Bright Simons advocates for ‘real options’ in Ghana’s lithium deal with Barari DV
Bright Simons, the Honorary Vice President of IMANI-Africa, has critiqued Ghana’s lithium deal with Barari DV, deeming it overly simplistic.
Mr Simons argues that given the uncertainties surrounding lithium and its future in the green revolution, the government should have approached the deal from a real options perspective.
In an appearance on JoyNews’ Newsfile, Mr Simons explained the real options point of view, suggesting that the agreement should have more flexibility. He highlighted concerns about fixed royalties and proposed that they should be variable based on changes in operating margins. Additionally, he discussed the use of warrants, particularly for the state, to provide more strategic options.
“What that simply means is that instead of this very simple agreement that they’ve done – in some cases there is a benefit in simplicity but in this case we don’t think so. We think there has to be more options in the agreement in some of the respect.
“We’ve talked already about royalties, when the operating margin changes we think that the royalties should be variable. We think even in the case of equity, the way they should exercise the equity is not the way they’ve done it now, which is they’ve done it in a two-pronged manner.
“For the government it’s a fixed kind of thing and we say in the future we may negotiate for more. For MIIF, which is the sovereign wealth fund, they’ve allowed them to use warrant which is a kind of option. So what it means is that they have the right and not the obligation to buy more if the price improves.
“But there are other options that we can use and why not use it for the state too? Because MIIF, given the fact that they can easily exit their position given the fact that they’re a sovereign wealth fund as opposed to the state where the regiment is much more stricter, we’re not too happy that the state is not using options, not using warrants. And not just warrants to exercise when the strike price is at a certain level, we want warrant that do other things as well,” he argued.
Mr Simons expressed apprehension about Ghana’s enthusiasm for lithium, pointing out ongoing global efforts to find sustainable substitutes for the mineral. He emphasized the need for the government to be objective and cautious in ratifying the deal, considering the dynamic landscape of battery technologies and the possibility of alternatives to lithium-based batteries gaining prominence.
“And we think that the agreement is too simplistic given the uncertainties in lithium. If you’re doing gold we’ll not have a problem. But lithium, a lot of crazy things are going on. For one thing there’s a lot of aggressive push, massive and aggressive push to look for alternatives to lithium based batteries.
“Laboratories all over the world, some of them funded to the tune of billions of dollars are experimenting with all manner of battery technologies. A time may come when lithium in batteries are not the big deal in electric vehicles, it’s possible. We don’t know that.
“There’s a recycling boom where after using the electric battery – remember that batteries for NMC for instance is just four years, after four years the charging ratios drops to as low as 20% and people just change it. So when you throw away the battery, nowadays people are recycling the lithium and that boom is increasing. A time may come when we’re getting more lithium from the discarded batteries than we’re mining afresh. We don’t know yet,” he said.
The recent crash in lithium prices further raised concerns for Mr Simons, supporting the arguments of Civil Society Organizations (CSOs) that the government should exercise caution before finalizing any deal. He highlighted the substantial drop in lithium prices from a high of about $81,000 per tonne to approximately $16,500 per tonne.
In summary, Simons urged a more nuanced and flexible approach to the lithium deal, taking into account the uncertainties in the lithium market and potential shifts in technology and market dynamics.
I think Bright Simon’s argument is even much simplistic in outlook than the government. For instance, the investor will be more affected when price of lithium changes and not the government (MIIF) in any foreseable future.The understanding is that MIIF holds a percentage and that whatever the outcome of lithium price changes, the percentage to each side will remain the same. I rather thought the argument should that the state should have been asked to exercise the option to buy the mines after some time, say five years after mining without the option of negotiations and the state should have demanded that after five or a certain number of years of mining the lithium the investor must establish manufacturing plant of lithium battery factory in Ghana because they will not be allowed to send any minute raw lithium out of Ghana.