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MRG enters into JV with Sinowin to develop mineral sands projects in Mozambique

13th June 2024

By: Darren Parker

Creamer Media Contributing Editor Online

     

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ASX-listed MRG Metals has entered into a binding joint venture (JV) agreement with Chinese mineral investment companies Sinowin Lithium and Sinowin Lithium Cobalt (SLC) to develop its Mozambique Corridor Sands projects, including Corridor Central and Corridor South, as well as other heavy mineral sands (HMS) projects in Mozambique.

Under the terms of the JV agreement, which was announced on June 12, MRG will be free carried through all capital and operating expenditures until production reaches 440 000 t/y of concentrate.

Initially, MRG will hold a 30% equity stake in the JV company through the startup phase at 110 000 t/y of concentrate production. This equity stake will decrease to 20% as production increases to 440 000 t/y.

Prior to this binding agreement, MRG and SLC had signed a nonbinding memorandum of understanding (MoU) on March 6. SLC, subsequently, dispatched geological, construction and design teams to Mozambique in April to conduct due diligence and initiate design work.

The due diligence was completed successfully in early May, and the parties worked collaboratively to finalise the formal JV agreement, ensuring it aligned with the terms of the nonbinding MoU.

“SLC brings significant mining experience and capital capacity following its successful investment in the Moblan lithium mine and has been pursuing new development opportunities with even larger scope and upside to replicate this success.

“The journey for MRG has been a long one, but we have remained focussed on advancing the Corridor Sands projects, which offer multi-decade resource capacity and an exceptional infrastructure base, including access to water, electricity, manpower and, importantly, proximity to port.

“We anticipate the operating costs upon development will be in the leading quartile for low-cost production globally. The high base grade will ensure a low cost-to-value concentrate operation, one which our partner is well positioned to optimise given relationships with downstream processors in mainland China. The free-carried nature of project funding from this point on is an important shareholder consideration,” MRG chairperson Andrew van der Zwan said.

To support JV operations, SLC will provide an initial payment of $80 000 over two months. This includes $15 000 a month for the MRG board and about $25 000 a month for in-country costs in Mozambique. These funds will aid in obtaining mining licences and developing the project.

Upon the establishment of the JV company, SLC will make an immediate initial investment of $3-million, followed by an additional $3-million once the initial amount is used. This funding is intended to advance mine approvals, design and economic analysis into the construction phase.

During the due diligence period, SLC and MRG have been expediting feasibility and mine design plans necessary for updating the mining licence applications. A feasibility study is near completion and will be finalised shortly. The JV company, to be based in Hong Kong, will be formalised in the coming weeks.

A drag-along clause has been agreed upon, involving the conditional acquisition of MRG’s JV company equity for at least $50-million. This JV allows MRG to partner with a company that has international mine development experience in Canada and the necessary funding to bring a mine into production without external financing.

Key terms of the JV include the following: all parties signed the binding agreement on June 12. SLC will fund all JV expenditures through the mining operation and production expansion phases. This funding includes a $3-million deposit into the JV trust account and initial two monthly payments of $40 000, while formal JV companies and bank accounts are being established in various jurisdictions.

Additionally, working capital to cover MRG’s in-country costs, estimated at $25 000 for six months, will be provided until the JV company establishes the necessary personnel and corporate structure. MRG’s management involvement in the JV will be compensated at $15 000 a month for a minimum of 12 months.

During its in-country due diligence, SLC coordinated with engineering and construction consultants to expedite the next steps of mine development, which include completing the mine feasibility report for the initial Corridor Sands project, designing the engineering and construction plan, and obtaining the mining licence approval from the Mozambique government.

The JV equity structure specifies that, upon receiving the initial $3-million to $6-million in working capital funding, SLC will hold 70% of the JV equity, while MRG holds 30%.

The JV company will own Corridor Central and Corridor South through ownership of the Mozambique holding companies.

Stage 1 of the JV will be achieved after reaching 110 000 t/y of concentrate production within 21 months of receiving the mining licences, with the milestone benefit of adding Corridor North to the JV company.

Stage 2, involving 220 000 t/y of concentrate production, will be achieved within two years after Stage 1, increasing SLC’s equity to 75% and reducing MRG’s to 25%, with Linhuane added to the JV.

Stage 3, with 440 000 t/y of concentrate production, will be achieved within five years after Stage 1, increasing SLC’s equity to 80% and reducing MRG’s to 20%, with Marao added to the JV company.

SLC is committed to investing all necessary funds to develop the initial mining operation up to a yearly concentrate production of 440 000 t. Any further expansion will be funded by the JV company, ensuring MRG’s equity does not dilute below 20%. The JV company is expected to have the financial capacity to support such expansion or arrange debt financing as needed.

The key terms of the offtake agreement designate SLC as the offtaker for all HMS products from the initial Corridor Sands project. The offtake price will be fixed with reference to export prices of comparable quality HMS processed by other companies in Mozambique.

An independent review mechanism agreeable to both parties will be coordinated. Additionally, the JV company will pay a 5% sales commission for the offtake agreement.

“Our partner has already, in good faith, spent considerable time and money during the due diligence period and final JV structure negotiations. The due diligence was extremely thorough and included the involvement of design engineers and construction consultants.

“This work will enable the JV to resubmit the proposed mining development and feasibility plan . . . and set an internal goal of first production by the end of 2025.

“The ongoing funding of most of our in-country and administrative expenses during this period is testament to the effective working relationship we have built over the last four months and recognition of the significant role our people will play in bringing this project to construction phase,” Van der Zwan said.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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