The AVZ Minerals Ltd (ASX: AVZ) share price has jumped 18% to a 52-week high on Thursday. Here’s why its shares are surging higher…
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The AVZ Minerals Ltd (ASX: AVZ) share price was on form again on Thursday.
The lithium-focused mineral exploration company’s shares jumped 18% to a 52-week high of 23 cents.
When the AVZ Minerals share price hit that level, it was up an impressive 350% since this time last year.
Why is the AVZ Minerals share price at a 52-week high?
Investors have been buying the company’s shares recently after lithium prices stormed to two-year highs.
While the company will not benefit directly from these high prices as it is still a long way from production at the Manono Lithium and Tin Project, the favourable market conditions increase the likelihood that its operation is actually constructed.
A final investment decision on the project is expected in June 2021.
What else has happened?
Also giving the AVZ Minerals share price a boost recently was the announcement of a major offtake agreement.
Last week the company secured a second strategic, long-term offtake partner with Shenzhen Chengxin Lithium Group (Chengxin).
Chengxin is a leading China-based battery materials producer that is aiming to become one of the largest lithium hydroxide producers in the country. It plans to grow its production to approximately 70,000 tonnes per annum in the future and will require approximately 560,000 tonnes per annum of spodumene concentrate (SC6) to satisfy its internal demands.
According to the release, the binding offtake agreement is for the supply of up to 180,000 tonnes per annum of SC6 for an initial three-year term. This will follow the commencement of production at the Manono Lithium and Tin Project, if it goes ahead.
Pricing will be determined by a formula which references various published market prices of lithium carbonate and lithium hydroxide products. It will also be underpinned by an agreed floor price.
This is a very big deal for AVZ Minerals, as it takes its current offtake commitments to more than 50% of the Manono Project’s initial saleable SC6 production. AVZ’s Managing Director, Nigel Ferguson, believes this is a “massive endorsement” for the project.
But it may not stop there. Mr Ferguson revealed that the company is well advanced with other offtake discussions. This is not only for its lithium products but also for tin and tantalum materials.
In light of the above, it isn’t overly surprising to see the AVZ Minerals share price hitting a new high today.
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.