The C$63-million transaction results in Antwerp-based Sibelco owning approximately 19.9% of the issued and outstanding Common Shares, and provides Avalon with a first tranche of funding to advance the Company’s lithium production and processing goals across its suite of lithium mineral assets, led by Separation Rapids in northwestern Ontario. This new joint venture is expected to accelerate Avalon’s core business objective of building a mid-stream lithium refining facility in Ontario.
“This strategic partnership represents a significant step forward in scaling our business towards full vertical integration of our lithium production,
” said Scott Monteith, Chief Executive of Avalon. “Sibelco’s investment is a major vote of confidence in our vision, resources and capabilities by a respected and established international operator—and now partner.
Our partnership with Avalon will focus both on the clean energy growth agenda and the technical glass and ceramics markets in which Sibelco has deep and time-tested expertise. This dual-market strategy combined with a cash-generative business plan will lay the foundation for accelerated growth, and ultimately the venture’s sustained success going forward.
Overview of Transactions
Pursuant to the terms of the Private Placement, Sibelco purchased: (i) 109,692,764 Common Shares at a price of approximately $0.091164 per Common Share (the “Per Share Price”) for gross proceeds of C$10,000,000 which resulted in Sibelco owning approximately 19.9% of the issued and outstanding Common Shares; and (ii) the Debenture, which is a secured convertible debenture, providing for two advances to Avalon: (i) C$500,000 on the date hereof; and (ii) C$2,500,000 subject to the satisfaction of certain conditions precedent. The Debenture bears interest at 7.115% per annum and the principal and interest are payable on maturity, being two years from the date of the Debenture (the “Maturity”). To the extent not repaid at Maturity by Avalon, Sibelco will have the right to convert the outstanding principal amount of the Debenture and all accrued and unpaid interest thereon into: (x) additional Common Shares at a conversion price equal to the Per Share Price; or (y) an additional 5% interest in the joint venture corporation (the “JV Election”), as more particularly described below. The Debenture is a secured obligation, secured by a pledge of the shares of a subsidiary of Avalon subject to replacement security at defined milestones.
Avalon also granted to Sibelco, for so long as Sibelco holds not less than 10% of the issued and outstanding Common Shares on a non-diluted basis, the right to nominate one member to the board of directors of Avalon (“Board”) (or up to two nominees if the size of the Board is increased to nine directors or more), and the right to participate in future equity offerings so that it can maintain itspro rata
ownership in Avalon. Sibelco also agreed to a 12-month standstill and certain resale restrictions placed on its holdings in Avalon.
The proceeds from the Private Placement will be used by Avalon to fund the acquisition of industrial land for a lithium-hydroxide processing facility in Thunder Bay, Ontario, repayment of up to C$1.9 million of existing debt, and for working capital and general corporate purposes.
Subject to the terms and conditions of the binding joint venture term sheet, Avalon and Sibelco have agreed to establish a joint venture with respect to Avalon’s lithium projects, including Separation Rapids and Lilypad in northwestern, Ontario. Sibelco, which will act as operator of the joint venture, has committed to invest €35 million (approximately C$50.4 million) into the joint venture. Of this amount, €5million is to be advanced concurrently with the contribution by Avalon of its interests in the Separation Rapids and Lilypad projects, with an additional €30 million to be advanced in tranches to fund the development of the joint venture mineral projects, including facilities and related infrastructure. After total cash contributions of €35 million by Sibelco, each of the parties will make any further cash contributions on apro-rata
basis (with dilution to a non-contributing party’s interest).
While the initial participating interests to be held on the formation date of the joint venture by Sibelco and Avalon will be 60% and 40%, respectively, such participating interests may change to 65% and 35%, respectively, if on the Maturity date of the Debenture Avalon fails to pay the full principal and accrued interest and Sibelco elects to exercise the JV Election.
The joint venture term sheet is binding on the parties. Avalon and Sibelco will work together to enter into a long-form joint venture agreement as soon as practicable with a view to execution on or before August 31, 2023, but in any event not later than September 30, 2023.
New Strategy, New Vision
Avalon’s new strategic goals are focused on both organic growth of its lithium portfolio, consisting of a suite of critical-mineral mining projects across Canada, as well as developing new related opportunities. The Company’s mission is to vertically integrate lithium processing in Ontario, positioning the province as an integral part of a North American supply chain for EV batteries.
“We are thrilled to execute on a plan to reliably produce a key resource required for North America’s clean-energy transition—and, in so doing, deepen ties between Canada and the European Union in this geo-politically sensitive sector,
” noted Zeeshan Syed, President of Avalon. “We are keenly attuned to the strategic imperative among G7 economies to build domestic critical-mineral processing capacity, and we intend to do just that.
The joint venture will facilitate Phase 1 of Avalon’s new strategic growth plan, which includes:
- The purchase of industrial land for a lithium-hydroxide processing facility in Thunder Bay, Ontario.
- Funding to advance upstream lithium production operations across Avalon’s various projects, led by Separation Rapids and the Lilypad sites, as well as further the development of the promising Snowbank deposit.
- Enabling the Avalon-Sibelco joint venture to execute on a dual-market strategy targeting significant growth in both the glass and ceramics market and the EV clean energy market.
“Avalon’s vision for an integrated lithium play is exciting and will enable Sibelco to play an important role in this business segment
” Ian Sedgman, Sibelco Chief Strategy and Business Development Officer, said. “We see a tremendous opportunity to complement our core business by partnering with a proven lithium asset holder led by an experienced management team.