Bushveld Minerals (LON:BMN), the AIM quoted, integrated primary vanadium producer, with ownership of high grade vanadium assets in South Africa, has announced that it has agreed to support the merger of Avalon Battery Corporation and redT energy plc with interim funding of US$5 million which will give Bushveld the opportunity to acquire a strategic interest in the merged energy storage company.
In July 2019, AIM-quoted energy storage provider redT and Avalon, a North American-based vanadium redox flow battery (“VRFB”) manufacturer, announced their plans to merge. The resulting business will be a leading player in the growing energy storage market. Traded on AIM in London, the merged entity will have a global sales footprint, a robust near-term project pipeline, operations in North America, Europe and Asia, market-leading technology, and a strong management team.
The Merger remains subject inter alia to further due diligence by each party, definitive legal agreements being reached, and a total of at least US$30 million of new funds being raised by redT and Avalon to support the merged business (the “Fundraising”). The Fundraising and the Merger will be subject to the redT’s and Avalon’s shareholders’ approval respectively.
Bushveld has agreed to provide a convertible loan of up to US$5 million to Avalon (the “Interim Funding”), half of which will be loaned by Avalon to redT, to support the companies through the due diligence process, finalisation of the Merger negotiation and completion of the Fundraising. These funds also allow both companies to continue delivering on their current project pipelines.
The investment is in line with the Company’s strategy of building a leading downstream vanadium-based energy storage platform, by:
· Increasing Bushveld’s exposure to the massive potential of the stationary energy storage market, for the first time directly with a manufacturer of the VRFB technology;
· Partnering with selective VRFB companies with attractive upside potential, including the establishment of a VRFB Investment Platform; and
· Demonstrating upstream support from the vanadium industry for the development of the VRFB sector and encouraging additional investment into the combined company.
Rationale of the specific transaction:
The Interim Funding creates an investment in a prominent VRFB/energy storage entity with the potential to become a leading, global battery energy storage systems supplier. This includes:
· Real, near-term deployment opportunities with major buyers that offer robust follow-on sales opportunities.
· A global sales reach that is oriented on North America, Europe and Asia, covering VRFB sales and infrastructure projects.
· An experienced management team that combines decades of VRFB development experience with industry-specific understanding of customer storage requirements.
· A burgeoning project pipeline that will allow the merged entity to achieve the economies of scale essential for cost-competitiveness quicker; to increase investor confidence; and to raise the bankability of its products and projects.
· Operating synergies between the two companies in research and development, sales and deployment and manufacturing.
· The option to participate with a follow on investment into the merged entity.
· The closer relationship with redT and Avalon’s experienced management will allow Bushveld to implement new supply models for vanadium and electrolyte.
· Diversification of Bushveld’s customer and revenue base.
· Preferential vanadium supply rights support Bushveld’s mining, processing and chemicals activities in a sector that may require up to 50,000mtV based on market forecasts.
· This transaction further hedges Bushveld’s position against future volatility in vanadium market prices.
The terms of the Interim Funding include provisions that, on successful completion of the Merger, the loan will convert into shares in the merged entity. Bushveld also has the right, but not the obligation, to invest a further into the merged entity on the same terms as other investors, at a maximum price of 1.65p per ordinary share.
Key terms of the Interim Funding include:
· Loan for six months structured as a draw-down facility;
· Interest of 12 per cent annum on the amount drawn;
· Commitment fee of 20 per cent of the loan amount;
· Interest and commitment fees will roll up and convert into ordinary shares on completion of the Merger;
· A right of first refusal to supply vanadium, vanadium electrolyte and vanadium as a rental to the merged entity for two years and thereafter subject inter alia to Bushveld continuing to beneficially own at least 5 per cent of the merged entity; and
· Conversion of the loan directly into Avalon shares should the Merger not complete. Terms for the conversion mirror those for the merged entity, including a significant minority equity position, right of first refusal on vanadium supply, option but not obligation to participate in future funding rounds and the ability to nominate a director to the Board.
Subject to Bushveld continuing to beneficially own at least 5 per cent of the ordinary shares of the merged entity for one year from completion of the Merger and the Fundraising, it will have the right to nominate a member of the board of the merged entity. Bushveld will retain that right after one year provided it beneficially owns at least 10 per cent of the merged entity. In addition, for so long as Bushveld beneficially owns at least 20 per cent of the merged entity it shall have a right to nominate two members of the board of the merged entity
The Merger constitutes a reverse takeover under Rule 14 of the AIM Rules for Companies and accordingly, trading on AIM of redT’s shares is currently suspended. The Merger is expected to complete, and the trading of shares of the merged entity on AIM expected to resume, during the first quarter of 2020.
Neil O’Brien, Executive Chairman of redT Energy, commented:
“The market for storage assets to support renewable energy targets is developing rapidly and the combination of redT and Avalon will be a leading player in this market. The combination of strengths across both companies in people, technology, and market opportunity gives me confidence in the success of the merged entity. We are looking forward to working with Bushveld as a partner and strategic investor once we have completed the merger.”
Larry Zulch, CEO of Avalon Battery, commented:
“A commitment to renewable energy is increasingly a commitment to large-scale energy storage. This storage must be dependable, safe and economical, all characteristics of VRFBs that will be highlighted as Avalon and redT combine to create the world’s preeminent flow battery company. Bushveld has been a steadfast supporter of the VRFB industry and each of our companies individually. We’re thrilled to have their support and look forward to our continued engagement with them through the merger and beyond.”
Fortune Mojapelo, CEO of Bushveld Minerals, commented:
“This is a major leap forward in the development of our downstream energy business at an attractive price and prudent entry level. It also demonstrates our conviction in the VRFB technology’s potential and our ability to meet the vanadium supply needs of the energy storage industry. The energy storage market presents a very large commercial opportunity, potentially exceeding $300 billion by 2030, with the combined redT-Avalon well placed to capitalise on this opportunity.”
“This transaction deepens our downstream integration in the vanadium value chain by giving Bushveld Energy direct exposure to the VRFB technology for the first time. It also exemplifies the kind of partnerships we continue to establish within the sector, covering supply, deployment and investment through Bushveld Energy.”