Leo Lithium returns to ASX amid turbulence

Leo Lithium (ASX:LLL) resumed trading on the Australian Securities Exchange (ASX) today (4 September 2023) following several weeks of voluntary suspension but it has not roared back into action.

Shares in Leo Lithium were down 51.32% to $0.56 as of 12:35pm AEST following news of several ongoing issues at the company’s flagship Goulamina Lithium Project in Mali.

The resumption of trading follows a two-day trading halt from 18 July, followed by a voluntary suspension from 20 July until this morning.

Suspension of DSO

Chief among the hurdles at Goulamina — Leo Lithium’s sole asset — is a directive from Mali’s Ministry of Mines to suspend the direct shipped ore (DSO) component of activities.

As recently as 30 June, Leo Lithium had been targeting 185,000 tonnes per year of DSO exports until spodumene production begins, saying that the haulage process would also help define the optimum handling solution.

Though no clear reason was given for the directive, Leo Lithium says it has submitted information to the Mali government outlining both the DSO operations and the potential benefits to the country from DSO sales. No formal response to the submission has yet been received, but the company was quick to note that mining is continuing in line with the pre-existing plan, although its previous guidance on 2023 and 2024 DSO production and sales had been withdrawn.

Managing Director Siman Hay says: “While Leo Lithium had a preference to bring Goulamina DSO product to market in advance of our expected spodumene concentrate production in the first half of 2024, it is not necessary for a successful project, and we did not consider a DSO opportunity in our feasibility studies.”

Tax issues

Located roughly 150km by road from Mali’s capital city Bamako, the Goulamina Project is held by Leo Lithium through a 50% stake in Mali Lithium BV (MLBV), in which Ganfeng Lithium Group (SHE:002460) holds the remaining 50% interest. MLBV owns Lithium du Mali SA (LMSA), which in turn owns the Goulamina Project.

LMSA’s relationship with the country is governed by an agreement that was transferred to the company when it acquired the project, and which Leo Lithium claims the Mali government has failed to honour. 

Under the agreement, LMSA is exempt from duties and taxes on petroleum products used to generate energy for the extraction, transport and processing of ore. It’s also entitled to a 3-year exemption from import duties and taxes on equipment for the project.

“Since mid-July 2023, the government’s actions have not been consistent with the project’s exemptions from import duties and taxes for the importation of equipment,” the company says in an announcement this morning.

“Leo Lithium did not receive any communication of this change.”

To date, the company has paid US$4 million ($6.2 million) in import duties and taxes, and expects to rack up another US$16.1 million ($24.94 million) this quarter if the issue is not resolved.

As a result, the total estimated exposure for LMSA regarding “unplanned” import duties and taxes amounts to between US$45 million and US$50 million (between $69.71 million and $77.45 million).

Association with Firefinch

There is also some contention over Leo Lithium’s association with Firefinch (ASX:FFX), which owns the Morila Gold Mine in Mali, and from which Leo Lithium was spun-out in early 2022.

“For clarity, Leo Lithium is not considering any future involvement in Morila

“Leo Lithium and Ganfeng have presented information to the Commission” — set up by the Mali Government to handle the issues — “that conclusively shows that Leo Lithium and Ganfeng have no connection with Firefinch (other than Firefinch holding a 17.6% shareholding in Leo Lithium with no board representation), that the Goulamina licence was validly transferred from a Firefinch entity to LMSA, and that Leo Lithium and Ganfeng were not involved with the Morila Gold Mine at any time,” the company says.

“For clarity, Leo Lithium is not considering any future involvement in Morila.”

New mining code

Central to these issues, however, could be a new mining code that was rolled out by Mali’s interim President Assimi Goita last week. Leo Lithium says it has commenced a review of the code and will advise of any impacts.

President Goita overthrew 2 previous presidents in 2020 and 2021 during coups spurred by anger at the handling of an Islamist insurgency, which has only worsened since his junta took power. He has said he will organise elections and restore power to civilians in 2024.

Under the new code, the military-led government will be able to increase its ownership of gold concessions and recoup what it says are major shortfalls in production revenues. That ownership is currently capped at 20%, but will be increased to up to 35%, potentially doubling the sector’s contributions to GDP in the process.

Mali’s Finance Minister Alousseni Sanou said last week that an audit of the mining sector had shown the state was missing 300 billion to 600 billion CFA francs ($768 million to $1.54 billion), which it intends to recover.

It’s not yet known whether the new code will affect existing projects, but a mining ministry official told Reuters recently that it would depend on the implementing decrees, which are yet to be made available.

Cooperation agreement with Ganfeng

But it’s perhaps not all bad news. Leo Lithium finalised a cooperation agreement with Ganfeng on September 3, outlining a range of “long-term strategic benefits”

They include raising the proposed stage two capacity to 500,000 tonnes per year, which would lift overall capacity at Goulamina to 1 million tonnes per year, and evaluating the potential to co-invest in a downstream conversion facility in Europe, or another region within reasonable distance of West Africa.

As such, the original strategic placement agreement will be replaced by an equity investment agreement, underwhich Ganfeng will fund US$137.2 million ($212.16 million) worth of costs at Goulamina in exchange for new shares in MLBV. Ganfeng will then earn up to a 55% stake in MLBV, with Leo Lithium holding the remaining 45% as operator and manager of the joint venture.

Despite the issues, Leo Lithium says construction and mining activities remain on schedule, and that delays due to custom duties are recoverable

The only material change to come from this restructuring is that offtakes for any potential stage three expansion will reflect the new equity positions. That is, Leo Lithium will be entitled to 45% of stage three offtake, as opposed to 50%.

Despite the issues, Leo Lithium says construction and mining activities remain on schedule, and that delays due to custom duties are recoverable.

The project was estimated to be roughly 35% complete at the end of July, but this is expected to accelerate with additional contractors on site over the next few months.

As of June 30, Leo Lithium had $67.1 million in cash, while the Goulamina JV had US$60.5 million ($93.55 million). This is in addition to a US$40 million ($61.85 million) undrawn debt facility, the drawdown of which is expected to begin this month.

Write to Oliver Gray at Mining.com.au

Images: Leo Lithium
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Written By Oliver Gray
Originally from Perth, Oliver has a keen interest long-form journalism. He has written for a number of publications and was most recently Contributing Editor of The Market Herald’s opinion section, Art of the Essay.