On April 30th, 2020, the Perth-based mining company Essential Metals Ltd (Essential Metals) rejected a takeover bid from Tianqi Lithium Corporation (Tianqi Lithium) and IGO Ltd (IGO). The bid sought to acquire all of Essential Metals’ shares at a price of $0.082 per share.
Essential Metals is an exploration and development company that is focused on the discovery of new mineral deposits. It is primarily engaged in the exploration of lithium and gold deposits in Western Australia and South Australia. The company’s major projects include the Mt Holland Lithium and Gold Project and the Mt Cattlin Lithium Project. Tianqi Lithium is one of the world’s leading lithium producers. It is based in China and has operations in Chile, Australia, and the United States.
The company produces battery-grade lithium hydroxide, lithium carbonate, and other specialty chemicals. It is also actively involved in research and development in the lithium battery industry. IGO is an Australian-based diversified mining company. It is engaged in the production of nickel, copper, gold, and cobalt. The company has operations in Australia, Canada, and the Philippines. Essential Metals rejected the takeover bid by Tianqi Lithium and IGO due to the offer price being too low.
The offer price of $0.082 per share represented a premium of only 8.3% over the closing price of Essential Metals’ shares on April 30th, 2020. It was also lower than the $0.091 per share price offered by IGO in December 2019 when it made an initial takeover bid for Essential Metals. Essential Metals’ board of directors unanimously rejected the offer and stated that the offer did not reflect the value of the company’s assets and future prospects.
The board also noted that the offer failed to recognize the significant value of the company’s lithium projects, which include the Mt Holland Lithium and Gold Project and the Mt Cattlin Lithium Project. Essential Metals also noted that the offer did not provide any premium for the company’s advanced exploration and development work, which had increased the value of the company’s lithium projects. The board concluded that the offer was inadequate and not in the best interests of Essential Metals’ shareholders. The rejection of the takeover bid is not unexpected as Essential Metals had previously indicated that it was not prepared to accept an offer that was below the company’s intrinsic value.
The board of directors had previously stated that any offer should recognize the value of the company’s lithium projects and the significant exploration and development work that had been conducted. The rejection of the takeover bid is likely to lead to further negotiations between Essential Metals and Tianqi Lithium and IGO. It is also possible that Tianqi Lithium and IGO may launch a hostile takeover bid in the future. The takeover bid is part of a larger trend of Chinese companies seeking to acquire Australian resources companies. Chinese companies have been actively acquiring Australian resources companies in recent years as they seek to secure access to valuable resources that are not available in China.
This trend has been driven by an increasing demand for lithium, which is a key component of electric vehicle batteries. Chinese companies have been acquiring Australian companies with lithium projects in order to secure their own lithium supply. The takeover bid for Essential Metals is part of this larger trend and the outcome of the bid is likely to be closely watched by the Australian resources sector. It will be interesting to see how the negotiations between Essential Metals and Tianqi Lithium and IGO progress and whether a successful takeover bid is eventually made.
