Evolution Energy Minerals Ltd (ASX:EV1) has executed a strategic investment agreement, a binding offtake agreement and a "transformational" Memorandum of Understanding (MoU) for downstream collaboration with the world’s leading battery anode producer, BTR New Material Group Co., Ltd.
On completion of the series of three transactions, Evolution (via a downstream entity to be agreed with BTR) will be positioned as a vertically integrated producer of lithium-ion battery anode materials using flake graphite from its Chilalo Graphite Project in Tanzania.
The US$3.4 billion (~A$5.3 billion) capped BTR is a high-tech enterprise specialising in lithium-ion battery materials and carbon nanomaterials, including anode, cathode and advanced new materials.
Investors have responded positively to the agreement with BTR, driving EV1 shares as much as 22% higher on the ASX intraday to $0.25.
Long list of customers
BTR's customers include Chinese domestic lithium-ion battery manufacturers, including CATL, BYD, EVE, Gotion High-Tech and REPT, plus international Tier 1 customers such as SK, Samsung (KS:005930), LG, muRata and Panasonic.
As the global leader in the manufacture of lithium-ion battery anode materials, BTR brings commercially proven technology, unparalleled expertise in product qualification, a well-established marketing function and Tier 1 customer base.
The company also has a large-scale research and development function, which ensures that the anode materials manufactured at the downstream collaboration facility will be a market-leading product.
Benefits for EV1
For Evolution, there are a number of key strategic benefits in its collaboration with BTR.
Firstly, it will ensure that around 90% of Evolution’s graphite is under offtake with globally leading customers. This supports project economics and is expected to enhance project financing proposals.
Secondly, it provides strategic financial support with potential for further BTR funding contributions. BTR’s financial and strategic validation provides additional confidence in securing the optimal development funding.
Thirdly, partnering with a globally leading anode processing technology provides an accelerated, yet de-risked, solution to becoming a vertically integrated supplier of battery anode materials.
Finally, it repositions Evolution to fast-track towards transforming into a vertically integrated producer of lithium-ion battery anode materials and gaining exposure to the rapidly growing battery anode market.
"Transformational opportunity"
Evolution managing director Phil Hoskins said: “The strategic placement, offtake agreement and MoU with BTR represent a transformational opportunity for Evolution and provide further validation of the Chilalo project’s quality, including the significant value-added potential into battery anodes.
"These transactions provide a clear pathway to funding and accelerate Evolution’s transformation from graphite mine developer to a vertically integrated graphite company."
Collaboration components
There are several components to the collaboration agreement with BTR:
Strategic placement
Under the strategic placement to BTR, Evolution will raise $4.9 million via the issue of 22.3 million shares at $0.22 per share, representing 9.9% of Evolution shares currently on issue. The issue price represents a 7% premium to the last traded price and a 14% premium to the five-day volume weighted average share price, as at August 11, 2023.
Memorandum of Understanding
The MoU covers a proposed downstream processing collaboration between BTR and Evolution to produce battery anode materials, and financing for development of the Chilalo Project from BTR.
Offtake agreement
The offtake agreement will see 100% of Chilalo’s -100 mesh (fines) sold to BTR for three years. Completion of the offtake agreement will mean that 90% of the production from Chilalo is subject to binding offtake arrangements — a key requirement of project financers.
Management says that the offtake agreement, alongside BTR’s financial backing, should materially support the ongoing project finance process for the Chilalo project.
The arrangements between Evolution and BTR are subject to a variety of conditions precedent, including BTR completing due diligence to its satisfaction.
Looking ahead, Evolution expects the immediate focus regarding the proposed downstream collaboration to include:
- working with BTR on an economic assessment of downstream processing in North America or other jurisdictions outside China, building on a body of work already completed by Evolution, particularly in relation to site selection;
- undertaking an accelerated program of product qualification and product development for anode materials manufactured using Chilalo fine flake graphite; and
- advancing analysis of the most appropriate structure for the proposed downstream collaboration.