China's Ganfeng takes control of Argentine lithium JV Caucharí-Olaroz in $400 mn deal
10 February 2020
China’s Ganfeng Lithium Co on Friday announced the signing of an agreement with Lithium Americas, to take control of an Argentina lithium project, Minera Exar SA, it has been developing with the former, further cementing its leadership in production of a key source of the white metal used for electric vehicle batteries.
Minera Exar owns 100 per cent of the Caucharí-Olaroz lithium project currently under construction in Jujuy, Argentina. The transaction includes Ganfeng Lithium subscribing for new shares of Minera Exar for a cash consideration of $16 million increasing its interest from 50 per cent to 51 per cent, with Lithium Americas owning the remaining 49 per cent.
Both parties have agreed to the 2020 funding schedule, including investment of up to $400 million, in accordance with the 2019 approved construction plan.
Caucharí-Olaroz remains on budget and schedule to commence production in early 2021.
Joint venture and related agreements will be amended as a result of the new ownership structure to preserve joint approval for substantive matters involving Minera Exar and to maintain the existing construction plan and management team.
In addition, Lithium Americas will receive $40 million in cash from the proceeds of non-interest-bearing loans from Ganfeng Lithium.
"The Transaction with Ganfeng Lithium further strengthens our balance sheet while ensuring Caucharí-Olaroz construction continues to advance as planned," commented Jon Evans, the company’s president and CEO. "For Lithium Americas, the transaction reinforces our strategy of building a low-cost lithium operation in Argentina, and provides funding to advance our second flagship project, Thacker Pass, towards construction in Nevada.”
"We remain firmly committed to investing in Argentina, Caucharí-Olaroz and the team at Minera Exar," said Xiaoshen Wang, vice-chairman and vice-president of Ganfeng Lithium. "The Transaction provides increased financial flexibility and benefits to Ganfeng Lithium as we continue to invest in one of the largest and lowest cost sources of lithium carbonate globally alongside our partner, Lithium Americas.”
Under the terms of the Transaction, Ganfeng Lithium will subscribe for new shares of Minera Exar for cash consideration of $16 million. Proceeds will be used by Minera Exar for the purpose of advancing the construction and development of Caucharí-Olaroz. Upon completion of the transaction, the company and Ganfeng Lithium will own 49 per cent and 51 per cent, respetively, of Minera Exar.
In addition, Lithium Americas and Ganfeng Lithium have agreed to restructure Exar Capital BV, a jointly controlled entity which provides funding to Caucharí-Olaroz, to reflect the proportionate ownership of Minera Exar. As part of the transaction, Ganfeng Lithium has agreed to provide $40 million to Exar Capital in non-interest-bearing loans, repayable in 2029 (subject to an additional one-year extension). Proceeds of the loan will be used to repay intercompany loans owing to Lithium Americas, with $20 million to be paid on closing of the transaction and an additional $20 million payable on 1 August 2020 (or such earlier date as the parties may agree).
In connection with the transaction, the parties have agreed to a funding schedule, including investment of up to $400 million, in accordance with the 2019 approved construction plan. The revised structure of the JV, as set out in the transaction, will improve Ganfeng Lithium’s financial flexibility and position regarding regulatory approvals in China.
The parties have also agreed to an interim funding structure that would be implemented to maintain continuity of project funding until closing the Transaction, by which Lithium Americas would draw down funds under its loan facilities (the subordinated loan facility with Ganfeng Lithium and the senior credit facility with Ganfeng Lithium and BCP Innovation Pte. Ltd). Proceeds of the loans would be used to fund Minera Exar with Ganfeng Lithium providing proportionate contributions on completion of the transaction.
Upon completion of the transaction, Ganfeng Lithium will become a controlling shareholder of Minera Exar while Lithium Americas will receive fulsome minority shareholder protections. The amended shareholders agreement will continue to require joint approval for substantive business decisions, including material changes to:
- Funding plans
- Construction program
- Project design and process
- Capital and corporate structure
- Production output level
Minera Exar will remain the operator of Caucharí-Olaroz and have agreed that Lithium Americas will enter into a management services contract with Ganfeng Lithium, which will provide for the continued services of the company’s senior management, including Gabriel Rubacha as CEO and Franco Mignacco as president of Minera Exar.
Ganfeng is the world’s third largest and China’s largest lithium compounds producer and the world’s largest lithium metals producer in terms of production capacity as of 31 December 2017.
Since its launch of its production line for extraction of lithium chloride from salt lake brines in 2010 and subsequent listing in 2011, Ganfeng Lithium Co Ltd acquired 9.9 per cent interest in International Lithium and expanded into the upstream section of the lithium industry value chain.
The company acquired 51 per cent equity interest in Blackstairs Lithium, which owns the Avalonia project, a spodumene ore in Ireland. Subsequently it acquired additional equity interest in Blackstairs Lithium raising its shareholding in Blackstairs Lithium to 55 perent in 2015. In 2015, Ganfeng started production of battery grade lithium hydroxide.
Ganfeng since acquired 25 percent of the equity interest in RIM, which holds 100 percent interest in the Mount Marion spodumene project located in Australia. In 2016, it further acquired 18.1 per cent interest in RIM, taking its stake in RIM to 43.1 per cent.
In 2016, Ganfeng started to expand into downstream lithium battery production and established its research and development center for solid-state lithium batteries, the new generation of safer and higher capacity energy storage batteries which will be the key solution to the electric vehicles. The company then started building a lithium-ion motive power battery plant in Jiangxi in 2017.
Besides issued share capital in Lithium Americas, which holds interest in two lithium development projects, the Cauchari-Olaroz project, which is located in Jujuy province of Argentina and the Lithium Nevada project, which is located in northwestern Nevada, the US, Ganfeng has subscribed for new shares representing 4.84 per cent of the total issued share capital in Pilbara Minerals, which holds interests in Pilgangoora lithium-tantalum project, located in Western Australia.
The company also subscribed to new shares representing 15.8 per cent of the total issued share capital in Explorex Resources Inc, which engages in the acquisition, exploration, and development of mineral properties in Eastern Canada.
Ganfeng has also expanded into downstream retired battery recycling.