Energy storage firm redT has secured a £1.9 million interim loan from proposed merger partner Avalon to keep it going until a potential deal concludes.

But, interestingly, that loan is to be funded by a separate, £3.9 million loan to Avalon from Bushveld Minerals, a South Africa-based producer of vanadium that counts an energy storage solutions provider amongst its subsidiaries.

The loan to redT will fund ongoing working capital requirements as it continues to progress with a proposed merger agreement with Avalon, first announced in July.

That agreement will see redT and Avalon combine to form a new entity that will be listed on London’s Alternative Investment Market (AIM). Talks are continuing, however they involve “considerable expense” redT said today, and are also taking place at a time when the company will continue to consume cash.

The investment will help redT complete due diligence processes and finalise the negotiations, ultimately allowing the company to “move swiftly towards completing the merger”, redT said.

In addition, redT has entered into a second agreement with Bushveld, which will see the £3.9 million loan issued to Avalon converted into ordinary shares in the merged entity, with Bushveld becoming a shareholder on the same terms as other investors participating in the ongoing fundraising.

Bushveld will also retain first refusal rights to supply vanadium products to the company for two years, as well as various other rights contingent on the company continuing to own at least 5% of the business moving forward.

Neil O’Brien, executive chairman at redT, said he hoped to “embark on this exciting new phase” of the company’s development soon.

“We believe 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.  We are looking forward to working with Bushveld as a partner and strategic investor once we have completed the merger.”