Vulcan Energy – Agreement for Proposed Strategic Partnership for Central Lithium Plant Including Equity Financing

Vulcan Energy – Agreement for proposed strategic partnership for Central Lithium Plant including equity financing.

Vulcan Energy Resources Ltd. (Vulcan, the Company; ASX: VUL) has signed a Term Sheet agreement with Nobian GmbH (Nobian)for the formation of a 50/50 joint venture over, and equity financing of, Vulcan’s Central Lithium Plant (CLP), which forms part of Vulcan’s Zero Carbon Lithium™ Project (Transaction). The strategic partnership is subject to the parties entering into definitive agreements, which are targeted to be completed within 10 weeks from the date of the term sheet.

The planned CLP is contained within a Joint Venture Special Purpose Vehicle known as SPV2, and the Transaction is envisaged to be based on the terms set out below. Background and rationale for strategic partnership

• As part of its project financing, Vulcan has split Phase One of its integrated 24,000tpy Lithium Hydroxide Monohydrate (LHM) and renewable energy project into two separate Special Purpose Vehicles (SPVs):
  o SPV1 includes the plant and infrastructure associated with the production of renewable energy and lithium chloride (LiCl) and includes land, wells, pipelines, geothermal and lithium extraction plants. SPV1’s output includes renewable energy and LiCl, the latter which is sold to SPV2.
  o SPV2 includes the CLP which converts LiCl into LHM, with a by-product of HCl. LHM will be sold to the Vulcan parent company which will then distribute it to Vulcan’s offtakers.
• Nobian has a strong pedigree in chlor-alkali operations and a heritage stretching back over 100 years. It’s first chlor-alkali electrolysis plant in Bitterfeld was started up in 1894. Nobian is a European leader in the production of salt, essential chemicals and energy solutions for industry and has a deep and long-standing expertise in crystallization, electrolysis, and the production of chlor-alkali products.
• Through the proposed strategic partnership both parties seek to leverage both Nobian’s deep and long-standing experience in industrial crystallization and electrolysis and operating chlor-alkali plants, as well Vulcan’s Zero Carbon Lithium™ Project, which uses chlor-alkali type electrolysis cells to produce lithium hydroxide.
• Nobian has existing production sites in the Netherlands, Denmark and Germany, including at the same site as Vulcan’s planned CLP, at the Hoechst Chemical Park, providing additional synergies.
• The Term Sheet builds on and reflects 15 months of collaboration between Nobian and Vulcan.

Proposed contributions, valuation and key terms

• The Term Sheet provides that, subject to execution of Definitive Agreements for the Transaction and the satisfaction of other conditions (set out below), Nobian shall contribute EUR 161 million (approximately A$265m) in cash as equity to fund CAPEX for the CLP, to acquire 50% of the SPV2 Joint Venture, on the basis of an agreed pre-money valuation of EUR 322 million for the CLP SPV2.
• As per Vulcan’s Definitive Feasibility Study (DFS) published in February 20231 , SPV2’s CAPEX requirementis estimated at EUR 322 million. It is expected that Nobian’s equity contribution, alongside expected project debt finance to be obtained by the Company, which BNP Paribas, Vulcan’s financial advisor, is assisting Vulcan on arranging, will fully cover the funding requirement for the CLP. The Company is targeting a debt-to-equity ratio of 65:35 for the overall funding of Phase One.
• Based on the DFS, SPV1’s Net Present Value (NPV) represents 77% of Phase One total NPV whilst SPV2’s
  NPV represents 23%.

Other key material terms2

• The Parties shall use reasonable endeavours to execute the Definitive Agreements which contain materially the terms set out in the Term Sheet within ten weeks following the execution of the Term Sheet. Termination by either Party will be possible after ten weeks if the Definitive Agreements have not been executed by that date.
• The Parties are under no obligation to proceed and implement the Transaction in part, or in full, unless the Definitive Agreements have been executed.
• Nobian will make an initial contribution of EUR 15 million upon execution of the Definitive Agreements and will make subsequent contributions upon the satisfaction of certain milestones. Nobian’s shareholding in SPV2 shall (at each point in time) reflect the proportion of Nobian’s contributions which have been unconditionally committed to SPV2.
• The milestones and timing to trigger equity contributions to SPV2 are not prescribed in the Term Sheet and will be jointly defined in the Definitive Agreements. The timing will be in line with Vulcan’s current development timeline, as published in the DFS.
• Execution of the Definitive Agreements is conditional on:
  o Satisfactory completion of confirmatory legal, business, commercial and technical due
  diligences by Nobian.
  o Approval of the Definitive Agreements by Nobian’s and by Vulcan’s board and/or other
  competent corporate bodies, as applicable.
• The Definitive Agreements will also be subject to approval of the Transaction and Definitive Agreements by public authorities (e.g. merger control), if so required.
• During the term of the Term Sheet, the Parties have given mutual exclusivity rights to negotiate with one another in respect of the Transaction.
• The Parties will work together on future expansions of capacity of the CLP, in line with Vulcan’s stated development plans.
• There is no guarantee that the Parties will execute Definitive Agreements, and the final Definitive Agreements remain subject to negotiation and may be on terms that are different to those set out in this announcement and the Term Sheet.

Financing for remainder of Zero Carbon Lithium™ Project

• Vulcan is leveraging its existing cash position to continue to advance its project through bridging engineering and ordering of commercial long lead items, whilst financing for full project CAPEX is ongoing.
• Vulcan is in discussions with strategic counterparties for equity funding of SPV1, in which it intends to deploy a similar strategy as SPV2 of bringing in project-level equity investment.
• The process of obtaining debt financing is already under way lead by BNPP, with positive feedback already received from numerous commercial banks, and Letters of Intent secured from Export Credit Agencies from the French, Italian and Canadian governments3, in line with similar approaches taken by successful project developers in the past.
• Vulcan is targeting close of all debt and equity financing workstreams by Q1 2024.

Dr. Francis Wedin, Vulcan Managing Director and CEO, commented:

This is a positive step forward, as part of our stated strategy to prioritise project level equity investments for funding of Phase One of our Zero Carbon Lithium™ Project.

“After 15 months of collaboration, Nobian and Vulcan have developed a very positive relationship, and we welcome this step towards Nobian’s equity investment into our Central Lithium Plant (CLP) in Germany, to assist us with providing secure, sustainable and carbon neutral lithium chemicals into the European electric vehicle market, helping to enable the transition to fully electrified transport.”

“We look forward to keeping our shareholders informed of next steps here as we commence the formal Joint Venture negotiation for the CLP, as well as funding updates, including strategic investor discussions, for our upstream lithium chloride production and renewable energy project. It is shaping up to be a very exciting and transformational year for Vulcan.”

Agreement for proposed strategic partnership for Central Lithium Plant including equity financing, April 27, 2023