Appian Capital Advisory LLP (“Appian” or the “Company”), the investment advisor to long-term value focused private capital funds that invest in mining and mining-related companies, announces the sale of its Brazilian battery metals-focused portfolio companies Atlantic Nickel (“Atlantic Nickel”) and Mineração Vale Verde (“MVV”) (together the “Assets”) to ACG Acquisition Company Limited (“ACG”) for a cash consideration of US$1.0 billion, along with the sale of its gold royalty on MVV to ACG for US$65 million (the “Transaction”).
The Appian funds acquired Atlantic Nickel (previously Mirabela Nickel), owner of Santa Rita, one of the largest open pit nickel sulphide mines in the world, located in Bahia, Brazil (“Santa Rita”) out of bankruptcy in 2018. The same year they also purchased MVV, owner of the Serrote greenfield open-pit copper-gold asset located in Alagoas, Brazil (“Serrote”). Subsequently Appian successfully restarted Atlantic Nickel and commissioned MVV. Appian undertook significant work to de-risk and improve the Assets, demonstrating the strength of the Company’s model and its ability to identify, acquire and optimise mining projects using technical arbitrage to create value. Both mines are long-life, low-cost and ranked within the first decile for carbon emissions amongst all nickel and copper producers worldwide.
The Transaction will provide a compelling value proposition for ACG, Appian, and their respective investors. Upon closing, ACG will be renamed ACG Electric Metals, creating the only London-listed nickel sulphide producer with pure play electric metals exposure, as a natural platform for further growth and consolidation of critical metals assets focused on deliveries to leading western OEMs.
Michael W. Scherb, Founder and CEO of Appian, commented: “Appian began investing in decarbonisation commodities a decade ago, recognising that society was structurally undersupplied for the upcoming energy transition.
“This innovative transaction in the battery metals space will mark Appian’s 10th, 11th and 12th exits, reflecting the strength of our operating model and ability to identify, acquire and optimise mining assets. Likewise, ACG is a great custodian for Atlantic Nickel and MVV, and is well placed to unlock significant further growth from these market-leading companies.
“The Glencore, Volkswagen and Stellantis partnerships are particularly notable, underlining the growing need for EV commodities and the demand for robust, transparent and traceable supply chains from western automotive OEMs, industry and other stakeholders.”
Artem Volynets, CEO of ACG, said: “We are very proud to announce this transaction in strategic partnership with Glencore, Stellantis, La Mancha, PowerCo and Royal Gold, as well as senior debt providers Citigroup, ING and Societe Generale. It will establish ACG Electric Metals as a premier supplier of critical metals into the western EV value chain, with best-in-class ESG characteristics and minimal CO2 emissions.
ACG Electric Metals will be a company designed to take advantage of the opportunities presented by key global trends: the massive increase in demand for battery metals, the polarisation of supply chains, and the need to reduce the world’s total carbon footprint – from the mine to the end-customer.
These high-quality mines will enable ACG’s mission to be the green metals supplier of choice to western EV automakers. This acquisition establishes a solid platform for further growth and long term shareholder value creation.”
Transaction details
Under the terms of the Transaction, ACG has agreed to acquire the entirety of Atlantic Nickel and MVV for a cash consideration of US$1.0 billion, while ACG will also pay US$65 million in cash to extinguish the gold stream on MVV.
The Transaction is supported by financing commitments from financial and strategic parties, including notable partnerships with leading commodity traders and automotive manufacturers to support the electric vehicle transition:
- Glencore will be an anchor investor, having committed US$100 million and becoming an off-taker of choice for ACG, allowing for supply of ACG’s nickel sulphide concentrate to Glencore’s western European and North American refineries.
- PowerCo, a wholly-owned subsidiary of Volkswagen, has committed to make a binding US$100 million prepayment to ACG for equivalent nickel units to the tonnage contained in a portion of the concentrates produced by the Atlantic Nickel mine at Santa Rita.
- Stellantis, the automotive conglomerate formed in 2021 by the merger of Fiat Chrysler and PSA Group, has committed to a US$100 million anchor equity investment in ACG.
- Both PowerCo and Stellantis will become long-term partners via offtake contracts for nickel refined from concentrate produced by Santa Rita.
These partnerships demonstrate the quality of the Assets and their attractive characteristics for western automotive manufacturers at this point in the investment cycle, providing a transparent and secure supply of critical metals to meet future global demand.
Leading mining investment fund, La Mancha Resource Capital Fund (“La Mancha”), has also made a commitment to make a US$100 million anchor equity investment in ACG.
The remainder of funding for the Transaction comes from binding commitments in the form of royalty financing from Royal Gold, senior bank debt underwritten by Citigroup, ING and Societe Generale , who have also agreed to provide a revolving credit facility, and a planned equity offering by ACG of US$300 million. The equity offering provides a broader universe of institutional investors with the opportunity to participate in ACG’s future value creation. The Appian funds have also offered to backstop up to US$50 million of the equity financing.
The Appian funds will also retain their 2.75% Net Smelter Royalty (“NSR”) on the Santa Rita mine, while a 2.5% NSR on the production at the Santa Rita mine will be granted to La Mancha.
Following completion of the Transaction, the Assets’ operating teams will join ACG, providing continuity to drive future success. Current managers, Paulo Castellari-Porchia and Milson Mundim, will continue to oversee Atlantic Nickel and MVV, having managed the assets for several years, achieving strong operational results, ESG performance and a leading safety record.
As part of the transaction, ACG has reinforced its commitment to sustainability practices at its mining sites by agreeing to implement the IRMA Standard for Responsible Mining at Santa Rita, and to undergo an IRMA assessment in 2025 and 2030.
The Transaction is expected to close in July 2023 and is subject to the customary shareholder consents and conditions precedent. Citigroup and Standard Chartered are acting as financial advisor to Appian on the Transaction, with Norton Rose Fulbright and Cescon, Barrieu, Flesch & Barreto as legal advisors.
Atlantic Nickel acquisition and optimization
The Appian funds acquired Atlantic Nickel out of a complex bankruptcy process in 2018, after identifying an opportunity to implement a differential operating approach to restart the mine at a first quartile cost position and benefit from over US$1 billion of previously sunk capital.
The Company subsequently carried out major work to improve Santa Rita, developing a redefined mine plan with a successful restart in January 2020. As a result, Appian de-risked the asset with an attractive average C1 cash cost in the first quartile of the global nickel cost curve (c. US$3.16/lb Ni for the open pit and c. US$2.02/lb Ni for the underground). Appian has grown the Resources at Santa Rita significantly since 2018 through systematic infill and expansion drilling of the open pit and underground Resource areas, extending the life of mine by 27 years to 35 years in total.
Atlantic Nickel recently reported record operational and financial performance for 2022, producing 117kdmt of nickel concentrate (2021 107kdmt) containing 15.9kt of nickel (2021 14.5kt), 5.0kt of copper (2021 4.7kt) and 291t of cobalt (2021 266t). This resulted in US$210 million of EBITDA (2021 US$127 million) on US$406 million of revenue (2021 US$289 million).
Santa Rita has an industry leading ESG and safety record with a Lost Time Injury Frequency Rate of 0.18 in 2022 (compared to 0.20 in 2021). Since restart, Appian has built out the team at Atlantic Nickel from 40 to ~3,000 employees, providing significant local employment and benefits.
MVV acquisition and optimization
MVV was acquired from Aura Minerals in 2018, having identified Serrote as a rare standalone, construction-ready, copper project with meaningful precious metal by-product credits that could benefit from Appian’s technical arbitrage strategy. Appian optimised Serrote’s mine plan, updating the Definitive Feasibility Study and bringing the asset into production in May 2021 under budget and ahead of schedule.
Appian recently announced the successful ramp-up during 2022, with full year production of 19.8kt of copper and 9-10koz of gold contained in 84.5kdmt of concentrate. This resulted in EBITDA of US$60 million on revenue of US$155 million, with average realized commodity prices of US$3.71/lb CuEq. MVV has an average C1 cash cost of US$1.37/lb Cu.
MVV has a best-in-class ESG and safety record, with zero Lost Time Injuries during 2022 (during 1.9 million cumulative hours worked). Other initiatives include providing support for local schools, social projects for female entrepreneurs and environmental education.
The exploration program at MVV continues to demonstrate its broader significant regional upside potential, identifying additional targets that could be brought into the Serrote mine plan over the longer-term.
Outlook and strategic focus
Appian will continue to enhance its unique operating model, and focus on energy transition commodities used in batteries, electric vehicles, and renewable power systems, including copper and nickel, balanced by investments in precious metals and other commodities.
