In a sign the race to secure the materials for electric vehicle batteries is heating up, a Chinese-backed investment group said it would pay $265 million to purchase a Canadian lithium exploration company with no reported income.
Under the deal announced on Monday, Beijing and Shanghai-based Nextview New Energy Lion Hong Kong will pay $2.61 cash per share, reflecting a 22.5 per cent premium on the closing price on Dec. 15 of Vancouver’s Lithium X, a TSX-listed exploration and development company with lithium projects in Argentina.
This marks Nextview’s second deal in as many weeks to secure access to lithium, having last week purchased a 20 per cent stake in Banacora Minerals, which has a lithium project in Mexico. Nor is it the only Chinese company making such deals: Earlier this year, Sinochem, China’s state chemical company along with several other Chinese companies placed competing bids to purchase a $4 billion stake in Chile’s SQM, a giant lithium producer.
China already has more electric vehicles on its roads than any other country, according to a McKinsey & Company report released this summer, which also found that the country’s lithium ion battery companies control an estimated 25 per cent of the global supply. Those companies need lithium to continue their production, and questions persist about where it will come from.
HEDGING BETS
“There’s just a lot of skepticism around lithium and is there really enough to meet the coming demand?” said Ian McClenny, an analyst with Navigant Research, a division of the accounting firm Navigant. “Everyone is seemingly just trying to hedge their bets, so that there won’t be any bottlenecks.”
The deals point to the rapidly growing lithium ion battery market, the key form of rechargeable batteries used in electric vehicles. McClenny said that Navigant estimates the market for lithium ion batteries for many of the main types of electric vehicles will reach $42.9 billion this year and hit $103.2 billion by 2026.
Bassam Moubarak, chief financial officer of Lithium X, credited his company’s 29-year-old chief executive, Brian Paes-Braga, with predicting a shift toward electric vehicles that would spur demand for lithium when he founded the company in 2015.
Even though none of the company’s projects are producing lithium yet, and thus have no revenue, Moubarak said the $265 million offer reflects the growth in value of its assets.
“We’re at a point that there’s a lot of interest in lithium,” he said. “We had a lot of parties contact over us the last year.”
Lithium X joined the TSX in 2015 through a reverse merger with Royce Resources Corp, a company in which serial mining entrepreneur Frank Giustra was a major shareholder, Moubarak said. In an online interview in 2016, Paes-Braga referred to Giustra as a mentor.
Since 2015, it has acquired several lithium projects, including its flagship Sal de Los Angeles lithium brine project in Argentina’s Salta region. It holds more than 1 million tonnes of indicated reserves of lithium carbonate equivalent plus one million inferred tonnes, according to a National Instrument 43-101 report.
FEASIBILITY STUDY
Moubarak said his company is not yet extracting lithium at Sal de Los Angeles, and the next step is to conduct a feasibility study to determine what size project would maximize cash flows.
Lithium X also holds a 19 per cent stake in Pure Energy Minerals, which has a lithium project in Nevada, and it has a second project in Argentina.
In October, Lithium X’s auditors filed financial statements that said the company had no recurring source of income except the interest accrued on its cash, approximately $19 million in working capital (as of June 2017) and that the company had historically posted negative cash flows.
Its shareholders will vote on the deal in February.
Nextview will pay a $20 million break fee if it walks away from the deal. The company also said it raised a US$1.5 billion fund in 2017, along with others, to invest in overseas mining assets with a focus on the new energy sector.
Officials from Nextview could not be reached for comment.
The company has not disclosed its exact strategy to develop the assets held by Lithium X, but said it is focused on the electric vehicle and new energy market.
Its other investments include Nanjing Yuebo Auto Electronics Co., Ltd., which supplies products to 100,000 electric vehicles in China annually, according to a press release announcing the deal.