Core Exploration signs key supply agreement

By Justin Ware. Published at Dec 1, 2017, in Small Caps

Core Exploration (ASX:CXO) has struck a key supply deal with Ya Hua International Investment and Development Co., a subsidiary of A$3 billion Shenzhen-stock exchange listed Sichuan Yahua Industrial Group Co.

A binding lithium offtake agreement and conditional US$20 million prepayment agreement have been secured for CXO’s 100% owned Finniss Lithium Project near Darwin in the NT.

YaHua are one of China’s largest lithium hydroxide and carbonate producers, with the deal poised to advance CXO’s plans to become a leading low-cost lithium producer.

Offtake agreement

CXO will provide one million dry metric tonnes of direct shipping lithium ore to the group from its mineral lease that contains the Grants lithium deposit.

The agreement is projected to account for more than 50% of production from the Grants lithium deposit over its lifetime, with the offtake agreement representing exceptional value for the company in early stage revenues.

The agreement will expire upon CXO delivering one million metric tonnes of lithium or after five years, and may be extended by mutual agreement between the company and Yahua.

At the same time, it’s worth noting that this is an early stage play and investors should seek professional financial advice if considering this company for their portfolio.

CXO also indicated that in the event it does not produce a DSO product (direct shipping lithium ore), the offtake agreement will allow both parties to amend or renegotiate the deal in good faith.

Prepayment agreement

Yahua will provide a US$20 million prepayment to CXO to be used to develop its Grants lithium deposit.

The prepayment can be accessed in three tranches by CXO subject to the satisfaction of several conditions, including the grant of a mining licence and receipt of all necessary approvals to commence mining.

A final decision to mine must be made no later than 31 December 2019, which must be accompanied with a feasibility study that demonstrates a measured and indicated resource of at least one million dry metric tonnes of lithium which supports a net present value of greater than US$20 million.

About the Grants lithium deposit

The deposit represents the first mineral resource located within CXO’s Finniss Lithium project in the Northern Territory.

CXO has indicated that the deposit is one of several similar pegmatite prospects within its portfolio, with the development of the site to include an open pit, waste rock dump, ore stockpile and processing infrastructure.

CXO’s Managing Director, Stephen Biggins, commented on the agreement,

“The signing of the first offtake and prepayment agreements for the Finniss Lithium project is a significant milestone for Core, and we are delighted to have extended our strategic relationship with Yahua.

“These agreements are a strong endorsement of the Finniss Lithium project and gives substantial clarity on project funding as we embark on our plan to rapidly transition into lithium DSO production.”

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