AUZ pens pivotal cobalt-nickel offtake deal

Published on: Feb 20, 2018 | by finfeed

Australian Mines (ASX:AUZ) revealed this week that it has clinched an offtake agreement with electric vehicle battery manufacturer, SK Innovation, for 100 per cent of its anticipated cobalt and nickel production from its Sconi Project in northern Queensland.

This landmark agreement is for an initial seven-year period, allowing for a six-year extension. The Korean-headquartered and listed SK Innovation will purchase Sconi's nickel and cobalt production at volumes of 12,000 tonnes per annum of cobalt sulphate and 60,000 tonnes per annum of nickel sulphate, with sale prices linked with corresponding London Metal Exchange (LME) cobalt and nickel prices.

This pivotal deal is a clear endorsement of AUZ's cobalt-nickel-scandium assets, reinforcing Sconi's status as the most advanced project of its kind in Australia, as well as AUZ's leading position in the Australian cobalt space.

Crucially, this also makes AUZ the only Australian cobalt-nickel-scandium company to have secured an offtake deal for 100 per cent of its expected cobalt and nickel output.

SK Innovation is the world's 57th largest company, with annual revenues of more than US$120 billion. It owns Korea's top refiner, SK Energy. To date, it has developed some 20 oil and gas projects across 11 separate countries.

The cobalt sulphate and nickel sulphate offtake from Sconi is destined for SK's newly developed battery manufacturing plant in Hungary and Korea which services premium German automakers.

Collaboration to extend beyond resources offtake

AUZ is collaborating with SK Innovation to optimise its Bankable Feasibility Study (BFS) on the Sconi Project. The timeframe for the delivery of the BFS has been extended to the end of June to accommodate this newly penned offtake agreement.

SK Innovation will also assist in enhancing Sconi's processing plant and mining operation through sample validation at battery level for hybrid and electric vehicles. The agreement is conditional on AUZ obtaining finance for Sconi by the end of 2018. It also includes an option for SK Innovation to buy up to 19.9 per cent of AUZ's ordinary shares.

If exercised, SK's cash investment will further boost AUZ's strong balance sheet, with the additional cash ear-marked to fund the initial construction phase of the full-scale processing plant at Sconi, including the purchase of longer lead-time components such as the autoclave vessels.

Overall, however, this is an early stage play and as such, any investment decision should be made with caution and professional financial advice should be sought.

AUZ managing director, Benjamin Bell, said: "The signing of the agreement with SK Innovation is a landmark occasion for Australian Mines and its shareholders. Australian Mines is delighted to be partnering with a leading electric vehicle battery manufacturer in SK Innovation - a company that has a solid track record in developing and operating multi-billion-dollar resource projects around the world, and we are looking forward to a long relationship with them.

"Now that Australian Mines has secured an off-take partner for the Sconi Project, we are the only company that is in a position to align the technical production and processing parameters of the BFS with the demands of its end-user partner, who will also be our key strategic partner in the construction and financing of the overall project.

"As such, we have modified the scope of the BFS to align with SK Innovation's requirements for 12,000 tonnes of cobalt sulphate and 60,000 tonnes of nickel sulphate per year. This work, which will commence immediately, will include a modified mining pit shell and production schedule that optimises the extraction of the nickel and cobalt in keeping with the volumes specified in the off-take agreement.

"Although these changes will extend the BFS timetable by a few months resulting in delivery by the end of June, there is no doubt this agreement will assist in moving very quickly post the completion of the BFS to finalise the remaining financing required to construct the full-scale mining and processing operation at the Sconi Project.

"We have enjoyed a good reception from potential end-customers throughout Asia and Europe while on roadshows to key markets in the past 12 months. We also are also currently engaged in productive conversations with separate entities around possible off-take agreements for the scandium oxide component of production from the Sconi Project," Bell said.