Bearing Lithium (BRZ), is listed in Canada and is the minority owner of 17.7% of the Maricunga project. Despite its minority status, on a fully diluted basis, the company trades at a material premium to LPI, a 50% Maricunga shareholder.
What is intriguing about Bearing is that it has POSCO as a small shareholder and board appointee. Why would POSCO, a $27bn market cap giant, bother with having a board appointment on a CAD$36m micro cap in which they have a ~$2m stake?! IMO it’s for strategic reasons. Particularly as POSCO has just bought 4.75% of PLS for $80m (a premium to spot) and secured spodumene offtake from 2020 onwards.
They are as follows:
- If the Maricunga project requires shareholders to contribute to the building of the mine POSCO could underwrite an equity raise by BRZ and substantially increase its effective stake in both the company and the project
- If other shareholders, MSB and LPI, are unable to fund their shares then POSCO could buy a direct stake (and possibly secure off take) in Maricunga
- A further alternative sees POSCO having the knowledge and opportunity to outbid an external off take offer by a 3rd party
- In all instances POSCO benefits from its position within BRZ as BRZ will be privy to all negotiations at the JV level
The latest investment and offtake by POSCO in PLS suggests they are taking serious steps to participate in the lithium market. The Maricunga project is progressing well and should have reached all the major milestones by Q3 2018. POSCO, through BRZ, has had a front row seat to observe the projects progress. A brine deposit, with production of lithium carbonate onsite, might the perfect diversification for POSCO. If they’re willing to pay an effective AUD$1.7bn valuation for a stake in PLS then the Maricunga project should be on their radar.
The effective look through cost per tonne of lithium carbonate at LPI’s current share price makes it a very attractive take over target.
