Kodal Minerals (LON: KOD) is up 7% today on their announcement of an expansion of the mineral reserve: “new JORC Mineral Resource estimate (MRE) for the Bougouni Lithium Project located in southern Mali ("Bougouni") of 31.9 million tonnes (Mt) at 1.06% Lithium Oxide (Li2O), an increase of over 40% from the previous Mineral Resource completed in 2019.” Well, yes, OK, that has value.
However, there’s something that does worry us here. We’ve been following Kodal Minerals for some time now. KOD shares and Kodal again. We don’t doubt the mineral reserves, don’t doubt the lithium concentration in the spodumene, we’re entirely fine with all of that. What has worried us is the difficulty they’ve been having with certain bureaucratic procedures. Now, we’ve noted that we’ve had experience of doing business in difficult places. And even that we’ve experience of how to resolve such difficulties. When a bureaucracy starts to be a bit sticky some financial grease needs to be applied. No, no, not bribery, heaven forfend. But a more detailed listening to and offering of solutions to the very real concerns of the local politicians.
And more than that, we thought that those difficulties over the transfer of the mine licences to a new subsidiary was showing all those signs of not enough solution to those very real local political concerns. Not that we know all of this to be true just that we’re pretty realistic about doing business in certain jurisdictions.
Kodal Minerals share price from Google Finance
What worries us is this little part of the funding deal with Hainan: “The agreement for completion of the Transaction follows from the waiving of certain conditions precedent relating to the reorganisation of Kodal's Mali lithium assets, being (i) the transfer of the Bougouni mining licence from Future Minerals SARL to KMUK's new Mali subsidiary, Le Mines de Lithium de Bougouni SA ("LMLB"); and (ii) the transfer of the Sogola-Nord concession to Future Minerals SARL, which will also be a 100% owned subsidiary of KMUK. The Mali government will become a shareholder in the subsidiary mining company following completion of the transfer and finalisation of shareholder agreements and LMLB has been established to be the holder of the Bougouni mining licence and operator of the mine. These transfers will occur at a later date once formal approval of the Direction Nationale de la Geologie et des Mines ("DNGM") in Mali has been received. Kodal continues to liaise with the DNGM to seek completion of the transfers as soon as possible and in the meantime these assets are deemed to be held on trust for the benefit of KMUK, whilst Kodal progresses the Bougouni Lithium project with the funding from Hainan. Kodal has agreed warranties and indemnities up to US$100 million in relation to the waiving of these conditions precedent for the transfer of the Bougouni mining licence and the Sogola-Nord concession. The warranties and indemnities cover the period from Completion (as defined below) to the point of transfer of the licence and the concession, with a two year period for claims to be made. Kodal will warrant the good standing of the licence and concession at the time of transfer.”
Ah. The difficulty over the transfers of the licences have not been overcome. But to unlock the funding Kodal has guaranteed that they will be and guaranteed up to the value of $100 million. That seems like a pretty large guarantee to us.
So what happens if those difficulties are not overcome by that very real listening to local political concerns? No, we’re not sure either. We do think that significant guarantee is worth keeping in mind though.
