China’s Zhejiang Huayou to acquire Arcadia Lithium for US$422mln

Itai Ndongwe

HARARE – ASX-listed Prospect Resources has signed a USD $378 million binding agreement to sell its interest in the Arcadia Lithium Project to new energy lithium-ion battery material producer, Zhejiang Huayou.

Huayou, the world’s largest cobalt producer, has agreed to purchase PMPL’s 87% investment in PLZ, as well as the associated intercompany loan, for approximately US$377.8 million in upfront cash consideration, or about A$1.23 each Prospect ordinary share, according to the statement.

The outcome represents a premium to Prospect’s 10-day VWAP of around 78%.

The minority interests are 7% shareholder Tamari Trust, linked to mining investor Paul Chimbodza, and Kingston Kajese, who holds 6%. The minorities will walk away with US$44.2 million for their combined 13% interest.

“The total amount of this transaction is 422 million US dollars. After the completion of the acquisition, Huayou International Mining will hold 100% of Prospect Lithium Mining Company equity and related claims,” Huayou said in a separate statement.

The deal, as per Prospect Managing Director and Chief Executive Officer Sam Hosack, is the culmination of a process that acquired worldwide traction and created inbound interest among possible partners for the world-class Arcadia Lithium Project.

“The Prospect Board has undertaken a detailed evaluation of all proposals received through this competitive process. The conclusion of this evaluation is that the Huayou proposal offers a highly attractive risk-adjusted proposition for Prospect shareholders, particularly when considered against the timing and execution risks attached to the development and operation of the Arcadia Project either under Prospect’s ownership or in the joint venture,” he said.

Zimbabwe has total lithium reserves estimated at 230 000 MT, which accounts for 20% of the total worldwide lithium (Li) reserves estimated at 17,000,000 MT.

 Zimbabwe’s lithium deposits are the largest in Africa.

Electric vehicle (EV) sales are on the rise due to rising demand. Lithium is one of the major elements of EV batteries, and it is difficult to replace as a vital component in batteries. As a result, demand for lightweight mineral will continue to rise – UBS expects that demand will increase eightfold by 2030.

 “PLZ’s existing offtake agreement (to which Prospect is also a party) (Existing Offtake) being terminated, no material adverse change to PLZ’s key mining tenements, environmental impact assessment certificate or the terms of its Special Economic Zone Licence and no material breach of certain pre-completion, ordinary course conduct of business obligations.”

Prospect or Huayou may terminate the agreement if all of the preceding conditions precedent are not met or waived within four months after the SSA’s execution7.

Huayou will immediately pay a deposit of US $20 million to a trust account nominated by Prospect. This deposit will be forfeited by Huayou if the transaction does not complete

Key conditions precedent to completion of the transaction include:

·         Prospect shareholder approval;

·         Requisite Chinese regulatory approvals being obtained by Huayou;

·         Requisite Zimbabwean regulatory approvals and exemptions being obtained;

·         PLZ’s existing offtake agreement being terminated;

·         No material adverse change to PLZ’s key mining tenements; and

·         No material breach of certain pre-completion.

The proceeds to be received by PMPL are expected to be subject to the Zimbabwean capital gains tax, which is levied at 5% of the gross capital amount for assets acquired prior to February 22, 2019 and 20% of the capital gain for assets acquired on or after February 22.

Prospect plans to use the cash balance of US$50m to progress its other battery metals projects in Zimbabwe, and potentially pursue new battery metals growth opportunities globally.

PSC advisers are Azure Capital and Vermilion Partners – legal advisors are King & Wood Mallesons in Australia and Manokore Attorneys in Zimbabwe.

Huayou’s obligations under the SSA have been guaranteed by its parent business, Zhejiang Huayou Cobalt Co., Limited, as well as the New Energy Lithium-ion Battery Material Producer. Prospect is responsible for PMPL’s obligations. Except for an excluded area known as the “Step Aside” claim, which is already held by a Prospect group company, for a period of 12 months after signing the SSA, neither it nor any member of the Prospect group of companies will apply for or obtain any exploration or mining title (either directly or through acquisition of more than 20% of another entity) within a 20-kilometer radius of the Arcadia tenements.

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