AVZ Minerals: From $6 million to a $4.5 billion delisting. Inside the Congo lithium saga

AVZ Minerals soared from ASX small-cap stock to a billion-dollar company. Now, their Congo lithium deal hangs in the balance. Will delisting derail the company's ambitions?

Imagine investing in a tiny company that discovers the world’s biggest lithium deposit.

Now, imagine a whirlwind of legal disputes and international interests that threaten to derail their multi-billion dollar project. Could this massive resource ever be unlocked?

This is the ongoing story of AVZ Minerals...

AVZ’s humble origins

Back in 2016, AVZ Minerals was the definition of a minnow – a $6 million Australian small-cap stock with no flagship asset. But they had a secret weapon: new Managing Director Klaus Eckhoff, a well-renowned geologist and seasoned dealmaker with a nose for opportunity in Africa. Klaus zeroed in on an old tin mine in the Democratic Republic of Congo. That old mine, known as the Manono Project, would eventually turn out to be home to the world’s biggest deposit of the hottest commodity on the planet at the time, lithium.

Klaus Eckhof. Source: The Australian

Pre-Klaus, the Manono project had been gathering dust in the middle of the DRC since the 1940s. No one knew its potential until AVZ got involved.

To secure the deal, AVZ set up a joint venture called Dathcom. Think of it like a shared ownership pie:

• AVZ had the biggest slice (60%).

• The DRC government owned a decent chunk through their state enterprise called Cominiere (30%).

• A private company called Dathomir got a smaller share (10%) for helping broker the whole thing.

Now, here’s the important bit: if the smaller shareholders wanted to sell, AVZ got first dibs. This was in the contract to protect AVZ’s investment.

In 2016, the lithium boom was in full swing, and Manono soon became the hottest ticket in town. Word of the project’s potential spread like wildfire. AVZ brought in a corporate advisor to help promote the story, and investors flooded in. Their valuation skyrocketed from $6 million to $110 million before they released their first drill results.

In July 2017, AVZ dropped their first drill results – and they were massive. Over 200 metres and over 1.5% lithium. After four more months of incredible drill results, AVZ’s valuation climbed to $430 million.

Location of the Manono project. Source: Australian Mining

Changes are afoot

2018 brought changes: Nigel Ferguson stepped in as Managing Director, as Klaus Eckhoff transitioned to Executive Chairman. Meanwhile, Cominiere, the DRC’s stakeholder, sold 5% of their shares to Dathomir.

Then, Klaus resigned from his position. The resignation came after selling millions of dollars worth of shares on the market and drawing criticism from some shareholders, as reported by The Australian. Klaus told the newspaper that the sale was for no reason other than “financial commitments like everybody else”.

AVZ powered on, finally confirming what many hoped: Manono was officially the world’s biggest hard rock lithium deposit – releasing a huge resource of 259Mt.

It was business as usual through 2019 and into early 2020. But as the lithium market struggled, so did AVZ’s valuation, retreating to just under $100 million – down more than 75% from its highs.

Then, Covid hit, the green energy thematic kicked into high gear, and lithium became hotter than ever. These catalysts would catapult AVZ to unheralded heights in the coming years.

The post-Klaus Era: Share price rockets

In 2020, AVZ tightened their grip on Manono, boosting their ownership to 75% after buying Dathomir’s 15%. Cominiere, the DRC’s partner, was now the minority shareholder with the remaining 25%.

By early 2021, offtake deals were rolling in for AVZ – buyers were lining up for Manono’s lithium before a single ton was mined. AVZ’s valuation soared to a cool $600 million and climbing.

Then things went ballistic. The world’s biggest battery maker, CATL, showed up with a $400 million cheque. The catch? That $400 million was dependent on AVZ being granted a mining licence. By the end of 2021, AVZ was flush with over $75 million cash, a valuation that topped $2 billion, and they seemed on a fast track to getting that mining license. The sky was the limit.

The momentum continued in early 2022 as the share price nearly doubled, pushing AVZ Minerals’ valuation to an astronomical $4.5 billion. From the end of 2016 to early 2022 the share price of AVZ went from 1c to $1.33, an incredible feat by any investor’s standard.

AVZ Minerals’ share price since acquiring Manono

But behind the scenes, storm clouds were gathering. Sadly, investors would soon feel the full force of the storm.

On May 5th, 2022, it seemed like victory was within reach. The DRC government issued a decree... the long-awaited mining license was granted, or so everyone thought. AVZ was hopeful the $400 million deal was poised to go through, unlocking AVZ’s full potential. But then, disaster struck. Six days later, AVZ was placed in suspension. In an instant, their now $2.75 billion valuation, built over years, was frozen in place. They still had roughly $70 million in the bank, but for how long?

The suspension, the lawsuits, and Zijin

On the same day AVZ shares were suspended from trading, a legal dispute erupted over the ownership of the Manono Project. Chinese mining giant Zijin entered the scene and claimed to have purchased a 15% stake in Dathcom (the joint venture controlling Manono) from Cominiere (the DRC government’s partner in the project). Zijin reportedly paid USD $33.4 million for this stake.

AVZ contests this. In a public announcement, they stated that "any transfer of Cominiere’s shares to Zijin should be disregarded" as it allegedly violates AVZ's pre-emptive rights. These pre-emptive rights would have given AVZ the first option to buy those shares. Cominiere and Zijin argue that the Dathcom joint venture has been dissolved, a claim AVZ disputes.

Legal proceedings began, and the International Chamber of Commerce would be the main ring for the fight. Meanwhile, AVZ’s management continued exploration and spending funds in anticipation of the company coming out of suspension.

AVZ’s legal challenges weren’t just contained to the DRC. In Australia, The AFR reported that litigation funder Omni Bridgeway had agreed to fund a shareholder class action lawsuit against the company, which alleges that AVZ management breached its continuous disclosure obligations and misled investors. AVZ management denies these claims, which remain unproven, and noted that they had not been served any papers from Omni Bridgeway.

In early 2023, the DRC Ministry of Mines revoked the mining license – just when it seemed within reach. AVZ then launched arbitration proceedings against both the DRC government and Cominiere in dispute of them not following their own mining code.

It was soon reported that AVZ had engaged Marius Mihigo, an International Consultant, along with his team to assist with stakeholder relationships in the DRC. Mihigo and his team were paid a fee of USD $1 million.

The AFR reports that “Zijin alleges that this payment is unacceptable and against the DRC’s mining framework”. In a public announcement released by AVZ after the reports, AVZ says it “has carried out appropriate independent due diligence into Mr Mihigo, which disclosed no material probity issues or red flags”.

It was getting messy. And throughout 2023, legal proceedings continued to pile up.

Marius Mihigo with DRC President Felix Tshisekedi. Source: X @MariusMihigo

AVZ shareholder revolt

Just when things couldn’t get more chaotic, AVZ’s own boardroom turned into a battlefield. AVZ’s board of directors came up for re-election at the Annual General Meeting (AGM), a standard procedure for ASX-listed companies.

A shareholder group called ‘Fat Tail Nominees,' led by former director Peter Huljich, formed with the slogan ‘Make Manono Great Again’ (MMGA). They sought to nominate three new directors to AVZ's board.

Fat Tail Nominees slogan. Source X: @MMGACIC

Fat Tail Nominees accused AVZ management of “misleading and deceptive conduct. AVZ management denied these allegations.

AVZ Managing Director Nigel Ferguson led the fight against Fat Tail Nominees. The November AGM turned into a showdown the likes of which you rarely see. Over 250 shareholders, far more than usual, crammed into the meeting, with security at the door. Ferguson won the battle, but the war was far from over.

That same year, Cominiere convinced a DRC court that the Dathcom joint venture company had been disbanded and that, as the original owner of the Manono project, it should be returned to the DRC Government and Cominiere. This decision is currently being challenged.

Manono divided

By the end of 2023, the DRC government split Manono into two parts. Zijin, the Chinese mining giant, swooped in and claimed ownership of the northern section of the project, setting up a new deal with Cominiere. As part of the agreement, Manono Lithium (a new Zijin-Cominiere joint venture) said it would contribute $70 million “to support humanitarian relief efforts in the northeast and east part of the DRC”.

According to reports, of the $33.4 million Zijin had paid Cominiere earlier that year, $6.8 million of it went to “operating needs (including for commissions, fees and exceptional remunerations of all those who would have otherwise contributed to the operation).”

By the end of 2023, AVZ’s cash balance was dwindling. Legal battles were draining their bank accounts, forcing them to accept a lifeline – a $20 million term sheet. The term sheet is subject to a due diligence period, which extends to the middle of 2024.

Source: AVZ Minerals

AVZ wins in court: A glimmer of hope?

2024 started with a much-needed win for AVZ. The courts instruct the southern portion of the Manono project to be returned to the joint venture company, Dathcom. But there was a catch – the fate of the project’s northern section was still up in the air. Then, amidst the legal wrangling, a bombshell dropped: Manono wasn’t just massive; after a new resource update, it was TWICE as big as any other known hard-rock lithium deposit on the planet after a new resource update. Its significance could not be ignored.

AVZ also scored a victory in their first arbitration case, maintaining their 75% ownership of Dathcom. It seemed like the tide might finally be turning... but the other arbitration for the northern portion of the Manono project and against the DRC government and Cominiere continues.

Delisting deadline looms

Throughout the suspension, the clock was ticking for AVZ Minerals. The ASX allows a company to be suspended for two years; after that time, the company is delisted from the ASX. The deadline loomed, and AVZ knew the inevitable was coming. On April 30th, 2024, they formally told the market they would be delisting.

In the announcement, AVZ said: “Whilst the AVZ board acknowledges the suspension from quotation has been, and the prospective delisting will be, frustrating for its shareholders, in the AVZ board’s view it has proved entirely necessary to protect shareholder interests.”

Post delisting

Delisting was a significant setback, but AVZ hasn’t waved the white flag just yet. They will press on with their lawsuits and the due diligence funding lifeline. But there are no guarantees.

Not only is AVZ fighting in a courtroom to retain Manono, but the company also revealed that unsolicited offers were made to purchase shares of AVZ off-market. One could assume that this was done by someone interested in gaining a stake in the company in the hope of overthrowing the current board.

As the offers to buy shares came in, so did extensions to the $20 million Locke funding package. The due diligence package that was signed in November 2023 with a deadline of March 31st still had no closing date come the end of June 2024. What was once seen as a “war chest of funds” has not materialised, leaving AVZ in a precarious position.

Source: AVZ Minerals

The court cases pile up

Arbitration isn’t a quick process, and AVZ and their shareholders are quickly finding out that what many thought would be a quick process could indeed take years. With proceedings against the DRC government, Cominière, Jin Cheng and Fat Tail, it seems that everything now rests in the hands of the judges.

In August 2024, AVZ updated the market that discussions are underway between the DRC government, advisers, and AVZ itself to resolve arbitration proceedings that revolve around the failure to grant AVZ a mining permit. AVZ noted that an MOU is being worked on to appease all parties and progress their interests; however, no formal document was signed.

We must note that the wording from AVZ announcements takes a less direct tone of a settlement to a position that may see AVZ exit the DRC completely. AVZ states that it “remains flexible on the terms and conditions of any settlement”, and the use of such words as “negotiated settlement” begins to appear. We highlight this as, for the first time, we see the words flexible and any settlement; as noted, we believe that it may be in AVZ’s best interest to exit the DRC with a deal.

AVZ announcement wording implies they are more willing to negotiate to a settlement. Source: AVZ Minerals

AVZ funding but site works continue

With AVZ approaching what many consider to be the last of their funds, they raised $1.4 million via a convertible note in late August 2024. With Locke funding now having been announced nearly twelve months prior, the odds of that closing decrease significantly.

With the funds raised, AVZ can continue to fight in the courtroom and defend its position of unfair treatment in the DRC. However, with what AVZ now describes as a “skeleton workforce” helping assist with legal proceedings, it seems AVZ will not be able to fight against all parties on all fronts—a weakened position that is worrisome for shareholders.

Source: X profile @cominiereSA

A look at their X profile page @CominiereSA will show the extensive work done to refurbish the debilitated hydropower station nearby and the installation of generators to power site activities. With AVZ in a weakened financial position and fighting fights on so many fronts, we’ve seen competing parties take an opportunistic approach to stamping their authority in the country.

The story continues

How did it come to this? A tiny $6 million company skyrockets to a $4.5 billion valuation...only to face financial uncertainty and the potential loss of its flagship project? What started as a seemingly straightforward joint venture in 2017 has since evolved into a complex legal dispute. It’s a battle royale with everyone scrambling for a piece of Manono.

AVZ Minerals Managing Director Nigel Ferguson at Manono. Source: AVZ Minerals

Meanwhile, more than 21,000 shareholders are caught in the crossfire, uncertain if they’ll ever see their investments again. This is the kind of blow no investor deserves.

While AVZ management remains committed to a resolution and maintains they’re still fighting for their shareholders, numerous questions remain:

Questions to be asked

1. Can AVZ expect to be awarded a mining licence in the near future?

2. How will the ongoing legal proceedings impact AVZ’s relationship with the DRC government?

3. Would a full sale of the Manono project be in shareholders’ best interest?

4. Will AVZ relist?

5. Will the fines imposed by international courts be paid by Cominiere?

6. Will a shareholder class action against AVZ proceed?

The AVZ saga underscores the importance of due diligence and understanding the risks involved in mining investments, especially in less stable jurisdictions. For the many thousands of AVZ shareholders, this situation is undoubtedly distressing. It's important to remember that behind every investment are real people, and their financial well-being should always be a priority.

The story of AVZ is still unfolding, and whatever the outcome, it won’t be soon forgotten.

In-depth timeline of events for AVZ Minerals

2016: The acquisition

• Sept 29: AVZ Minerals valuation $6.73 million

• Oct 3: Klaus Eckhoff announced as Managing Director

• Oct 31: Acquisition of Manono Project announced

2017: Discovery and growth

• Feb 2: Manono acquisition completed. Dathcom joint venture established:

  • AVZ: 60%

  • Cominiere: 30%

  • Dathomir: 10%

  • Shareholders agreement executed gives AVZ the first right of refusal over any subsequent sale of shares in Dathcom by minority shareholders, Dathomir or Cominiere

• Klaus Eckhoff appointed Executive Chairman

• June 2: Strategic adviser appointed aimed at securing value-adding commercial agreements

• July 28: First world-class drill results

• Aug 1: AVZ Minerals valuation hits $116 million

• Aug 10: $15 million raised to assist with exploration

• Aug 16: $13 million raised to a strategic Chinese investor, Huayou Cobalt Group

• Oct 3: Memorandum of Understanding signed with Chinese Group for potential investment and offtake

• Oct 25: 20,000m drill campaign signed

• Nov 29: AVZ Minerals valuation hits $438 million

• 2017 - Cominiere is alleged to have sold 5% of their holding in the Joint Venture company to Dathomir

  • Ownership: AVZ 60%, Cominiere 25%, Dathomir 15%

2018: Leadership changes and resource announced

• Feb 5: Nigel Ferguson becomes Managing Director

• Feb 26: $15 million raised for exploration

• June 6: Klaus Eckhoff sells 30 million shares ($4.8 million)

• June 27: Klaus Eckhoff resigns as chairman

• Aug 2: Initial resource of 259.9Mt at 1.63% LI2O announced, making Manono the world's largest hard rock lithium resource

• Aug 19: AVZ Minerals valuation at $234 million

• Oct 9: Scoping study released with a USD$1.6 billion NPV

2019: Funding and consolidation

• Feb 21: $9.8 million raised via Share Purchase Plan

• Feb 27: AVZ declares they are fully funded until final investment decision

• May 8: Resource upgraded to 400Mt at 1.65% LI2O

• AVZ valuation drops to $91.3 million (market conditions)

• June 24: AVZ increases ownership in the project from 60% to 65%; Dathomir agrees to sell AVZ Minerals 5% for USD $5.5 million.

  • Dathcom Ownership: AVZ 65%, Cominiere 25%, Dathomir 10%

2020: Major milestones and expansion

• April 21: Definitive Feasibility Study released with USD $2.35 billion NPV

• May 14: $10.7 million raised via placement to Yibin Tianyi Lithium

• Sept 21: AVZ increases ownership in Manono to 75%.

  • Dathcom Ownership: AVZ 75%, Cominiere 25%

• Nov 19: AVZ Minerals valuation at $233 million

• Dec 24: First offtake agreement signed with GFL International Co. Limited (subsidiary of Ganfeng Lithium Co Ltd)

2021: Offtakes, funding, and new highs

• March 9: Second offtake agreement with Shenzhen Chengxin Lithium Group

• March 31: Third offtake agreement with Yibin Tianyi Lithium

• AVZ Minerals valuation reaches $607 million

• May 17: Mining License Application lodged with the DRC Government

• July 2: $40 million raised via placement

• Sept 27: $400 million secured from cornerstone investor CATH, subsidiary of world's largest battery manufacturer, CATL (Contingent on receiving the mining license). The potential Dathcom ownership structure would be:

  • AVZ 51%, Cominiere 25%, CATH 24%

• Nov 24: AVZ Minerals valuation soars to $2.2 billion

• Nov 26: AVZ announces plans to join new DRC Battery Council

• Dec 10: $75 million raised via placement to strategic institutions

2022: All-time high and the storm begins

• April 6: AVZ Minerals valuation reaches $4.49 billion

• May 4: Ministerial Decree to Award the Mining License

• May 11: AVZ Minerals valuation drops to $2.75 billion

• May 11: AVZ suspended from trading

• May 11: Zijin (via subsidiary Jin Cheng Mining) launches arbitration, disputing 15% of AVZ ownership of Manono. It is revealed Jin Cheng paid USD $33.4 million to Cominiere and subsequently claimed 15 per cent of the joint venture company Dathcom. Cominiere never offered AVZ first rights to buy as per the shareholders agreement of Dathcom

• Oct 20: Arbitration proceedings begin before the International Chamber of Commerce in Paris

• Dec 8: AVZ Minerals begins legal action to affirm its rights to the Manono Project

• Dec 15: Omni Bridgeway announce shareholder litigation against AVZ

2023: Legal battles intensify

• Feb 6: DRC Ministry of Mines cancels the mining license decree

• Feb 8: It is revealed AVZ engaged in-country strategic advisor Marius Mihigo

• Feb 10: AVZ and Mihigo vehemently deny any wrongdoing

• Apr 17: AVZ begins arbitration against Cominiere, seeking various remedies for the breaches by Cominiere of its obligations under the joint venture agreement dated 27 January, 2017.

• Apr 28: Cominiere and Zijin claim that Dathcom has been dissolved, a claim that AVZ disputes.

• June 9: AVZ begins arbitration against the DRC via ICSID

• Oct 9: 'Fat Tail Nominees' challenge AVZ board

• Oct 23: Zijin claims ownership of northern Manono

• Oct 30: AVZ refutes Zijin claim of ownership. Cominere convinces a DRC court that the Dathcom joint venture company had been disbanded and that as the original owner of the Manono tenements, they should be returned to Cominiere.

• Nov 15: AVZ reasserts full ownership claim of Manono

• Nov 17: $20 million term sheet signed (due diligence pending)

• Nov 24: AVZ board defeats leadership challenge, backed by shareholders

2024: Mixed results and uncertainty

• Jan 16: ICSID issues interim order reinstating Dathcom's ownership of the southern Manono project. Final ruling on the northern portion is pending.

• Jan 31: AVZ announces a massive resource upgrade, making it twice as large as any other hard rock lithium project globally.

• Mar 19: AVZ successfully defends its 15% stake in Dathcom against a challenge from Jin Cheng.

• Apr 2: The due diligence period for the $20 million term sheet is extended to May 31st.

• April 30th: AVZ notifies the market of their decision not to relist from the current suspension.

• May 13: AVZ officially delists from the ASX

• May 23: Unsolicited offers begin for AVZ shares.

• June 30: Term sheet funding of $20 million delayed once again with no close date given.

• July 31: AVZ posts update of arbitration on several fronts.

• Aug 5: Discussions between the DRC government, AVZ and advisers occurs trying to settle arbitration between the parties. MOU terms are drafted.

• Aug 27: AVZ raises A$1.4 million via an initial issuance of unsecured convertible notes to professional or sophisticated investors.

• Oct 16: AVZ posts an update detailing court cases on five fronts and the current status of them

Article last revised: November 16th 2024

Note: While we strive for accuracy, the situation is fluid, and details may change. This article is for informational purposes only, and we strongly recommend consulting additional, up-to-date sources.

This website offers general information intended to guide you, and does not constitute personal financial advice. We recommend considering how this information aligns with your personal goals and financial circumstances. All information and advice is provided without any responsibility of liability on any account whatsoever on the part of this firm or any member or employee thereof.