Neometals bags $200m from $3m lithium investment

Neometals will bank another $104m from the final equity sell down of its founding stake in the Mt Marion lithium mine near Coolgardie. The sale takes Neometals’ total equity and dividend return from the project to an incredible $200m from an original investment of just $3m. The company’s co-shareholders in the project, Mineral Resources and Chinese company Ganfeng Lithium will pay about $51.9m each to become 50/50 co-owners.

In a world that is scrambling for lithium supply, Neometals has wisely managed to protect its offtake rights at Mt Marion too, with the deal providing for the ASX listed junior to purchase 57,000 dry metric tonnes of 6% spodumene a year from its former partners at market rates for the life of mine starting from 2020.

Neometals will quit its final 13.8% stake in the project for a cool $103.8m representing a 6.7 times multiple of Neometals $15.6m share of Mt Marion’s net profit after tax for FY18.

The company previously banked $89m from the sale of its initial equity in Mt Marion to its partners which takes its total return from Mt Marion to circa $200m after accounting for its October profit distribution.

Neometals is now a cashed up and nimble operator that is free to pursue its strategy of downstream exotic minerals processing rather than upstream production.

It is looking to set up a lithium hydroxide refinery in Kalgoorlie which will now be underwritten by the spodumene offtake supply and a fat bank balance of around $130m post the equity sale.

Importantly, Neometals has already returned around $34m in value to shareholders by way of dividends and share buybacks.

Neometals Managing Director and prime mover Chris Reed said: “We are delighted to have negotiated a strong outcome for Neometals shareholders. Neometals has realised significant further value from Mt Marion but of equal importance is the retention of our valuable offtake right which guarantees access to an industry proven feed material for future lithium downstream processing.”

“We believe the timing is right to realise the value of Mt Marion and strengthen our balance sheet as we finalise multiple evaluation studies over downstream projects. The company is changing its focus and exposure away from upstream concentrates and pursuing a more holistic and integrated approach to the lithium battery thematic”.

The company said it will now temporarily place its proposed demerger of the Barrambie vanadium-titanium project on ice until it can fully understand the financial ramifications of the equity sale for its retained lithium business and proposed listing of its titanium and processing technology.

Neometals Mt Marion deal is important for the market generally as it has effectively written the text book for small cap companies who are looking to strategically sell down their assets without blowing up their share capital or giving up too much value.

With $130m in the bank, a swag of good looking projects to choose from and a track record that speaks for itself, this is one ASX listed junior that is looking dangerous in 2019.