Analyst Reaction Though he’s not ruling out the potential for a bidding war, IA Capital Markets analyst Puneet Singh lowered his rating for Neo Lithium Corp. in response to Zijin Mining Group Co. Ltd.’s all-cash takeover bid worth $918.7-million.
Late Friday, the Chinese company announced a deal to acquire Toronto-based Neo Lithium at a price of $6.50 per share, which is an 18-per-cent premium to its $5.49 closing price on Friday.
The deal comes after China’s Contemporary Amperex Technology Co Ltd (CATL) agreed to acquire Canada’s Millennial Lithium Corp in all-stock cash deal worth $376.8-million.
“Our thinking was if CATL was going after ML, surely it would also go after NLC,” said Mr. Singh. “CATL was initially going unnamed when it made its bid for ML, which may have been designed to throw others off the trail. But the rumour of CATL making a bid for ML, then it being confirmed, and the following run-up in NLC shares after the confirmation could’ve pushed Zijin to make this premium offer.”
The analyst thinks the size of the offer is meant to defer CATL from making a bid, adding: “Given the frenetic run in lithium prices this year, signalling a tight market already in what we feel is just the onset of electric vehicle sales really growing, the race for lithium supply is speeding up and thus we don’t rule out another bidder especially considering 3Q is one of the best projects in the world.”
Moving Neo Lithium, which is focused on its 3Q project in Argentina, to “hold” from a “buy” recommendation, Mr. Singh kept a $6.50 target. The average on the Street is $6.43.