Trident Secures Right Over Sonora Lithium Royalty
27 January 2022
Trident Royalties Plc
("Trident" or the "Company")
Trident Secures Right Over Sonora Lithium Royalty Interest
Trident Royalties Plc (AIM:TRR), the growth-focused mining royalty and streaming company, is pleased to announce that it has entered into an agreement to acquire, subject to certain conditions and at its election, an indirect 1.5% Gross Royalty (the "Royalty", and the acquisition thereof, the "Transaction") over the Sonora Lithium Project in Mexico ("Sonora" or the "Project") from the Estate of Colin Orr-Ewing (the "Estate" or "Seller").
The Sonora Lithium Project is an advanced, development stage asset jointly owned by Bacanora Lithium Plc ("Bacanora") and Ganfeng Lithium Co. Ltd. ("Ganfeng"), with Ganfeng acting as the project operator. Bacanora has recently become a subsidiary of Ganfeng as a result of an approx. £285 million cash offer for all of Bacanora's ordinary shares. Sonoroy Holdings Limited (the "Buyer"), a joint venture company in which Trident holds a 50% interest, has the right to acquire the Royalty for a total consideration of US$52 million in cash (US$26 million attributable to Trident). A deposit of US$2.5 million (the "Deposit") is being paid by the Buyer, with the balance to be paid upon completion of the Transaction, expected to occur in early-2023 following a favourable resolution of a dispute between the Seller and Bacanora (the "Dispute"). If the Dispute is found against the Estate, Trident's funding is fully repayable by the Buyer.
HIGHLIGHTS
· The Royalty complements Trident's existing lithium royalty over the Thacker Pass Lithium Project in the U.S., providing exposure over what are expected to be North America's next Tier-1 lithium mines. Lithium has been categorised by the United States Geological Survey as a critical mineral, with the International Energy Agency estimating that the growth in demand for electric vehicles could see lithium demand increase by over 40 times by 20301.
· At the current lithium carbonate equivalent ("LCE") spot price of approx. US$55,000 per tonne, following completion, royalty revenue attributable to Trident in the Project's Stage 1 would be approximately US$14.4 million per annum, increasing to approximately US$28.9 million per annum in Stage 2. Trident would also benefit from potassium sulphate (potash) by-product revenues at Sonora, providing a new commodity exposure to a high-value fertiliser product.
· At current spot prices, and assuming it acquires the Royalty, Trident would generate aggregate revenue from its two lithium royalties of approx. US$37.5 million per annum under respective Stage 1 production profiles, and approx. US$75.1 million per annum under respective Stage 2 production profiles2.
· Sonora currently contains a CIM compliant open pit Mineral Reserve of 4.5Mt LCE3. The Feasibility Study published by Bacanora in 2018 contemplates an initial mine life of 19 years but utilises only ~770kt of the LCE reserve.
· With Measured & Indicated Resources exceeding 5.0Mt LCE, and an additional 3.8Mt LCE Inferred Resource, Sonora is considered to have significant potential for future Reserve conversions to extend the mine life and/or support a production expansion4.
· Ganfeng (market cap of approx. US$30 billion) is a leading global lithium producer with best-in-class lithium processing expertise and an aggressive production growth agenda.
· Sonora is at an advanced stage of development with permits granted and site works for bulk earthworks, civil engineering, and pouring foundations having commenced. Bacanora has provided guidance of plant commissioning in Q4 2023, with Stage 1 targeting steady state production of 17,500 LCE tonnes per annum and 35,000 LCE tonnes per annum at Stage 2. It is anticipated that Stage 2 is expected to commence in year five of the mine plan.
· Sonora has benefited from the operation of a pilot plant for over five years. The pilot plant has significantly de-risked the project, as Bacanora and Ganfeng have utilised it to inform the final plant design, provide training to operators, and produce product samples for end-users.
· Once in production, Sonora is expected to operate in the lowest operating cost quartile, with operating costs according to the Feasibility Study published by Bacanora of ~US$4,000 per tonne of LCE.
Adam Davidson, Chief Executive Officer and Executive Director of Trident commented:
"Like Thacker Pass - over which Trident holds an existing Gross Revenue Royalty - Sonora is a globally significant lithium asset which is anticipated to be the next meaningful North American lithium mine, with early construction works already underway and first production anticipated for the second half of 2023. With the potential to have both the Sonora and Thacker Pass royalties in the Trident portfolio, shareholders in Trident would have exceptional lithium exposure covering Tier 1 assets, both targeting very near-term production, and therefore cash flows to Trident, in 2023 (assuming completion occurs) and 2024 respectively.
I want to highlight that this transaction showcases Trident's creative energy and ability to work collaboratively with counterparties. Working jointly with the Estate's advisors, Trident has structured a transaction that secures the right to acquire a Tier 1 royalty while avoiding exposure to any associated litigation risk. By the time Trident's full acquisition consideration is paid, construction at Sonora should be well advanced and cash flow imminent, with revenue visibility long into the future."
The Sonora Lithium Project
The advanced, post feasibility study stage, Sonora Lithium Project is focussed on the development of a shallow stratiform, volcaniclastic sedimentary hosted, lithium bearing polylithionite clay deposit, located in the State of Sonora in north-west Mexico. Bacanora Lithium Plc published a Technical Report on the Feasibility Study for the Sonora Lithium Project in January 2018 (the "Feasibility Study"). The La Ventana concession accounts for 88% of the mined ore feed in the Feasibility Study which covers the 19 years of the planned initial mine life3.
The updated December 2017 Sonora Mineral Resource Estimate3 comprises a Total Measured & Indicated Mineral Resource of 291Mt @ 3,250 ppm Li & 1.4% K, for 5,038kt LCE; and an Inferred Resource of 268Mt @ 2,650 ppm Li & 1.2% K for 3,779kt LCE. Total Mineral Reserves3 (at 1,500 ppm Li cut-off) consist of 243,808kt @ 3,480 ppm Li & 1.45% K for 4,515kt LCE.
The Feasibility Study considers a planned 19 years of operation, exploiting the clay deposits utilising loaders and haul trucks in combination with surface miners, via a proposed open-pit mine and a lithium carbonate processing facility. The study envisages a yearly, minimum design output, commencing at 17,500 tonnes per year ("t/y") of battery-grade Li2CO3 (Stage 1), for the first four years of the Project, followed by a proposed expansion, by duplicating the processing plant, to produce a target minimum design output of 35,000 t/y (Stage 2). In addition, the Project design allows for the production of up to 28,800 t/y of potassium sulphate (K2SO4), or 'potash', for sale to the fertiliser industry. Per the Feasibility Study, Trident estimates that c. 96% of production in the initial 19-year mine life is attributable to the Royalty.
Whilst the Feasibility Study mine plan only covers the first 19 years of production, there are sufficient Mineral Resources to give the potential to extend mining and processing significantly beyond 19 years. Considering the current life of mine schedule, a total 37.1Mt of ore at a diluted grade of 4,151 Li ppm and 1.76% K will be mined, at this rate the Measured and Indicated Resources would take 149 years to be exhausted4.
Details of the Sonora Gross Royalty
The key terms of the Royalty are as follows:
· A gross royalty on all mineral products generated at the mine of 3% (for an effective royalty of 1.5% attributable to Trident), payable quarterly in arrears.
· The Royalty applies in proportion to Bacanora Minerals Limited (Canada) ownership of the concessions comprising the Sonora project, including to La Ventana (Concession No. 235611), Buenavista (Concession No. 235613), El Sauz (Concession No. 235614), and San Gabriel (Concession No. 235816), as well as a 5km area of interest.
TRANSACTION DETAILS
Acquisition Terms
Pursuant to a legally binding sale and purchase agreement (the "Sale and Purchase Agreement"), Sonoroy Holdings Limited, a 50/50 joint venture between Trident and Marmottes Capital Limited ("Marmottes"), which is owned by certain beneficiaries of the Estate), is acquiring 100% of the Royalty from the Seller for a total consideration of US$52 million in cash. An initial US$2.5 million deposit is being paid, and the balance is due upon completion, which is subject to a Longstop Date of 31 January 2023 or such other date that is mutually agreed between the Buyer and the Seller. Sonoroy intends to complete the Transaction within six months of favourable resolution of the Dispute. The Transaction was subject to a right of first refusal by Bacanora which expired on 16 December 2021 and was not exercised.
Trident is funding the initial US$2.5 million deposit by way of an interest-free loan (the "Loan") to the Buyer. The Loan is repayable to Trident on completion of the Transaction, or such time as the Sale and Purchase Agreement or Joint Venture Agreement otherwise terminates. The full amount of the loan is repayable should the Transaction complete; however, the Buyer may retain US$250,000 of the loan if the litigation is found in favour of the Estate and Trident elects not to fund its pro-rata share of the consideration. Until completion, the Loan is guaranteed by both Marmottes and Tanamera Resources PTE Ltd, a connected party. Following funding the US$2.5 million Deposit via the Loan, to complete the Transaction of the effective 1.5% Royalty, Trident would make a final net payment of US$23.5 million (being the $26 million pro rata consideration, less repayment of the Loan).
Joint Venture Agreement
The Joint Venture Agreement between Trident and Marmottes sets out the terms on which the Joint Venture will be operated with the right for each shareholder to appoint and remove a director, the conduct of board meetings and certain reserved matters which require the consent of both shareholders, as well as information rights and deadlock provisions. The Joint Venture Agreement also contains a right of first refusal to the other party on a sale of their joint venture interest (other than intra-group reorganisations).
In addition, the Joint Venture Agreement sets out the parties' obligations to provide funding to Sonoroy in proportion to their current holdings upon a favourable resolution of the current litigation. Trident may withdraw from the Joint Venture at any time prior to the completion of the funding and, in such event, it is entitled to be repaid all of its loan (less US$250,000 where Trident decides not to proceed, but a favourable conclusion to the Dispute has been reached).Trident has negotiated certain indemnities from connected parties, including in respect of the cost of litigation that may be incurred by Trident prior to completion of the funding and acquisition. The indemnities are subject to customary limitations and exclusions.
Unless it has withdrawn from the Joint Venture, Trident intends to utilise its cash resources or facilities at the time to provide its share of the funding to the joint venture or, if these are insufficient, to seek additional debt or equity funding.
Royalty Litigation
Bacanora is challenging the validity of the 3% Royalty over the MSB concessions within the Sonora Lithium Project, payable to the Orr-Ewing Estate, and is seeking to overturn a judgment of the Court in Alberta which dismissed Bacanora's challenge in 2021 on the basis that the action by Bacanora was time-barred. On 21 September 2021, Bacanora filed notice of appeal in respect of the judgment, which Trident believes will be heard and determined in 2022.
Trident has structured its funding obligation to mitigate the risks of the litigation through the Loan arrangements.
Competent Person's Statement
The technical information contained in this disclosure has been read and approved by Mr Nick O'Reilly (MSc, DIC, MAusIMM, MIMMM, FGS), who is a qualified geologist and acts as the Competent Person under the AIM Rules - Note for Mining and Oil & Gas Companies. Mr O'Reilly is a Principal Consultant working for Mining Analyst Consulting Ltd which has been retained by Trident to provide technical support.
The information contained within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 which is part of UK law by virtue of the European Union (Withdrawal) Act 2018. Upon the publication of this announcement, this inside information is now considered to be in the public domain.
Notes & References
All of the technical information in this release has been extracted from the publicly available source documents identified below, the reader is advised that the appropriate JORC tables and Competent Persons Statements may be found in those documents.
1 Source: International Energy Agency
( www.iea.org )
2 Sonora Stage 1 at 17,500t/y LCE and Stage 2 at 35,000t/y LCE. Thacker Pass Stage 1 at 40,000t/y and 80,000t/y LCE. LCE spot price of approx. US$55,000.
3. Source: Technical Report on the Feasibility Study for the Sonora Lithium Project, 25 January 2018
(Sonora Lithium Project (bacanoralithium.com)
Lithium carbonate equivalent or LCE is the industry standard terminology for, and is equivalent to, Li2CO3. 1 ppm Li metal is equivalent to 5.323 ppm LCE / Li2CO3. One unit of Lithium Oxide Li2O is equivalent to 2.473 units of LCE. Use of LCE is to provide data comparable with industry reports and assumes complete conversion of lithium in clays with no recovery or process losses.
4 Source: According to stated Bacanora estimates Sonora has the resources to run for more than 200 years at the projected annual production rate of 35,000 tonnes. This estimate would require the utilisation of Measured, Indicated and Inferred Resources.
( https://www.bacanoralithium.com )
** Ends **
Contact details:
|
Trident Royalties Plc Adam Davidson / Paul Smith |
www.tridentroyalties.com +1 (757) 208-5171 / +41 79 947 1348 |
|
Grant Thornton (Nominated Adviser) Colin Aaronson / Samantha Harrison / Samuel Littler |
+44 020 7383 5100 |
|
Stifel Nicolaus Europe Limited (Joint Broker) Callum Stewart / Ashton Clanfield |
+44 20 7710 7600 |
|
Tamesis Partners LLP (Joint Broker) Richard Greenfield |
+44 20 3882 2868 |
|
St Brides Partners Ltd (Financial PR & IR) Susie Geliher / Catherine Leftley |
+44 20 7236 1177 |
About Trident
Trident is a growth-focused diversified mining royalty and streaming company, providing investors with exposure to a mix of base battery, precious, and bulk metals.
Key highlights of Trident's strategy include:
· Building upon a royalty and streaming portfolio which broadly mirrors the commodity exposure of the global mining sector (excluding fossil fuels) with a bias towards production or near-production assets, differentiating Trident from the majority of peers which are exclusively, or heavily weighted, to precious metals;
· Acquiring royalties and streams in resource-friendly jurisdictions worldwide, while most competitors have portfolios focused on North and South America;
· Targeting attractive small-to-mid size transactions which are often ignored in a sector dominated by large players;
· Active deal-sourcing which, in addition to writing new royalties and streams, will focus on the acquisition of assets held by natural sellers such as: closed-end funds, prospect generators, junior and mid-tier miners holding royalties as non-core assets, and counterparties seeking to monetise packages of royalties and streams which are otherwise undervalued by the market;
· Maintaining a low-overhead model which is capable of supporting a larger scale business without a commensurate increase in operating costs; and
· Leveraging the experience of management, the board of directors, and Trident's adviser team, all of whom have deep industry connections and strong transactional experience across multiple commodities and jurisdictions.
The acquisition and aggregation of individual royalties and streams is expected to deliver strong returns for shareholders as assets are acquired on terms reflective of single asset risk compared with the lower risk profile of a diversified, larger scale portfolio. Further value is expected to be delivered by the introduction of conservative levels of leverage through debt. Once scale has been achieved, strong cash generation is expected to support an attractive dividend policy, providing investors with a desirable mix of inflation protection, growth and income.
Forward-looking Statements
This news release contains forward ‐ looking information. The statements are based on reasonable assumptions and expectations of management and Trident provides no assurance that actual events will meet management's expectations. In certain cases, forward ‐ looking information may be identified by such terms as "anticipates", "believes", "could", "estimates", "expects", "may", "shall", "will", or "would". Although Trident believes the expectations expressed in such forward ‐ looking statements are based on reasonable assumptions, such statements are not guarantees of future performance and actual results or developments may differ materially from those projected. Mining exploration and development is an inherently risky business. In addition, factors that could cause actual events to differ materially from the forward-looking information stated herein include any factors which affect decisions to pursue mineral exploration on the relevant property and the ultimate exercise of option rights, which may include changes in market conditions, changes in metal prices, general economic and political conditions, environmental risks, and community and non-governmental actions. Such factors will also affect whether Trident will ultimately receive the benefits anticipated pursuant to relevant agreements. This list is not exhaustive of the factors that may affect any of the forward ‐ looking statements. These and other factors should be considered carefully and readers should not place undue reliance on forward-looking information.
Third Party Information
As a royalty and streaming company, Trident often has limited, if any, access to non-public scientific and technical information in respect of the properties underlying its portfolio of royalties and investments, or such information is subject to confidentiality provisions. As such, in preparing this announcement, the Company often largely relies upon information provided by or the public disclosures of the owners and operators of the properties underlying its portfolio of royalties, as available at the date of this announcement.
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