Andromeda Metals Ltd (ASX:ADN, OTC:ANDMF) is trading higher after striking an offtake deal with Traxys Europe SA for the purchase of kaolin products from its The Great White Project in South Australia over the first five years of production.
Under the binding agreement, Andromeda will supply Traxys with Great White CRM™ and Great White HRM™ products, addressing what the companies see as a geopolitically driven supply shortage.
The offtake deal supports the company's expanded Stage 1A+ production capacity and furthers its progress towards a final investment decision.
Investors have welcomed the deal with shares as much as 35.3% higher in ASX trading intra-day to A$0.023.
Kaolin deal
The companies have agreed that Andromeda will sell 25,000 wet metric tonnes (wmt) of Great White CRM™ in the first year, increasing to 40,000 wmt in the second year and 50,000 wmt annually from the third year onwards.
Traxys has a 10% leeway on these amounts.
Prices for the first two years align with the 2023 definitive feasibility study (DFS), with subsequent years subject to annual negotiation.
Future volumes will increase proportionately with processing capacity, capped at 130,000 wmt annually.
The deal gives Traxys exclusive marketing and distribution rights in the Middle East (excluding Egypt and Morocco), Turkey, Sweden, Denmark, Norway, Finland, Iceland, Poland, Brazil, India, Vietnam and Bangladesh.
The companies have agreed to payment terms where 90% of amounts provisionally invoiced are payable upon receipt of commercial documents and the remaining 10% on the final invoice.
The parties will share equally in any pricing upside on on-sales by Traxys, excluding sales for ceramic tile bodies, and share risks for on-sales below contract prices.
Andromeda has also agreed to supply 5,000 wmt of Great White HRM™ annually in the first year, increasing to 10,000 wmt annually from the second year onwards (+/-5% at Andromeda’s option).
Estimated prices for the first two years are nearly double the conservative assumptions in the 2023 DFS, with subsequent years subject to annual negotiation.
Traxys will have exclusive marketing and distribution rights in Turkey, India, France and the Middle East.
The parties will share equally in pricing upside on on-sales by Traxys, subject to market acceptance conditions in Traxys’ favour.
The agreement supersedes the previously signed Heads of Agreement and secures the necessary offtake commitments to support Andromeda's Stage 1A+ production capacity.
This includes reaching 100% of the fully ramped cumulative Stage 1A+ capacity of 100,000 wmt annually by the third year of production.
"Comprehensive strategic partnership"
Andromeda CEO and managing director Bob Katsiouleris said: “We are excited to seal our comprehensive strategic partnership with Traxys.
“Traxys is an ideal strategic partner for Andromeda, one in whom we can trust, and one that shares our commitment to meeting the increasing global need for superior industrial minerals.
“The agreement with Traxys is a significant step towards Andromeda's long-term success. Traxys’ binding commitment for significant volumes during the initial stages of production, and its support of future expansions, acknowledges both the high-quality of kaolin products from The Great White Project and the certainty provided through securing an offtake from this new, large source of kaolin supply.
“This positive demand-supply environment is further supported by Andromeda’s growing resource base of high-quality kaolin deposits which provide an opportunity to significantly extend the initial 28-year life of mine of The Great White Project.”
Traxys CEO Mark Kristoff added: “The immense market opportunity of our strategic partnership with Andromeda has been confirmed in our recent market discussions with numerous kaolin customers across global markets.
Addressing global shortage
“The established market for kaolin, currently valued at over US$4 billion of sales per annum, continues to consistently grow in excess of GDP growth, due to growing use driven by supportive customer trends and increasing novel uses for kaolin in new and high-value applications.
“Importantly, Andromeda’s emergence as a near-term supplier of high-quality kaolin is coming at a time of constrained supply driven by long-term global depletion of high-quality sources of supply, which is exacerbated by geopolitical issues, such as the war in Ukraine.
“This has seen acute shortages of high-quality kaolin occur in European and other global markets.
“The positive demand/supply characteristics, together with Andromeda’s high-quality products and extensive kaolin resources, provide us confidence in the long-term nature of our strategic relationship.”