Why the AVZ Minerals (ASX:AVZ) share price is surging 15% higher today

The AVZ Minerals Ltd (ASX: AVZ) share price is storming higher on Tuesday after announcing a new major offtake agreement for its lithium…

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The AVZ Minerals Ltd (ASX: AVZ) share price has returned from its trading halt and is storming higher.

In morning trade on Tuesday, the lithium-focused mineral exploration company’s shares are up 15% to 23 cents.

Why is the AVZ Minerals share price storming higher?

Investors have been buying AVZ Minerals shares this morning following the release of a positive announcement.

According to the release, the company has 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 continuing to expand its lithium hydroxide production capacity.

It is aiming to become one of the largest lithium hydroxide producers in China, with initial production capacity of up to 25,000 tonnes of lithium carbonate and 15,000 tonnes of lithium hydroxide.

And with future staged expansions expected to increase Chengxin’s production to approximately 70,000 tonnes per annum, it will require approximately 560,000 tonnes per annum of spodumene concentrate (SC6) to satisfy its internal demands.

What is today’s agreement?

The release explains that the two parties have signed a binding offtake agreement for the supply of SC6 from the Manono Lithium and Tin Project.

Chengxin has agreed to purchase up to 180,000 tonnes per annum of SC6 for an initial three-year term following commencement of production. The agreement includes extension options.

Pricing will be determined by a formula which references various published market prices of lithium carbonate and lithium hydroxide products and underpinned by an agreed floor price.

AVZ’s Managing Director, Nigel Ferguson, said: “We are very pleased to conclude our discussions with Chengxin and to sign our second lithium offtake agreement. This agreement takes offtake commitments to more than 50% of the Manono Project’s initial saleable SC6 production, which is a massive endorsement for our project.”

“We are well advanced with our other offtake discussions, not only for our lithium products but also for our tin and tantalum materials. These will be pursued diligently over the coming weeks and I look forward to updating the market once these agreements are finalised,” he concluded.

The AVZ Minerals share price is now up 280% since this time last year.

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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.

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