Quick Pitch: Zinnwald Lithium (ZNWD:L)

Merger Arbitrage: 18% Upside (at 8.75p/share)

This is a pretty straightforward merger arb with ~18% spread and a couple of months until closing. The buyout is likely to go through, but the stock is fairly illiquid (£50k in daily volume) and trades on the London’s AIM market.

Zinnwald Lithium owns a lithium mine development project in Germany. The company has agreed to be acquired by its largest shareholder, AMG Critical Materials (owns 29%), for 5p in cash + 0.001577 in AMG’s stock. At current prices, the total consideration stands at 10.4p/share. ZNWD’s bid/ask is a bit wide, but based on where trades have been settling in recent days (8.5p–9p), the spread stands at 15–22%. Borrow is available at a 0.6% fee. Closing is expected in Q3.

AMG is an advanced metallurgy company listed on Amsterdam with a €1.4bn market cap, so this ~£40m buyout is small change for the buyer. AMG already runs a lithium division, owns a lithium mine in Brazil, and operates a lithium refining plant in Germany. Once operational, Zinnwald’s asset would become an important source of local feedstock, especially since the mine sits just ~120 miles from the refinery. AMG has been a a ZNWD shareholder since 2023, when it took a 25% stake at 10.41p/share in an equity raise. Zinnwald ran another equity raise last year at 5p/share, and AMG used it to top up to its current 29% ownership.

Two other major shareholders have agreed to vote in favor of the buyout, Henry Maxey (~15%) and Mark Tindall (5%). Henry Maxey is the chairman and co-chief investment officer of London’s wealth manager Ruffer (£20bn in AUM). As far as I understand, he owns the position in Zinnwald personally.

Together with directors, a total of 50.14% of outstanding Zinnwald shares already support the deal. The scheme vote will be decided by minority shareholders (with AMG excluded) and must pass the standard “majority in number” and “75% in value” thresholds. In simple terms, a majority of minority shareholders (by headcount) present and voting must approve the deal, and those voting in favor must collectively own at least 75% of the shares cast. Current disinterested supporters already make up 30% of the minority float.

The offer comes at a 70% premium to pre-announcement levels, and competing bids are unlikely: AMG clearly will not sell to anyone else, and the existing supporting shareholders’ agreement remains binding even in the face of a higher offer. Zinnwald’s project is estimated to take over €1bn in construction capex. For what it is worth, management noted that they considered other funding options before accepting this deal. Zinnwald is running out of cash and will have to do another equity raise soon. In reality, shareholders do not have much choice but to accept the offer.

Regulatory issues are unlikely. AMG is an EU company, which already owns a large stake in Zinnwald and runs a lithium refinery plant in Germany. It also plans to back the mine development. The Saxon State Government in Germany has recognized the mine as a “project of outstanding importance,” and Zinnwald has now also applied for “Strategic Project” status under the EU Critical Raw Materials Act. Lithium is a strategic resource. Everyone is incentivized to have this project taken over by a well-capitalized sponsor, which will be able to smoothly continue the development.

In a sense, AMG’s offer is quite opportunistic, arriving just ahead of both the potential EU Strategic Project designation expected in Q3 (some retail investor forums speculate that this could lift the share price) and the definitive feasibility study expected at the end of the year. Zinnwald had already applied for the EU designation once before (last year) but failed. Now, with stronger German regulatory backing, they have applied again and expect to get it. The designation allows for expedited permitting, fund-raising assistance, and increased regulatory backing.