IGO and Tianqi offer 50c a share for Essential Metals in $136m friendly bid
The lithium sector has kicked off 2023 with a bang, with Tianqi and IGO launching a $136m bid for WA explorer Essential Metals.
Chinese lithium giant Tianqi and IGO have launched a friendly takeover for West Australian lithium hopeful Essential Metals, offering 50c a share for the explorer.
IGO and Tianqi said on Monday they had won the support of the Essential board for the offer, which targets the company’s Pioneer Dome lithium project, 130km south of Kalgoorlie.
The pair jointly own a lithium hydroxide refinery in Perth’s southern suburb of Kwinana, and half of the Greenbushes lithium mine in the south west of WA, but the offer for Essential looks to be an expansion of the
Essential’s lithium project is relatively small, containing an 11.2 million tonne resource grading 1.16 per cent lithium. But it sits next to a railway running between Kalgoorlie and Esperance, as well as a major gas pipeline, and is within a lithium district that also contains MinRes’ Mt Marion mine.
The Bald Hill mine, owned by collapsed Singapore-listed company Alita Resources, is also only 60km away and, with a deal for the mine still to be closed, could be an additional target for the pair.
The 50c a share cash bid values Essential at $136m, and is a 45 per cent premium to the company’s last trading price, and a 45.7 per cent premium to its volume weighted average price over the last month, and IGO said the acquisition would be funded by cash generated by its lithium partnership with Tianqi.
Essential has already been at the centre of other takeover rumours, with Global Lithium said to have kicked the tyres on the company’s deposit, along with ASX-listed Red Dirt Metals.
The move is the first major takeover launched by a Chinese group after Labor took office, and amid signs of a thaw in relations between Beijing and Canberra.
It comes after Canada cracked down on state-owned enterprises buying into the country’s critical minerals sector, with the Trudeau government ordering Chinese groups to exit three Canadian-listed junior mining companies planning to develop lithium deposits.
The Foreign Investment Review Board has previously intervened in similar transactions, blocking state-owned Baogang from taking a share in rare earth developer Northern Minerals, and making a similar ruling when Yibin Tianyi Lithium Industry sought a stake in AVZ Minerals.
But, while Australia’s foreign investment rules state the acquisition of critical minerals projects and companies will be subject to more intense scrutiny than elsewhere in the sector, the toughest investment thresholds apply only to takeovers and acquisitions by state-controlled entities.
Tianqi is a public company listed on the Shanghai and Hong Kong exchanges, with a market capitalisation of about $US19bn, and the bid for Essential falls below the $310m threshold that would otherwise require approval from the FIRB. The Australian understands Tianqi has been advised it will not need FIRB approval to close the acquisition if shareholders approve the bid.
The FIRB has not intervened in other transactions involving listed Chinese listed companies, such as the move by Shenghe Resources Holdings to take a substantial stake in ASX-listed Peak Resources, even when state-owned enterprises control a significant portion of the Chinese company’s register.
Jim Chalmers and Resources Minister Madeleine King both said they would not comment on specific transactions that could be the subject of review.
But the move also comes amid a heightened interest in critical minerals companies, as mining majors position for the massive wave of investment needed to decarbonise global economies, according to BetaShares investment strategist Cameron Gleeson.
“We expect more M&A activity in the sector, particularly as the large, diversified miners seek to pivot their businesses from iron ore and coal towards energy transition metals,” he said.
IGO acting chief executive Matt Dusci said the acquisition offered the partners a growth option as the pair consider the expansion of their lithium hydroxide plant at Kwinana, south of Perth.
Essential shares closed up 13.5c to 48c, with IGO up 16c to $14.17.
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