MIIF lithium investment deal is new benchmark for Ghanaian participation in mineral exploitation

The CEO of the Minerals Income Investment Fund (MIIF), Mr Edward Nana Yaw Koranteng has stated that the equity participation by MIIF in Atlantic Lithium and its subsidiary Barari DV Ghana Limited which is developing the Ewoyaa lithium mine in Ghana is a game changing benchmark which should guide Ghana’s future investments in mineral resources.

MIIF is investing a total of US$32.9 Million into this initial phase with $27.9 Million covering all Atlantic Lithium’s tenements in Ghana representing a 6% stake and US$5 Million representing 3.06% stake in Atlantic Lithium (the global holding company listed on the Australian and London Stock Exchanges). This paid-up capital by a state entity in the mining industry is unprecedented in Ghana’s history.

According to Mr. Koranteng, “leveraging MIIF as a sovereign wealth fund to acquire additional equity stake beyond the state’s free carried interest and as a lever to support higher Ghanaian participation in the entire value delivery process should become the standard operating principle for Ghana”.

“The participation of MIIF in the lithium space and the mining sector should be the new norm for Ghana. This also sends a signal of confidence to investors and exploratory companies that Ghana is a preferred mining destination because the state through MIIF is prepared to take additional equity on commercial terms thereby providing a de-risking mechanism for investors.” Koranteng said.

Why is MIIF investing in Atlantic Lithium?

According to Edward Koranteng, the investment in lithium is mainly premised on the transformative nature of the mineral in terms of industry and as a major component in the global shift away from fossil fuels. The discovery of lithium provides an opportunity to make Ghana a battery manufacturing hub in view of the presence of other critical minerals such as iron ore, manganese and graphite.

The prospect of lithium birthing allied industries in Ghana and creating forward integration into an electronic batteries market that will serve the African market through AfCTA opens value chain opportunities and jobs for Ghanaians on the back of Ghana’s local content laws. In line with Ghana’s local content laws, all contract mining activities must be undertaken by Ghanaian companies and about fifty-six mining inputs are mandated to be procured strictly by Ghanaian companies.

The discovery of lithium also provides impetus to make Ghana the EV capital of sub-Saharan Africa. This is premised on the Government of Ghana’s Automobile Development Plan which has seen nine car assembly plants established in Ghana since 2018 with Ghana likely to overtake South Africa in 2024 for the number of car assembly plants.

Mr Koranteng further said, the global EV market in 2022 was valued at US$193.55 Billion with the global market size reaching US$693.70 Billion in 2030. According to Bloomberg, Ewoyaa alone has the capacity to power 1.4 million Tesla cars although Ewoyaa represents less than 20% of Atlantic’s potential in Ghana underscoring the importance of this mineral.

The production of lithium also comes with industrial by-products such as Feldspar which is used for fibreglass and ceramics. The development of lithium in association with the likes of graphite and feldspar creates value chain and industrial opportunities for Ghanaians. These minerals also expand the royalty base for MIIF which can be further channelled into additional equity and value-creating opportunities across all mineral types”.

Mr Koranteng indicated that MIIF and Atlantic have begun talks on the development of feldspar to feed the growing Ghanaian ceramics industry with the support of the University of Mines and Technology in Tarkwa.

A simple breakdown of MIIF’s terms

• MIIF is investing US$27.9 Million in Atlantic Lithium’s Ghanaian subsidiaries for a 6% contributing interest covering all the company’s Ghana portfolio assets. MIIF’s investment takes Ghanaian interests to 23.4% made up of Government of Ghana’s free 13%, Ghanaian private shareholder in Barari holding 4.4% and MIIF’s paid up 6% equity injection.

• MIIF also subscribed for 19,245,574 Atlantic Lithium global company / Holding Company shares at a strike price of 20 pence for US$5 Million equating to 3.06% of the holding company. The share price as of 8th December on LSE was 27.23 pence which is above the price MIIF paid for it. This investment also allows MIIF to benefit from Atlantic’s global exploratory efforts including an ongoing potential in Ivory Coast.

• MIIF negotiated warrants or the rights to buy more shares at a locked in price. This is an option MIIF can choose to exercise or not. Consideration to exercise would be premised on share price, trends and other considerations. The negotiated warrants are priced at US$0.36 which entitles MIIF to acquire 9.6 million shares at a value of US$ 3.5 Million.

• MIIF has negotiated with the support of the Government and the Ghana Stock Exchange (GSE) to compel Atlantic Lithium or Barari DV Ghana Limited to list on the Ghana Stock Exchange. The expectation following ratification of the Mining Lease by Parliament is to list in early 2nd quarter 2024 with production starting in January 2025.

• As part of the agreement, MIIF will participate in the competitive process to buy up to 40% of the lithium spodumene to be produced at market price. By having rights to up to 40%, MIIF seeks to leverage this for co-investment opportunities in battery manufacturing and the development of a refinery or opportunities in the processing value chain. MIIF under this arrangement is positioning itself to take equity positions in these opportunities across the value chain.

• Board Representation – MIIF by virtue of its 3.06% will have a Board seat in the holding company. In view of the combined 19%, Ghana will have two Board representation on the local Ewoyaa operations (Barari).

Financial Benefits to MIIF

According to the Chief Investment Officer of MIIF, Mr Bubune Sorkpor, such investments are about seizing opportunities.

“MIIF saw an opportunity of undervalued shares especially for a company whose flagship project is regarded in the top ten globally”.

He emphasized that, “With an intrinsic value ranging between US$1.25 and US$1.9 per share and the growth in the EV space, we believe there is a huge upside in the long term”. Mr Sorkpor indicated that, a proposed offer from the largest shareholder of Atlantic, Assore of South Africa for 0.33pence or US$0.42 per share translates into a valuation of US$691.6 Million of Ewoyaa, which is quite instructive and aligns with MIIF’s view that the asset is undervalued. MIIF invested at a valuation of US$465m, underlying MIIF’s ability to negotiate favorable terms for Ghanaians.

Mr Sorkpor outlined the main high level financial gains for MIIF as follows.

• Free cash flow over life of mine – US$2.4 Billion with an average life of mine EBITDA estimated at US$316 million per annum.

• MIIF’s Post Tax NPV on Ewoyaa alone on the 6% paid interest is US$ 90 Million

• Based on the negotiated 10% royalty rate which is currently the second highest in the world for lithium after Chile, MIIF will earn US$ 624 million over life of mine.

Increasing MIIF’s Equity Stake

On the question or criticism that MIIF should increase its equity stake, Edward Nana Yaw Koranteng told journalists that, MIIF intends to increase its stake but will emphasize a lot more on the value chain opportunities such as processing and in other lithium prospects coming up which leads to greater job creation.

He indicated that, as a paid investor, there will also be cash calls on MIIF in line with the anticipated rapid development towards production following ratification by Parliament which must be done to avoid dilution of its shares.

Complementing Government of Ghana’s Lease Agreement

MIIF’s position complements the Government of Ghana’s Mining Lease Agreement with Barari DV Ghana Limited and arguably makes the proposed Lease, the best mining lease post-independence.

Mr Koranteng further emphasized that, the contribution of MIIF in this arrangement underscores a complete paradigm shift from what could previously be described as colonial styled-mining contracts to a more forward-looking, value-laden lease agreement that covers greater equity for Ghana, value chain development including a zero policy on export of raw lithium, feasibility on the set up of a refinery, supported by a local content policy which leads to greater job creation, highest royalty rate of 10% which for Lithium is the second highest in the world, a community development levy of 1% on gross revenue, the development of feldspar which is a by product of lithium and the development of our capital markets through a listing of Atlantic Lithium on the Ghana Stock Exchange.

Ewoyaa’s Prolific Lithium belt

Atlantic Lithium in July 2023 published its Definitive Feasibility Study (DFS) for the Ewoyaa Lithium Project, asserted that Atlantic’s revenues over the 12-year life of mine. For just Ewoyaa, it is $6.6 billion with a post-tax Net Present Value (NPV) of 1.4 billion dollars using a discounting Factor (DCF) of 8%, and free cash flow over life of mine of $2.54 billion. The project’s Internal rate of Return (IRR) is 94% with a payback period of about 19 months.

Atlantic intends to grow the potential of Ewoyaa through a rigorous exploration drive that will increase the resource ore for the project. At present, Ewoyaa is the 3rd largest lithium mine in Africa and the 10th largest in the world for anticipated production capacity.

The Chairman of Atlantic Lithium, Neil Herbert sees Ewoyaa as a new pillar of growth in Ghana’s diversified mine interests and submits to the country’s integrated thinking about the Ewoyaa project through MIIF’s investments based on sound market research and investment principles as well as the construction of the processing plant to forestall the export of raw lithium.

“We consider Ewoyaa as a Ghanaian project for Ghanaians. Having MIIF as a shareholder not only de-risks the Project from a funding perspective but, equally importantly, further aligns the Company with the best interests of its Ghanaian stakeholders, who we are proud to represent. Furthermore, an investment by Ghana’s sovereign wealth fund demonstrates the Government of Ghana’s conviction in the Project, showcasing its intent to support the critical minerals agenda and position the country as a leading mining investment jurisdiction in Africa.”