Neometals look to Lithium downstream opportunities with $184m pile of cash
Neometals have dropped a bombshell with news that they are looking to sell their 13.8% founding stake in the Mt Marion Lithium project for $125 million.
In a letter to shareholders, Neometals Chairman, Steven Cole, and Managing Director, Chris Reed, wrote that while they were “committed to the ongoing strength of the Lithium battery thematic” it was the right time to redirect Neometals focus into higher margin downstream opportunities and the company’s ongoing Titanium assets.
Neometals executed a classic, text book explorer to producer play with Mt Marion having identified the upside of Lithium early in the cycle.
They then attracted two major partners, Ganfeng Lithium and Mineral Resources to carry their interest through to production with a number of big cheques being cut for Neometals along the way.
The larger partners carried the costs of proving up the deposit and bringing it into production with Ganfeng and Mineral Resources each increasing their respective stakes to 43.1% and Neometals dropping to 13.8% over time.
This strategy has delivered a significant pay-off for Neometals shareholders with two dividends having already being paid and the possibility of a further return of capital looming large after the sale of the company’s remaining stake for $125m.
The letter to shareholders explained that Neometals had already realised $88 million from the sell down of its equity in Mt Marion with this figure jumping to $213 million on completion of the buyout.
Neometals original investment in the project was just $3m.
While the identity of the buyer was not disclosed, there is a high likelihood that Ganfeng and/or Mineral Resources will emerge as the actual buyers by exercising their pre-emptive rights under the Mt Marion joint venture agreement.
Ganfeng and Mineral Resources have 30 days to match the deal from the date they received a sale notice from Neometals. Interestingly, Mineral Resources reported that it had received this notice a fortnight ago, on 23 March. Announcing the sale, Neometals advised that it understood Ganfeng had already called a shareholder meeting to seek approval to exercise its pre-emptive rights.
On completion of the sale, Neometals will be sitting on a massive pile of cash containing some $184m and another $10m in listed investments. It is a mouth-watering thought for shareholders, given the company’s track record of sharing the fruits of their deal-making skills via dividend payments.
In the letter to shareholders, the Chairman and Managing Director wrote the company had “commenced a review of its strategic funding requirements and capital management initiatives, including its recently renewed on-market buyback program and other potential shareholder return initiatives.”
“Following, and subject to completion of the sale transaction, Neometals will be in an enviable position to maintain its exposure to the lithium and battery commodities supply chains through selective investment in higher-margin downstream processing opportunities.”
Neometals shares lifted about 3% following the news, but more action could be in store as investor’s digest the surprise news.