Avalon Advanced Materials (TSX: AVL; US-OTC: AVLNF) has received $3.5 million in a debt financing with Belgium’s SCR-Sibelco NV, which holds a 19.99% stake in the company. The funds will help advance Avalon’s Lake Superior lithium project in Ontario and the Nechalacho REE (rare earth elements) and zirconium project in the Northwest Territories.
A global leader in specialty industrial minerals, SCR-Sibelco is partnered with Avalon on the Separation Rapids lithium project in Kenora, Ont. The project is in the drilling stage, with Avalon preparing a new resource estimate.
The new funding, said Avalon’s CEO Scott Monteith, will allow the company to accelerate technical studies on its other lithium project in Ontario, the wholly owned Lake Superior in Thunder Bay.
The company recently released a preliminary economic assessment (PEA) for Lake Superior that outlined an after-tax net present value (NPV) of $4.1 billion at an 8% discount rate with a capex of $1.3 billion and 2.5-year payback.
The funding will be in the form of a debenture that bears annual interest at 7.5% and matures in two years. Should the debenture not be repaid by Avalon at maturity, Sibelco has the right to convert the outstanding principal and accrued interest into either additional shares of Avalon, or shares of the Avalon-Sibelco JV at Separation Rapids.
If the entire amount of the debenture and accrued interest is converted at maturity, then Sibelco’s JV interest in Separation Rapids will increase from the current 60% to 90%, while Avalon’s interest will drop from 40% to 10%.
The proceeds are also expected to go towards Avalon’s Nechalacho project. A feasibility study completed by SNC-Lavalin in 2013 demonstrated it could be developed as a 20-year rare earth mine with average annual production of 730,000 tonnes. Its after-tax NPV was estimated at $900 million at a 10% discount rate, while its capex was pegged at $1.6 billion.
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