Current Price – C$2.19
Buyout Offer - C$2.61
Upside – 20%
This idea was shared by Vladimir.
Very time sensitive opportunity in mining sector: Chinese fund, NextView New Energy Lion HK, acquires lithium junior miner, Lithium-X (CVE:LIX) for a total consideration of $265m or cash offer of $2.61 per share.
Background here is pretty common for junior miners: LIX went public two years ago, acquired 80% of PLASE, which owns 100% in the lithium project, raised money to produce Technical report (Aug-16), updated Technical report (Feb-17) and then announced an acquisition by Nextview (Dec-17).
I wouldn’t argue a lot about attractiveness of the project, just state several things: LIX key project located in Argentina (produce lithium from brine – currently the most low cost production method), takeover price reflects 1% of in-ground resources value (which seems reasonable) for a project at this stage (no economic assessment has been done yet). LIX has also 20% share in PureEnergy (owner of the project in Nevada) and another project in Argentian, Salar de Arizaro.
More info on company can be found on its website or in NI 43-01 Technical report.
Why I think that the transaction is likely to close:
- C$20m reverse break-fee, which is significantly higher than the market average fee (represents c. 6% of total transaction amount);
- NextView LPs have funded their equity portion of cash consideration of $51m to the fund, currently NextView discusses only more favorable terms of market debt financing;
- Chinese focus on EV (if you visit Shanghai for example you will see a lot of electric bikes), which probably should result in state banks wide support for such kind of transaction.
In the recent public statement Company indicated that it is not in possession of material info and management intend to purchase shares on the open market:
“In terms of completion of the Arrangement with Nextview, in a conference call Tuesday evening with NextView’s personnel, financial advisor and legal counsel, the Company was advised that NextView continues to finalize the debt facilities to provide the remainder of the cash consideration to complete the Arrangement and, if it is not finalized before the end of next week, it will draw-down on its funding commitment from Tibet Summit in order to fund the Arrangement no later than March 9, 2018. NextView was incorporated under the laws of Hong Kong, S.A.R., with its head office located in Hong Kong. NextView was incorporated by Shanghai NextView Xiangjin Investment Partnership (Limited) (“Shanghai NextView”) and Tibet Summit as an acquisition vehicle to complete the Arrangement.
Key executives and other insiders of the Company have indicated that, since they are not currently in possession of any undisclosed material information, they intend to purchase the Company’s common shares on the open market if available at prices that they believe represent a significant discount to the consideration payable under the Arrangement.”
Why opportunities exists?
I believe that market overreacted on the news that debt financing delayed and will be provided after Chinese New Year and perceived it as a sign of the deal falling apart.
- In regards to Chinese counterparties it is always very hard to do KYC, so the risk of the deal falling apart is certainly exists;
- Given it is small cap, some material non-public info maybe out there, which I don’t posses