Well my guess is that someone observing Ganfeng & Minerial resource has seen how supplying capital to derisk projects creates a lot of value for them (and also existing shareholders), eg Core & GL1. The board of who-ever it is (and it might be one of them rinsing and repeating!!) has said find a transaction that repeats this where you invest circa $200m into lithium at a good entry price and can close the deal fairly quickly. Takeovers may not work because the takeover could become contested. It may also need a lot more than this budget to both buy and fund to development.
Lets assume $200m would get ESS operational, cover working capital till production starts and and allow an expanded drilling programme and possibly surrounding tenament acquisition. They put forward an indicative non-binding proposal whereby ESS would issue 250m new shares at 80c and take control of ESS. ESS would remain listed and be fully funded for production. It may be worth perhaps $600-$800m immediately after the transaction and on its way to a $1 to $2 billion valuation. This new investor has just made $100 to $200m. They would obviously be happy, and there's still upside. So this deal makes sense from their viewpoint, hence proposing it.
Back to existing shareholders. They own 244m shares (of 444m that would now be on issue). For simplicity I'm ignoring options. If the new fully funded market cap is $600-$800m, then the post transaction share price is $1.35 to $1.80. Who's going to vote no to this deal?
This would be a transaction for control of ESS, but ESS would remain listed. The wrinkle on this plan would be on-market buying before implementing it. If this is the case, there may be a 5% shareholder notice coming up soon.
ESS Price at posting:
68.5¢ Sentiment: Buy Disclosure: Held
