Ionic Rare Earths Limited
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Why is IonicRE's Acquisition of Makuutu Rare Earths Project a Potential Game-Changer?
IonicRE Moves to 94% Ownership of the Makuutu Rare Earth Project
In a significant development in the world of rare earth elements, Ionic Rare Earths Limited (ASX: IXR), also known as IonicRE, has announced its intention to acquire an additional 34% interest in the Makuutu Rare Earths Project. This strategic move will elevate IonicRE's ownership stake in the project to an impressive 94%, signaling a watershed moment for the company and unlocking a plethora of potential funding and offtake scenarios.
The Makuutu Rare Earths Project: A Strategic Asset
Makuutu Rare Earths Project, located in Uganda, is far from an ordinary rare earth venture; it stands as a strategic asset with immense potential. Boasting an impressive 71% magnet and heavy rare earth content, Makuutu is considered one of the most advanced ionic adsorption clay (IAC) heavy rare earth projects worldwide. This unique composition positions Makuutu to play a pivotal role in fulfilling the surging demand for heavy rare earths in advanced manufacturing industries, especially in Europe, the United States, and Asia.
Mr. Tim Harrison, the Managing Director of IonicRE, underscored the significance of this transaction, stating, "Makuutu isn't just any rare earth project; it's a strategic asset, and importantly one of the most advanced ionic adsorption clay projects globally.
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Makuutu can unlock near term supply of heavy rare earths into the advanced manufacturing demand that far exceeds existing supply. It has immediate strategic value to these new supply chains forming. "
The increased ownership will enable IonicRE to advance discussions with strategic investors, offtake partners, and financiers. Furthermore, it positions the company to harness the immense potential of Makuutu as it moves towards production of the first Mixed Rare Earth Carbonate (MREC) product from the Demonstration Plant, anticipated in the first quarter of 2024.
Consideration and Terms of the Transaction
In exchange for acquiring the additional 34% interest in the Makuutu Rare Earths Project, IonicRE will issue a combination of shares and performance rights to Rare Earth Elements Africa (Pty) Ltd (REEA), the selling party. The transaction includes the following key elements:
Consideration Shares: IonicRE will issue 425,000,000 fully paid ordinary shares to REEA upon completion of the transaction.
Performance Rights (Tranche 1): IonicRE will grant 350,000,000 performance rights to REEA, contingent upon milestones such as obtaining the mining license for Stage One development of Makuutu and the volume-weighted average price of IonicRE shares on the Australian Stock Exchange exceeding $0. 05 over a 30-day trading period.
Performance Rights (Tranche 2): An additional 350,000,000 performance rights will be vested upon IonicRE obtaining binding funding commitments for Makuutu's construction and meeting the volume-weighted average price condition.
Upon vesting, each performance right will convert into one IonicRE share. These arrangements will result in REEA holding approximately 9% of IonicRE's fully diluted share capital.
Escrow and Bonus Consideration
As part of the transaction, REEA has agreed to a voluntary escrow period for the Consideration Shares and IonicRE shares issued upon vesting of the performance rights. The escrow period for Consideration Shares is 12 months, while the escrow period for shares issued upon vesting of the performance rights is 6 months.
Additionally, if all Consideration Rights vest as per the terms of the agreement, IonicRE has committed to pay a bonus consideration, which could take the form of IonicRE shares or their cash equivalent.
Material Terms of the Share Purchase Agreement
The Share Purchase Agreement (SPA) includes standard warranties and indemnities appropriate for a transaction of this nature. IonicRE retains the right to terminate the SPA before completion in the event of material breaches by REEA, inaccuracies in REEA's warranties, or insolvency events affecting REEA.
Furthermore, the SPA outlines provisions regarding tax liabilities related to the transfer of shares, with IonicRE agreeing to indemnify REEA for tax liabilities linked to the value of Consideration Shares issued.
Conditions Precedent to Completion
Several conditions precedent must be met before the transaction's completion, including obtaining approvals and waivers of pre-emptive rights from other minority shareholders of Rwenzori Rare Metals Limited (RRM), regulatory approvals from relevant authorities in Uganda and South Africa, and shareholder approval from IonicRE for the issuance of Consideration Shares and Consideration Rights under ASX Listing Rule 7. 1.
Completion of the transaction is expected in the first quarter of 2024, subject to the fulfillment of these conditions.
ASX Approvals and Shareholder Recommendations
IonicRE plans to seek shareholder approval to issue the Consideration Shares and Consideration Rights under ASX Listing Rule 7. 1. Importantly, ASX has confirmed that no additional approvals are required for the transaction under ASX Listing Rule 10. 1 or 11. 1.
IonicRE's directors unanimously recommend that shareholders vote in favor of the transaction, emphasizing the strategic significance and growth potential it represents for the company.
Further details regarding the transaction, including the directors' recommendation, will be provided to shareholders in the Notice of Meeting scheduled for distribution in January 2024.
Ionic RE's move to acquire an additional 34% interest in the Makuutu Rare Earths Project represents a significant stride toward unlocking the project's vast potential and meeting the burgeoning demand for heavy rare earths in advanced manufacturing. With the transaction expected to complete in early 2024, all eyes will be on IonicRE as it advances its position in the global rare earth market.
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