Leo backs out of Mali lithium with $521.5 million sale

Leo Lithium (ASX:LEO) has made the decision to sell its remaining 40% stake in the Goulamina Lithium Project in Mali to Chinese partner GFL International Co (Ganfeng) with a proposed new mining law that could see the government take a larger share of the project.

The company will offload its stake in the project – its sole asset – for US$342.7 million ($521.5 million) after signing a memorandum of understanding with the Mali government resolving outstanding issues. 

Leo Lithium had been in long-running talks with the government over issues including government orders to suspend the direct shipping ore (DSO) operations.  

Other issues surrounding the project centred on the status of the government free-carry interest as well as allegations of an irregular licence transfer and demand that the joint venture partners reapply for a new exploitation permit under the new 2023 Malian Mining Code.

The new mining code, which is still in draft form, could potentially allow the government to lift its interest in the project to 30% from 20% previously, plus provide for a further 5% local stake.

Leo Lithium says if this is implemented under the new mining code it will have a significant negative impact on the economics of the Goulamina Project.

As part of the agreement reached with the Mali government, Leo Lithium paid a US$60 million settlement to the government that was funded from the US$65 million sale of a 5% stake in Goulamina to Ganfeng.

Firefinch (ASX:FFX), which has a 17.6% shareholding in Leo Lithium following its spin out in early 2022, will pay $11.5 million back to Leo Lithium as a contribution to the settlement. 

Leo Lithium Managing Director Simon Hay says the board believes the sale is the best way forward for the company given the increasingly challenging sovereign and security risks in Mali.  

“Despite our best efforts to reach a viable agreement with the Mali Government and considering the increasing risks associated with operating in Mali, the impact of the new 2023 Mining Code and the company’s financial position for future funding, the board of Leo Lithium has determined that a sale of the company’s remaining interest in Goulamina is in the best interests of Leo Lithium shareholders,” he says. 

“The board believes the executed sale and purchase agreement with Ganfeng provides our shareholders with certain value under highly challenging circumstances.”

As part of the sale agreement, Ganfeng will sole fund all remaining capital required for the Goulamina Project until first revenue.

Leo Lithium will also receive compensation from Ganfeng for the termination of an earlier cooperation agreement that included offtake rights. Ganfeng will issue Leo Lithium a 1.5% gross revenue fee for over 20 years in exchange for the offtake and other rights relinquished.

The company says it will hand over the management rights to Ganfeng, but act as contractor likely into Q4 this year to ensure a smooth transition. 

The Mali government will now be responsible for all outstanding permits and approvals.

Leo Lithium says Goulamina remains on track for first spodumene production in Q3 2024. 

The company had a cash balance of $69.3 million at the end of Q1.

Write to Angela East at Mining.com.au 

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Written By Angela East
Managing Editor Angela East is an experienced business journalist and editor with over 15 years spent covering the resources and construction sectors and more recently working as a communications specialist handling media relations for junior resources companies.