Three contenders for lithium target Essential Metals
Lithium and gold explorer Essential Metals’ dalliance with a well-heeled suitor has shot it on to dealmakers’ radars, and sent bankers scrambling to try to find a suitor.
Essential Metals revealed on Tuesday morning that it had received an indicative and non-binding takeover offer, subject to due diligence and a 90 per cent acceptance threshold.
Liontown’s lithium supply deal with Tesla put a rocket under its shares, and created options for the company. James Alcock/Fairfax Media
While Essential Metals sent its advisers - Perth’s Sternship Advisers and HopgoodGanim - into takeover talks with the unnamed suitor, the company’s share price ran and the talks collapsed.
As the dust settles on the juicy affair, tongues are wagging about who lobbed the indicative bid and under what conditions they may be tempted to return.
The mystery suitor was clearly a party that thought there were synergies in acquiring Essential Metals, and particularly its Pioneer Dome lithium project in south-eastern Western Australia, which is what suitors are likely to find most appealing.
From Street Talk’s discussions with industry players, there are three names that fit the bill: China’s Gangfeng Lithium and ASX-listed Liontown Resources and Global Lithium Resources.
Gangfeng owns part of the much bigger Mt Marion project, to Pioneer Dome’s north, which is in reasonably close proximity and could potentially process its ore.
Gangfeng has a lot of experience in Australia, owns toehold stakes in $2.3 billion listed Core Lithium and the $8 billion Pilbara Minerals, as well as an offtake agreement with the latter.
Importantly, Gangfeng’s Bacanora project in Mexico is also in jeopardy, after Mexico nationalised lithium, so it could make sense to see the miner looking for other hard rock lithium projects to shore up its position.
As for Liontown, another of the ASX’s lithium tearaways, its second lithium project Buldania is close to Essential Metals’ Pioneer Dome.
Between Buldania and Essential Metals, there would be about 30 million tonnes, which would be enough for a large-scale development, and a serious second project for Liontown which now has its Kathleen Valley fully funded.
The third potential suitor, Global Lithium, is the smallest of the trio. It has been consolidating lithium resources in WA, and Essential Metals could provide a third beachhead alongside its Marble Bar and Manna projects.
Global Lithium has Mineral Resources as a large shareholder so, like Gangfeng, could potentially use Mt Marion’s infrastructure to process Pioneer Dome (and Manna’s) ore.
Analysts reckon the wildcard could be Austroid Corporation, which owns the secured debt on the nearby Bald Hill mine that is still in administration and on care and maintenance.
While Ball Hill is close to Essential Metals, Austroid still has not received FIRB approval to convert its Bald Hill debt to ownership of the asset given its Chinese connections, which could make it hard for them to bid on Essential Metals.
ESS Price at posting:
62.0¢ Sentiment: Buy Disclosure: Held
