayment of A$25 million (S$26 million), to be split equally between both AMA and Tawana. Of this, the first A$7.5 million has been received by both companies together; the final two instalments will be made on July 15 and Sept 15 this year.

This prepayment will be free of interest, and will be repaid by offsetting 20 per of the price of each lithium concentrate shipment. The first deliveries are expected to be made in the first quarter of next year.

Burwill had decided to go ahead with the offtake agreement despite AMA's resource estimate not being finalised yet because of its confidence in the quality of the resource after doing due diligence work on the Bald Hill mine and its metallurgy, Mr Pramoko told BT.

"(The offtake deal) is one of the best contracts for lithium in the world today," he said, adding that most lithium contracts fix a price for only a year as there is expectation that additional supply will come on the market every year, bringing prices down.

Besides having a guaranteed price for two years, the price agreed upon was also much higher than the US$750 a tonne price announced in the last contract signed for lithium oxide of the same grade, Mr Pramoko added.

Burwill, a Hong Kong-listed company, is in the business of international metal trading and also owns an interest in a magnetite iron ore mine in Shandong, China.

According to Burwill's announcement on the offtake deal on April 20, BCL will principally be engaged in the procurement of lithium concentrate, processing of lithium carbonate and sales. The firm plans to invest in a lithium carbonate plant in China, with an annual capacity of 10,000 tonnes.

The assurance of price and long-term demand for its product was why AMA decided to sign the deal with Burwill, said Mr Pramoko.

Under the agreement, the sales price for the third to fifth year will be based on prevailing market conditions at that time. The deal can also be extended beyond the initial five years, if both parties can agree on the price and quantity.

Burwill's prepayment of A$25 million will help to kickstart the building of the new density media separation plant at the mine site, said Mr Pramoko. In all, AMA is expecting to spend A$50 million in order to reach the production stage.

With Tawana having to spend A$20 million in order to be entitled to a 50 per cent interest in the project under an earn-in agreement that AMA has signed with the firm, plus the prepayment by Burwill, most of the expected capital expenditure has been accounted for, said Mr Pramoko.

The remaining A$5 million will be split between Tawana and AMA, he added. "AMA is not in a hurry to do capital raising . . . The next capital raise, if AMA is going to do it, will be done at a later stage."

AMA had previously said that it expects its resource estimate to be released in early April. This has been delayed after the firm added one more drill to bring the total number of drill rigs to five, as the extent of the spodumene pegmatites continues to expand.

AMA has not yet made any announcement on the Singapore Exchange after requesting for a trading halt on April 20.

Andrea Soh

27 April 2017