Why ASX battery metals juniors are prime takeover targets for the majors
Juniors in the battery metals space are looking attractive to the bigger miners and the good news is they will likely bring a premium with all the bargains now gone.
Merger and acquisition (M&A) activity is already on the rise across the broader resources sector, with several deals being tabled at a premium.
But those in the industry say battery metals players are particularly attractive as demand soars and supply dries up and the majors look to cash in on the electric vehicle revolution.
“There were a few battery metals type acquisitions a little while ago and people are looking around for assets still,” says deal-maker Dominic Marinelli who largely focuses on deals worth between $5m and $150m.
M&A activity in the battery metals space is picking up says Mr Marinelli, a director of Terrain Capital which works on deals with partner Globalscope International M&A Advisors.
“[But] a lot of the low-hanging fruit has probably been snapped up already,” he told Stockhead on the sidelines of the International Mining and Resources Conference in Melbourne this week.
“You’d find it hard to find a large resource now at a good price. It’s all about price.
“There’s lots of people exploring in that area at the minute and I expect there will be more M&A in that space.”
Two potential targets are European Lithium (ASX:EUR) and Jadar Lithium (ASX:JDR).
Both have lithium projects in Europe, which has been aggressive in its pursuit of a leading electric vehicle industry.
“In Europe a lot of countries now have said 2025 is the key date for no new internal combustion engines on the road,” European Lithium chairman Tony Sage told Stockhead.
“That’s now in France, Germany and England. Italy and the other countries will follow suit because they will mandate it.
“Volvo is already not producing any more internal combustion engine cars from 2019 and that’s the first European manufacturer to do so even though they’re owned by the Chinese.
“So it’s going to be a massive boost to the EU because 25 per cent of the world’s lithium ends up in Europe but they produce none.”
European Lithium already has a mine built and been granted a mining licence for its Wolfsberg project in Austria.
The local and central governments want to make Wolfsberg a lithium hub.
Mr Sage has headed other junior resources companies that have been swallowed by larger players in lucrative deals.
He says the same could happen with European Lithium.
[Wolfsberg is] ready right now that when the [definitive feasibility study] is done, a bigger player — once there’s no risk because it’s been ticked off by the engineers — might come and make a takeover bid for us.”
Meanwhile, Jadar has a lithium project in Serbia right next door to one of the world’s largest miners — Rio Tinto (ASX:RIO).
In September last year, Jadar struck a deal to acquire five lithium-prospective exploration licences in Serbia, two of which are located near Rio Tinto’s Jadar lithium project.
The projects are considered prospective for lithium and other pegmatite hosted minerals, including jadarite — which contains both lithium and borates.
Serbia’s Jadar basin is the only place in the world where the mineral can be found, according to Rio Tinto. Incidentally, jadarite has almost the same chemical composition as the fictional “kryptonite” of Superman fame.
The key to Jadar unlocking value in its newly acquired assets lies in the aggressive development of Rio’s nearby lithium projects.
There are currently no operating jadarite mines in the world. Rio’s project is currently in the pre-feasibility stage and, according to the company’s current schedule, is not due to come into production until 2023.
However, Rio has already developed a new processing technology to extract minerals from jadarite ore. A small-scale test plant has been built to test the new technology.
Jadar chairman Luke Martino told Stockhead the location of the company’s project potentially makes it a prime target for Rio Tinto.
“Everything I’ve been reading and listening to is about the shortage of supply as we hit 2021,” Mr Martino said.
“I just think that gap is going to keep growing and therefore the price of lithium is going to increase.
“This type of lithium is very well sought after … Rio Tinto have paved the way with their deposit only 10km away from us. They’ve also understood how to extract the lithium.
“We’ll take a lead from them and they could be a potential buyer of ours because we’re not too far away.”
While there is still some work to be done before M&A will increase further, large suitors will likely pay a premium to snag a deal.
“These small microcaps are severely undervalued at the moment I believe, and they will become very valuable,” Mr Martino said.
“But we have got to make sure we focus on what we’re doing [in Serbia] and get the project up and get the resource established.
“It happens all the time, we do the hard yards and they like to just come along, but they’ll pay a premium.”