IMANI on the Atlantic Lithium Deal [Read]

IMANI has been following with keen interest the intense debate generated by the  decision of the government of Ghana to:

• Grant a lease to Australian mining startup, Atlantic Lithium, to mine and sell  Ghana’s lithium in exchange for 13% ownership in the mine and 10% of the sales  (revenue); and
• Authorise the country’s sovereign minerals fund, MIIF, to invest $32.9 million of  Ghana’s gold income in Atlantic Lithium to help fund the project in exchange for  6% in the local asset and 3% of the parent company.

These two transactions are connected and must be analysed together at all times.

IMANI would like to start off by congratulating the eminent citizens whose involvement  in the debate have truly elevated it. Former Chief Justice, Sophia Akuffo, and Dr.  Kwakye, both of the IEA, come to mind. As also do Professor Ransford Gyampo of UG Legon, Dr. Sam Jonah, Messrs Fui Tsikata and Kofi Ansah, and, even more recently,  leading Clergy and Sheikhs.

IMANI has been steadily building a “green economy” practice for some time now, so this  debate is very timely. IMANI affiliates like Bright Simons, who wrote two essays (links  in the footnote), and, well before the controversy, Theo Acheampong, who published a  treatise on Ghana’s green economy prospects (also referenced in the footnotes) continue  to assist in this regard.

As the debate gets broader and deeper, some citizens could find themselves lost in the  weeds. The purpose of this pilot brief is to recenter the discussion on the key issues that  have been raised by civil society organisations like IMANI, the IEA, and ACEP. In doing  so, we will also react, albeit briefly, to some of the arguments that have come up.

• The IEA was right to emphasise the relative gains to the investor, Atlantic  Lithium, and to Ghanaians as a people. Nobody in this conversation disputes the  truism that Ghanaians have not benefited from the country’s mineral wealth.  None can deny that since 1897 when Obuasi gold was signed away to foreign  investors under colonial rule, efforts to add value to the country’s raw materials  have failed. Everybody accepts this. Whilst there is value in obtaining precise  numbers, any illustrative calculations will still come to the same point.
• The noted investment lawyer, Fui Tsikata, and former Minerals Commission  chief, Kofi Ansah, have helpfully provided a simple schema for calculating how  much Ghanaians will earn from the lithium mined versus the investor assuming  the total revenue was GHC100. We reproduce it for those who have yet to read

their essay: 1) Royalty plus levy equal to 11% of GHC100 or GHC11 2) Income tax  of GHC24.5 3) Dividend of GHC6. These add up to GHC41.5 for government vs.  GHC39.5 for the investors. The two amounts together totalling GHC81 can be  taken as proxy for the annual direct monetary benefit derived from the project  for the government and the investors. Whilst the simplification makes it easier to  follow the logic, some vital points can be lost. For example, the revenue may well  be 200 GHS but inflated costs and complicated financing structures could lead to  taxable profit staying at 45.5 GHS. The 1% community fund that has been added  to the contractual 10% royalty may not be managed by a public trust but by  proxies of the company, reducing the amount that truly goes to the “people”. The  dividend of 6 GHS depends on board control, and boards can choose not to  declare dividends, etc. So, whilst the illustrative numbers are useful, just like the  IEA’s, everything depends on the assumptions, and how they are refracted  through the contract.

• We were very happy to read that Messrs Tsikata and Ansah are aligned with the  rest of us on the need to insert a mechanism in the agreement such that if the  economic gains change dramatically, which could happen given the huge  uncertainties in the lithium and lithium products space, Ghana’s revenue share  and equity will correspondingly increase.
• We also continue to press the case that there is nothing in the way the contract  has been drafted that will increase the odds of lithium refining happening in  Ghana in a way that will boost value addition, quality jobs, public revenues and  local businesses. The current drafting simply says that the company will only  refine based on the “outcome” of a scoping study. Our position is that the  common expectations of both the government and the company as to what  conditions must exist before refining will be possible must be indicated in some  form to enable tracking. Whether it is profitability level, raw lithium availability,  electricity pricing and availability, tax waivers for complementary imports, or  whatever may be required, the text should be clear so that civil society and others  can monitor progress towards value addition, which everyone agrees is essential  considering Ghana’s history with mining.
• In the same light, “refining” should be clarified so that the public will know what  end-products or intermediaries are in line with the country’s value addition  strategy. There are several stages in the refining process of lithium. Value is  unfortunately not added uniformly at every stage. Refining spodumene  concentrate (the planned product from the Ewoyaa mine) into lithium sulphate  monohydrate will count as “refining” but the contributions that will make to  skills growth, public revenues, green jobs etc., are different from refining the  concentrate into battery-grade lithium hydroxide. It is important that the  expectations are set out clearly in the agreement so that we can all maintain  vigilance.
• A major aspect of this whole transaction is Ghana’s decision to buy, through  MIIF, more stake in Atlantic Lithium, at a cost nearly twice the amount of money  the company’s own backers initially invested in Ghana before getting their  mining lease. In a document circulated to the press called, “Atlantic Lithium  Equity Investment”, MIIF made the emphatic claim that, “Even before any  disbursal, the value of MIIF’s equity investment is up 31% from the locked in  price of US$0.26. MIIF has already made a 31% gain on its planned  investment.” (Emphasis theirs). This analysis, with due respect, is wholly  erroneous. The highest price of the stock this year was on January 27th, when it  sold for $0.417. MIIF committed to buying at $0.26 and though it hasn’t paid for  it or sold any shares, it has already declared a “gain” of 31% because for a short  period of time, the stock price was $0.34. By that same measure, one can argue  that the stock is a money-losing asset since based on today’s (13th December,  2023) price of $0.255, it has already lost nearly 40% of its value year to date.  MIIF needs to marshall more rational arguments to convince the country of the  sense in buying at that price when many of the company’s management held  stock options whose expiry dates were extended to allow them to buy the stock at  much lower prices (eg. $0.15).
• MIIF also claimed that: “The proposed offer by Assore to buy Atlantic for £0.33  (US$ 0.42) per share in cash valued Atlantic equity at £222m (US$ 280.1m).  This translates into a valuation of US$ 691.6m for the Ewoyaa  Project. This places the current valuation of MIIF’s $27.9m investment into  Ewoyaa at US$41.5m (6% of Ewoyaa); representing a 48.75% potential  increase in value.” (Emphasis theirs.) Again, respectfully, this analysis is porous.  The offer to buy, whilst an important signal, was not accepted. The more tangible  implied equity pricing must come from the Piedmont transactions. Piedmont has  been financing the project in exchange for the right to buy half the concentrate  produced. It has so far paid an implied price of less than one-third of what MIIF  is claiming the mine is worth. The country should not be in a headlong rush to  overpay. It is very important to ensure arms-length pricing of the spodumene  concentrate in order to establish the revenue amount to which royalties must be  applied. Equally, IMANI argues for the need for a proper anti-dilution clause, not  a right to participate in future raises/placements since fiscal constraints mean  that any such right will not be regularly exercised. Ghana will end up with its  stake diluted as has happened with all the international gold companies we used  to own stakes in but currently don’t even own up to 0.1%.
• IMANI has seen copies of presentations and marketing materials shared by  Atlantic Lithium at various high-profile events and roadshows in which it claims  to have been offered a 10-year tax holiday and a special electricity tariff that will  save it up to 50% of energy costs. We have also heard some Ghanaian officials  deny this. Either there are indeed such secret agreements or Atlantic Lithium, a

listed company on a regulated exchange, is blatantly deceiving investors. Neither  scenario bodes well. It raises fundamental credibility issues that must be  resolved.

As Parliament gets ready to deliberate on the agreement, expect CSOs to champion the  cause of Ghanaians.

There can be no compromise of the position that the agreement, as currently drafted,  does not meet public expectations. The government will do well to listen.

Notes: 

https://brightsimons.com/2023/12/09/why-ghanas-first-lithium-agreement-shouldnt be-ratified-as-is/

Abusing Truth in Ghana’s Lithium Deal

https://eiti.org/sites/default/files/2022-

07/FINAL%20REPORT_Ghana%20Critical%20Minerals_CLEAN_30.05.22.pdf