Cowan Lithium is expected to launch an equity raising within weeks in a move that could complicate the increasingly bitter receivership process for Alita Resources.
To describe Cowan's acreage as "adjacent" to Bald Hill is an understatement; the two project areas are thoroughly intertwined over an area of about 2000 square kilometres.
Access to certain parts of the Bald Hill project area is not possible without passing through Cowan's acreage.
Cowan's tenements are effectively the extension of the same resource that Bald Hill extracts, and while they are not immediately essential to whoever takes control of Bald Hill, they are a logical part of the mine's long term future.
Alita had ownership of both Cowan and Bald Hill as recently as March 2018.
But Alita, which was known as Tawana Resources at the time, chose to demerge Cowan in mid 2018.
That demerger appears to have been a defensive move against Galaxy Resources, which at the time was creeping up the Tawana share register, but was below the five per cent ownership threshold that demanded disclosure of identity.
Galaxy is now Alita's biggest shareholder with just over 12 per cent and is also its biggest creditor, putting Galaxy in the box seat to emerge with control of the Bald Hill mine.
Demerger of Cowan occurred on July 13, 2018; Tawana kept 15 per cent of the new company for itself, and demerged the remaining 85 per cent to Tawana shareholders who received one Cowan share for every 11.1 Tawana shares they owned at that time.
That process means Galaxy's direct ownership of Cowan is unlikely to be higher than four per cent.
Directors and advisers of Cowan have been granted options, so it is possible that Galaxy and other shareholders have been diluted since the demerger if directors and advisers have accepted shares as payment for services.
While Bald Hill has spluttered through the lithium bear market toward administration and ultimately receivership last week, Cowan has been quietly going about its business next door, drilling out more of the geology that surrounds the struggling mine.
That drilling work has reduced Cowan's cash balance and it is understood an equity raising could be underway within weeks.
The raising will give Galaxy an opportunity to increase its stake, given some other shareholders may struggle to participate.
Alita's biggest shareholder, Burwill defaulted on its debts in August, suggesting it is highly unlikely to have spare cash to buy more shares in an unlisted, illiquid exploration play.
It is believed that Tribeca Investment Partners, Regal Funds Management, Canaccord Genuity, Jiangte Special Electic Motor Company and the longer serving members of Alita's management team are also on the Cowan share register.
Whether Galaxy bites the bullet and tries to acquire control of Cowan while lithium markets are weak promises to be an interesting sideshow to the Alita receivership process.
Cowan would otherwise wait for lithium markets to improve and progress to an initial public offering, with Canaccord already contractually lined up to manage any float of the company.
While he did not directly say it, Galaxy chief executive Simon Hay gave the impression on Friday that he was not impressed by the Alita board's decision to appoint KordaMentha as administrators on Thursday.
''We engaged with Alita management on Wednesday (August 28) and had what we thought were quite positive discussions, we presented a number of requirements and management was very receptive to those discussions and accepting all the points that we raised, so that was how we started,'' said Mr Hay.
"Those requirements included a further standstill on the debt facility for another week to allow Galaxy to work with Alita, examine the business in detail and the options that were open to us.
"Without hearing back from Alita, the Alita board then called in the voluntary administrators and to protect our interests we then appointed KPMG as receivers and managers."
Mr Hay said he did not expect Alita's future to be resolved for several weeks.
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How the hide of Simon Hay? Buys the debt and then calls it - and accuses Alita of not playing fair.
Love this bit " Access to certain parts of the Bald Hill project area is not possible without passing through Cowan's acreage." This will get interesting.
