Millennial Lithium (ML.V) – Merger Arbitrage – 8% Upside

Current Price: C$3.32

Offer Price: C$3.6

Upside: 8%

Expiration Date: Q4 2021

Press Release

 

Junior lithium miner Millennial Lithium has signed a definitive all-cash agreement to be acquired by Ganfeng Lithium at C$3.6/share or C$353m in total. Ganfeng with $35bn market cap is one of the largest lithium producers in the world and has made similar acquisitions recently. The transaction is subject to 2/3rd shareholders’ consent and regulatory approval from Chinese and Canadian authorities – all of which are likely to pass. Shareholder meeting is expected in Sep’21 and closing in Q4’21. Downside to the pre-announcement price stands at ~14%.

Management supports the deal with its 17% stake and other shareholders should also be incentivized to cash out in order to avoid further dilution. ML has already increased the sharecount by almost 5x  during the last 5 years and management has stated that further dilution is expected as the company is nearing the construction phase of its main project – Pastos Grandes.

Canadian regulatory approval should also go through given that ML’s assets are not even in Canada, but Argentina. The market seems to agree on this as otherwise, the spread would likely be wider – after the announcement, the initial spread hovered around 3% and increased to the current levels just recently.

The acquisition comes during the lithium industry consolidation and amidst the general industry tailwinds due to the fears of the upcoming lithium supply shortage. Besides ML, Ganfeng has already announced 3 other acquisitions this year (here, here, and here), with the latest one also in Argentina – 35% interest in the Sal de la Puna lithium brine project. The strategic rationale with ML seems sound – both ML assets (Pastos Grandes and Cauchari East) are very close to Ganfeng’s Sal de la Puna lithium project and Cauchari-Olaroz (co-developed by Ganfeng and Lithium Americas). Moreover, Ganfeng has recently received a green light for its 20k tonnes lithium chloride plant in Argentina. All in all, ML with its advanced stage Pastos Grandes project (expected to produce 24k tonnes per year) is a highly synergistic transaction and the buyer should be very incentivized to close the deal (PR):

Millennial’s 100%-owned Pastos Grandes Project is an attractive, advanced stage lithium project and is in our view highly complementary to our existing footprint in Argentina.

Worth noting that the offer agreement also includes a “fiduciary out” that allows Millennial to accept a superior proposal, subject to a “right to match” period for Ganfeng.

 

Millennial Lithium

The company owns 100% in two Argentinian lithium mine projects:

  • Pastos Grandes – an advanced-stage project in Salta Province, Argentina. According to the Feasibility Study (done in 2019), the mine is expected to produce 24k tonnes per year and has a 40 years mine of life. Pilot plant is already operating and has produced 99.96% pure battery-grade lithium carbonate. Full construction is expected to start in mid-2022.
  • Cauchari East – preliminary stage exploration project in Jujuy Province, Argentina.

Pastos Grandes timeline:

12 COMMENTS

  1. Ilja

    Thanks. The only reassurance here is that ML’s assets are not in Canada. This should limit the risk somewhat.

  2. Cerberus

    With regards to the risk / reward characteristics of this trade I would like to make some additional points:
    1) Downside risk: Lithium prices increased quiet substantially since the deal was announced on 16. July 2021. Therefore lithium producers such as Gangfeng Lithium, Lithium Americas, Neo Lithium Corp, etc. have also increased substantially. The increase is quiet substantial and it could be that there is positive break risk. Meaning that you even profit more if the deal breaks.
    2) Potential additional upside: The same buyer has also signed a definitive agreement with Bacanora Lithium on 25/8/2021 and had to bump the price (compared to the initial proposal in May 2021). I have the feeling that there could be also an increased offer in the ML price since shareholder could vote against the transaction when there is positive break risk.

    Would be interesting to see what others think on the downside of this trade.

    3
    1. snowball

      Definitive agreement reached with China-based CATL at $3.85 per share.

      “Millennial Lithium Corp. (TSXV: ML) (FSE: A3N2) (OTCQX: MLNLF) (“Millennial” or the “Company”) is pleased to announce that it has entered into a definitive arrangement agreement (the “CATL Arrangement Agreement”) with Contemporary Amperex Technology Co., Ltd. (“CATL”) dated September 28, 2021 pursuant to which CATL will acquire all of the outstanding shares of Millennial (each, a “Common Share”) by way of a plan of arrangement (the “CATL Arrangement”) for CAD$3.85 per Common Share (the “Purchase Price”), payable in cash, representing total cash consideration of approximately CAD$377 million.”

      https://finance.yahoo.com/news/contemporary-amperex-technology-co-ltd-164800483.html

  3. Ilja

    We’ve decided to close the idea with a 9% gain in 1 month. The remaining spread stands at 6%, however, there is a risk of Canadian regulatory interference as well as a pretty large potential downside if merger fails.

  4. snowball

    Another lithium deal has just been announced, also involving a mega-cap Chinese listed company and a Toronto-listed junior miner with resources located in Latin America.

    Interestingly, CATL, the Chinese company that has agreed to acquire Millennial Lithium, bought 10 million shares of Neo Lithium last year and is currently Neo’s third largest shareholder.

    “Zijin has agreed to buy Argentina-focused lithium company, Neo Lithium at a price of C$6.50 per share in cash, the companies said in a joint statement. Neo Lithium said that the deal has been unanimously approved by the board.”

    https://www.reuters.com/article/neo-lithium-m-a-zijin-mining/chinas-zijin-mining-to-acquire-neo-lithium-in-737-million-deal-idUSKBN2GZ010

    1
    1. snowball

      The significantly higher offer received by Millennial Lithium (ML.V) from a Canadian domestic peer has raised the probability that Neo Lithium (NLC.V) may also attract a higher offer.

      Both ML and NLC are currently trading at no premium to offer prices, and I believe that risk-reward is asymmetric in each case:
      ML may receive a higher counter-offer from CATL.
      NLC may attract a higher offer than the Zijing offer currently on the table, from domestic or foreign parties, including the loser among the two that are currently bidding for ML.

      1
    2. Ilja

      Interesting situation. I’m not a Lithium mining expert but wanted to add a few thoughts. A quick glance at the numbers doesn’t scream that NLC is undervalued vs ML.V. The latest offer values ML at C$480m EV vs C$919m EV for NLC. Of course, NLC seems to be a way more attractive asset. Both are located in Argentina’s Lithium Triangle, which produces 40%+ global production.
      – NLC expects production earlier – early 2022 vs mid-2022 for ML.
      – NLC has more estimated resources – 5.3Mt M&I and 1.3Mt P&P (proven and probable) for NLC vs ML’s 4.1Mt M&I and 0.94Mt P&P.
      – much higher grade – over 1000mg/L vs ML.V’s 400mg/L.
      – lower CAPEX/OPEX – NLC’s initial CAPEX is estimated at US$320m with OPEX at US$2914/t. $ML.V’s – CAPEX at US$450m and OPEX at US$3400/t. OPEX difference is US$10m per year at 20kt production.
      – higher production capacity – ML.V expects to produce 18kt annually and ramp-up to 24kt over 6 years, whereas NLC.V expects 20kt, but Zijin stated that with sufficient investment it can go up to 40-60kt.

      The lithium sector is in intense consolidation and this is the first Lithium asset acquisition for Zijin under new strategic planning. So it probably doesn’t want NLC to be stolen by somebody else and has likely priced it accordingly. Just a guess, though.

      1
  5. snowball

    Millennial Lithium has received a superior offer at C$4.7 per share, payable in Lithium Americas (NYSE: LAC) common shares (based on a floating exchange ratio / fixed value per share) .

    CATL has the right to match the offer by 4:30 p.m. (Pacific Time) on November 16, 2021.

    Lithium Americas Corp. (TSX: LAC) (NYSE: LAC) (“Lithium Americas” or the “Company”) is pleased to announce that it has submitted an unconditional offer to Millennial Lithium Corp. (“Millennial”) to acquire all of the outstanding shares (each, a “Common Share”) of Millennial (the “Offer”). Under the terms of the Offer, on closing, each Millennial shareholder (“Millennial Shareholder”) will receive C$4.70 per Common Share, payable in Lithium Americas common shares and C$0.001 in cash per Common Share (the “Purchase Price”)

    https://www.globenewswire.com/news-release/2021/11/01/2324396/0/en/Lithium-Americas-Makes-Offer-to-Acquire-Millennial-Lithium.html

    1
  6. snowball

    Lithium Americas Enters into Definitive Agreement to Acquire Millennial Lithium.
    https://finance.yahoo.com/news/lithium-americas-enters-definitive-agreement-162800900.html
    Lithium Americas has agreed to acquire all of the outstanding shares of Millennial (each, an “ML Share”) by way of a plan of arrangement (the “LAC Transaction”) for C$4.70 per ML Share, payable in common shares of Lithium Americas (the “LAC Shares”) and C$0.001 in cash per ML Share.

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