Demerger process

In the last Webinar Doc mentioned 3 other demergers & said it was not a simple process.

I’ve researched the 3 demergers he mentioned, abridged version is, one took 2 months 1 week, another took 5 months and the 3rd took 8 1/2 months.

The Iluka (ILU) Deterra (DRR) demerger took the longest, the spin-out Deterra is a Royalty company that receives royalties from mining (mainly BHP). I’d say this took so long because Deterra received about $85m the previous year which combined with Iluka’s earnings was a bit like unscrambling eggs. Also Iluka retained 20% so Deterra shareholders ended up owning 80% of Deterra.

The quickest was the Alkane (ALK) demerger of ASM rare earth. This was more straight forward. ASM was a subsiduary of ALK. ALK funded ASM with $20m, then issued shareholders 1 share in ASM for each 5 ALK held. It took just a bit over 2 months.

The West Gold (WGX) demerger of Castille (CST) took 5 months. Again Castille was a fully owned subsiduary of WGX who had polymetallic prospects. Shareholders received 1 share in Castille for every 4 WGX held. The process took a bit longer than the ALK/ASM demerger partly because they did a rights issue to raise $19m, offered to CST holders to participate after the demerger & before the listing. The demerger actually completed in December but wasn’t listed till Feb so was a bit quicker than 5 months.

Interestingly in both the ALK/ASM & ILU/DRR demergers the tax ruling was given after the listing. Doc did mention they could take 3 months to obtain if needed. I suppose things like which company gets the carried forward tax losses (or what %) could also raise issues.

One of our advantages is Goulamina is already a separate entity “Lithium du Mali S.A” of which FFX owns 100%, If it was just a simple demerger it could be as quick as ALK/ASM. In reality we’ll probably bring in a partner which will complicate things. However as the asx release says, this can be done in parallel with the demerger process. For example FFX can enter into an agreement to sell a % of Lithium du Mali S.A for a certain cash value or maybe an undertaking to fund development or probably a combination of both. If for example they sold 40% of it, the demerger process would mean FFX holders get the other 60% by way of shares in the company. Of course the Government will get 10% on commencing mining & have the right to buy another 10%. In the cast of Morila SA they hold 20%, other mines in Mali they haven’t exercise that right and only hold the 10%.

As I said in another post, it’s not like we have to wait 5 months or whatever for the demerger, Doc has already said there will be a timetable for non binding offers to be submitted & Macquarie will go from there. Any offtakes, partnership deals etc done in the interim will be reflected in the FFX share price. It is not as if the extra value will magically appear the day of the demerger, it will occur as the demerger advances.

Of course they might just sell it outright, once non binding offers are submitted they just have to work out the best deal, in the mean time Lithium prices keep rising.