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Monsters of Rock: Like forgotten Eurotrash queen Alice Deejay, are Essential shareholders better off alone? (Probably not)
Mining
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- BDO says Bill Beament’s bid for Essential Metals and its Pioneer Dome lithium project is “not fair but reasonable” in the absence of a better offer
- It could give Chris Ellison another chess piece in his game to consolidate the Goldfields lithium industry
- Ramelius up big on Penny resource upgrade and Musgrave Minerals takeover news
It’s hard to really parse the narrative behind 1999 Eurotrash hit Better Off Alone by Alice Deejay.
The lyrics go, and I quote: “do you think you’re better off alone” and “oooo talk to me”. It all seems like a lover trying to stop her significant other flying the coop.
But the garish synths and kaleidoscopic colour of its dollar-store music video make the tune pretty confusing and there’s little room for context. Is it a Mommie Dearest situation, a pigeon who’s broken wing is finally well enough to soar away from the cloistering loner who nursed him back to life?
Just as confused must be the shareholders of lithium junior Essential Metals (ASX:ESS).
They’re the second set of investors in a matter of weeks after the funds and retail holders behind Newcrest Mining (ASX:NCM) to find the independent expert on a big scrip takeover has deemed the offer to swap their shares for a bigger peer’s is “not fair but reasonable”.
A lithium history X
If a scheme of arrangement is not fair but reasonable the independent expert can conclude it remains in the best interests of shareholders. That is what BDO has determined in the case of Bill Beament’s Develop Global (ASX:DVP) and its scrip deal to acquire Essential, owner of the Pioneer Dome lithium project near Norseman.
Valued at $152.6 million as of June 30, ahead of the deal’s announcement on July 3, with 1 Develop share to head to Essential investors for every 6.18 shares they hold, the proposed acquisition has an interesting background.
At the time DVP shares were trading for $3.46, with the deal priced at a 34.9% premium to Essential’s June 30 trading price of 41.5c and 30.8% to the 20-day Essential VWAP of 42.8c.
But Develop, which counts Chris Ellison’s Mineral Resources (ASX:MIN) as its cornerstone shareholder, important for later, is not the first company to have a crack.
The much larger partnership of IGO (ASX:IGO) and Tianqi, together the owners of 51% of the world’s biggest lithium mine Greenbushes through their Tianqi Lithium Energy Australia JV, bid 50c a share, in cash, back in January.
When it came time for investors to vote a large blocking stake acquired by MinRes – 19.45% – convinced shareholders to back away.
Develop in June rated its bid a 62.3% premium to Essential’s pre-TLEA price of 34.5c and 12% premium to the TLEA offer. Unlike TLEA’s cash promise, the deal would mean ESS investors maintain – diluted – ownership of the Pioneer Dome deposit, a resource containing 11.2Mt of ore at 1.16% Li2O which according to scoping study would cost almost $300m to develop on its own.
MinRes’ lingering involvement could be critical to those development plans. It appears to be building something of a fortress in the Eastern Goldfields. MinRes operates the region’s largest asset, the 50-50 Mt Marion JV with Ganfeng near Kalgoorlie.
It is also in the box-seat to claim ownership of the Bald Hill mine, the only other plant operating in the district. That could give billionaire boss Chris Ellison optionality to feed projects where he has an influence into the mix.
Along with Develop, MinRes has the largest stake in Delta Lithium (ASX:DLI), owner of the near development Mt Ida project, where exec chair David Flanagan has been shown the exit and Ellison himself has come in as non-exec chair. It also boasts the top stake in Global Lithium (ASX:GL1), owner of the 36Mt Manna deposit 100km or so east of Kalgoorlie.
So what did BDO say?
While it doesn’t think the deal is necessarily ‘fair’ for ESS holders, BDO doesn’t think they’ll be, in Alice Deejay’s parlance, better off alone.
Based on the last closing price for Develop BDO could use, they say the deal’s consideration is more like 47.57c per share, down from the 56c touted in July.
In the absence of a superior offer, BDO says the scheme is reasonable and is in the best interests of shareholders. Essential’s board have unanimously backed it.
They note Essential has financing risks that could dilute shareholders if Pioneer Dome were to be progressed as a standalone project, facing a well-above market cap $350m to raise including working capital to make the mine a reality.
If the deal were to fall apart and nothing else was forthcoming, Essential’s shares would likely lose their M&A inflated steam as well.
Both sets of shareholders reacted well to the scheme booklet today, with ESS stock up 3.9% and Develop up 8.9% to $3.19.
It comes after DVP ran higher earlier this week on a positive mine plan update at its Woodlawn copper and zinc project in New South Wales.
Bill Beament’s firm also owns the Sulphur Springs copper and zinc project in the Pilbara, 20% of Anax Metals (ASX:ANX) nearby Whim Creek copper project and boasts the mining services contract on Bellevue Gold’s eponymous 200,000ozpa gold mine near Leinster.
Essential shareholders will vote on the scheme at 9am WA time at the Quest Apartment Hotels in Perth.
Develop Global (ASX:DVP), Essential Metals (ASX:ESS) and MinRes (ASX:MIN) share prices today
A Penny for your thoughts
Also up big was Ramelius Resources (ASX:RMS), rising 6.2% today after two significant bits of news.
The first is that its Penny gold mine has been bolstered with the addition of 70,000oz or around 28% more gold compared to the mineral resource at June 2023.
Now containing 440,000t at 22g/t, including 320,000t at 28g/t for 290,000oz at the high grade Penny North deposit.
Yeah, you read that right – almost an ounce in every tonne of rock. The low grade stuff at Penny West – 120,000t at 7.6g/t for 30,000oz – is itself the sort of grade that would have most explorers crying tears of joy.
At $208 million in cash and shares, Ramelius paid a pretty you-know-what to acquire Spectrum and snare the project in 2020. But that deal is now paying back by dramatically reducing the overall cost base of its Mt Magnet gold ops, where the high grade ore is being trucked.
The other news is its acquisition of Musgrave Minerals (ASX:MGV) is heading for compulsory takeover after Ramelius crossed the 90% threshold.
It adds another high grade option, Musgrave’s Break of Day discovery, to the future milling mix at the Mount Magnet gold ops.
Part of a 927,000oz resource at MGV’s Cue gold project, Break of Day clocks in at 982,000t at 10.4g/t for 327,000oz.
