Avanti locks down off-take agreement with ThyssenKrupp

VANCOUVER — Pitching a large-scale molybdenum mine is likely not an easy task in today’s market, but Vancouver-based junior Avanti Mining (AVT-V) has proven that there is still a global demand for the industrial metal. The company announced an off-take agreement with Germany’s ThyssenKrupp Metallurgical Products on June 20 that could represent north of US$2 billion in moly revenues at its Kitsault project, 140 km northeast of Prince Rupert, B.C.

The agreement with ThyssenKrupp — a diversified industrial group based in Essen, Germany, that operates in 80 countries worldwide and generated sales of 40 billion euros in 2012 — accounts for 50% of Kitsault’s life-of-mine production, and makes the German company Avanti’s exclusive agent for sale of its products in Europe and North America, with a specified amount to be sold in Germany.

“We are very pleased to have [ThyssenKrupp] as a significant customer and look forward to a long term mutually beneficial relationship with them,” commented Avanti’s chief financial officer A.J. Ali. “The [agreement] is an important step in securing Kitsault’s financing. We look forward to concluding our discussions with potential Asian partners for a similar transaction in order to assist in the completion of the debt financing for the project.”

Avanti qualifies for the German government’s Untied Loan Guarantee (UFK) due to the quantity of moly the company will be selling to the country. Under Germany’s Raw Material Import policy two German banks — KfW IPEX-Bank and UniCredit Bank — have been issued a mandate to provide US$300 million of the total finance facility needed for development at Kitsault.

In an interesting addition to the agreement, Avanti has also given ThyssenKrupp a first right of refusal for any additional moly production it develops at other projects.

Avanti’s off-take agreement comes exactly three months after the company received its environmental assessment certificate from the British Columbia Minister of Environment and the Minister of Energy, Mines and Natural Gas, which the company hopes will allow it to start up construction at Kitsault by late 2013.

The company acquired the historic Kitsault mine from an Alcoa (AA-N, AA-X) subsidiary for $20 million in 2008, and has invested $13 million over the past four years in a bid to revive the operation by 2015.

With the bulk of the permitting concerns out of the way, Avanti will be fully focused on financing the project, which carries heavy development costs at roughly $1 billion. The company intends to finance the project through roughly 60% debt and 40% equity.

Avanti is sitting on a mandate letter with five lenders that was extended through December, and is aiming for a 12-year loan with prepayment from part of its free cash flow. The company will attempt to raise the remaining US$400 million through the sale of a 30% interest in Kitsault to an Asian partner, as well as a public equity offering.

The equity portion could prove a bit tricky considering Avanti is sitting near a 52-week low at 6.5¢ per share and has roughly 434 million shares outstanding at the time of writing. The economics of the project have also been affected by struggling metal markets, with the moly oxide prices having slid to around US$10.71 per lb. at press time. At a US$12.50 moly price Kitsault returns a $302 million net present value and 11.5% internal rate of return at a 6% discount rate.

The company also remains at odds with the regional Nisga’a First Nation, which claimed in late March that Kitsault’s environmental review process had not adequately assessed the impacts of discharging heavy metals into freshwater and marine environments, including waterways at the mouth of the Kitsault River.

In mid-May Avanti received notice of a Federal Court application by the Nisga’a, which challenges a decision by Fisheries and Oceans Canada that certain waters in the area of the tailings impoundment facility at Kitsault are not “frequented by fish.”