AVZ vs Zijin: The Fight for the World’s Biggest Lithium Deposit
The discovery of a gigantic deposit of lithium had raised hopes for the sleepy town of Manono in the southeast of the Democratic Republic of the Congo after a tin boom went bust years earlier.
Australia-based AVZ Minerals announced in 2019 that the Manono lithium-tin project in the DRC probably had the world’s largest untapped lithium deposit, with estimates of 400 million tonnes of lithium ore.
Lithium is essential in making rechargeable batteries for phones and electric vehicles, and is in high demand as countries around the world make the shift to green energy.
The stakes are huge and the rewards are great. But infighting and legal battles among shareholders for control of the Manono site is putting the project on hold.
The main fight pits AVZ against Chinese mining giant Zijin Mining in a case in the International Chamber of Commerce (ICC) International Court of Arbitration.
Zijin claims that through its DRC subsidiary Jin Cheng Mining it bought a 15 per cent stake in Dathcom, a joint venture established in 2016 that owns 100 per cent of the Manono lithium mine.
Zijin says it bought the stake from Cominiere, the DRC’s state-owned mining company, which had 25 per cent of Dathcom under a 2017 deal.
As part of the deal, AVZ had a 60 per cent equity stake, while Dathomir Mining Resources (Dathomir) had the remaining 15 per cent.
Zijin said Cominiere agreed to transfer a 15 per cent interest in Dathcom to Jin Cheng, and the two companies set up a joint venture, Katamba Mining, to explore and develop two greenfield projects at the periphery of the Manono mine.
“Zijin Mining’s purchase price for its 15 per cent stake in the Manono project was at fair market value and includes other provisions that benefit the local community and the DRC,” Sun Kuiyuan, Zijin’s in-house legal counsel, said.
“The sale was subsequently approved at a Dathcom extraordinary general meeting, and lawfully registered at the RCCM [Registre du Commerce et du Crédit Mobilier].”
But AVZ disputes suggestions that Cominiere transferred 15 per cent to Zijin, saying they are “spurious in nature, without merit, containing fundamental and material errors, and having no substance or foundation in fact or law”.
The Australian company says such a transfer would have ignored its right to buy the stake.
“Any such transfer would be subject to the terms and conditions of the existing articles of association of Dathcom as well as the Dathcom shareholders agreement,” AVZ said in its 2022 annual report released on October 17.
“AVZ confirms that Cominière breached the pre-emptive rights of AVZI under the shareholders agreement by purporting to transfer a 15 per cent interest to Jin Cheng, making it invalid and of no force or effect.”
AVZ said it continued to “take all necessary action to resist these vexatious and meritless claims and to protect its and Dathcom’s interests”.
Lithium is essential in making rechargeable batteries for electric vehicles. Photo: AFP
Zijin reportedly paid US$33.4 million for the Cominière share, well above AVZ’s counter-offer of US$15 million.
In a letter dated July 21, 2021, Cominiere director general Athanase Mwamba Misao wrote to AVZ telling it Zijin had expressed interest in acquiring at least 15 per cent of the share capital.
“Having received the green light from the board of directors and the general assembly of Cominiere shareholders to start negotiations with this group, we held a meeting with Zijin on July 14, 2021, during which Zijin expressed its willingness to enter the capital of our joint venture with at least 15 per cent of the share capital,” the letter said.
AVZ replied a few weeks later, opposing the move to sell shares to an outsider and saying it was interested in buying the stake.
“AVZ Minerals hereby notifies you of its willingness to receive the benefit of the right of first refusal, which according to our statutes requires that the shares be first offered and then sold to the shareholders, but this is also in accordance with the agreements between the parties in the Joint Venture agreement of 2017,” AVZ said in its letter to Cominiere.
It warned that any transaction on the sale of shares between shareholders who have discussions outside the company violated corporate governance, the joint venture agreement and the statutes of the company.
These issues are now before the ICC International Court of Arbitration, which is expected to start hearing the case next year.
Another issue is the claim that AVZ acquired a 15 per cent stake from Dathomir, increasing its shareholding to 75 per cent.
However, Dathomir has denied it sold its shares, saying in court documents that although it initially agreed to sell a 5 per cent stake and later another 10 per cent stake, AVZ failed to pay the agreed amounts in time.
Dathomir, owned by a long-time Chinese investor in the country Cong Maohuai, sued in the Congo courts to annul the deal and won.
And in September, the Commercial Court of Lubumbashi suspended the deal, stopping AVZ from buying the shares.
“The transfer of the shares, which were the subject of the sale, to the benefit of the purchaser AVZ International Ltd could only take place after payment in full of the agreed sums; this was not the case for the plaintiff,” Dathomir argued in court.
The Commercial Court of Lubumbashi “ordered the suspension of the payment of the balances of the prices of US$15,000,000 and US$5,000,000 in the two contracts of sale of shares of 5 per cent and 10 per cent that have occurred between the claimant and the first defendant, AVZ International Ltd, while waiting for the arbitration judge to decide on the merits of the case”.
However, AVZ insists it has a 75 per cent stake in Dathcom after acquiring the 15 per cent shareholding from Dathomir.
“AVZI duly completed each of the Dathomir sale and purchase agreements in August 2021, including payment within the required period, and thereby legally acquired a further 15 per cent interest in Dathcom,” it said in its response to the court’s decision.
It said it considered the court’s decision immaterial. “AVZ confirms that it retains legal title to a 75 per cent interest in the Manono project and its pre-emptive rights over the balance of the project.”
AVZ shares remain suspended from trading pending the completion of the sale of its 24 per cent stake in Manono to Chinese battery maker Suzhou CATH Energy Technologies (CATH) for US$240 million.
If the sale goes through and AVZ does not have Dathomir’s 15 per cent share, AVZ’s stake will be reduced to 36 per cent.
While AVZ is based in Australia, its top shareholders, including Yibin Tianyi Lithium Industry, CATH, and Huayou International Mining, are Chinese. Observers say this could mean that the fight for the control of the Manono lithium site is among Chinese mining giants.
Source: South China Morning Post