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Why Millennial Lithium is an M&A Target

Marc Davis Marc Davis, BNWnews.ca
1 Comment| August 23, 2017


The M&A buzz for Millennial Lithium Corp. (TSX: V.ML) is getting louder.  
 
It’s all because the company’s flagship Pastos Grandes brine lithium project in Argentina is turning out to be a world-class asset. And it is ideally located at the heart of some of the world’s richest lithium fields.
 
Simply stated, this small Canadian start-up is in exactly the right place at the right time.

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With a global imperative to ramp-up the world’s lithium-ion battery usage, advanced-stage lithium developers like Millennial Lithium are racing to bring new supplies on-stream before demand outstrips supply.  
 
In terms of M&A (mergers and acquisitions) speculation, Millennial Lithium has therefore become “low-hanging fruit” for a diversity of big corporate players, including Chinese state-owned enterprises (SOEs).
 
In fact, Chinese corporations are anxious to mitigate fast-rising lithium carbonate prices by becoming meaningful stakeholders in the lithium-ion supply chain. It’s especially notable that lithium carbonate’s price virtually doubled in 2016 to around $15,000 a tonne.
 
To lock-in future supplies at wholesale prices, the Chinese therefore need to buy into emerging lithium deposits in Argentina.
 
This is all very strategic, according to Simon Moores, head of Benchmark Mineral Intelligence in London. It is because the Chinese are determined to overtake Japan and South Korea to become the world’s dominant manufacturer of lithium-ion batteries.
 
“The Chinese are massively building up their capacity to get a stranglehold on this market,” he told the Financial Times of London.
 
Yet, there’s plenty of deep-pocketed competition for Argentina’s future lithium supplies. The world’s other dominant lithium-ion battery manufacturing nations — Japan and South Korea — are also circling above Millennial Lithium and a tiny handful of other advanced-stage developers.  
 
Even the world’s brand-name electric automobile manufacturers are vying to muscle-in on the action. For instance, Tesla Motors has already declared its strategic intention to lock-in its own long-term lithium supplies.  
 
Fortunately for end users and lithium developers alike, business-friendly Argentina hosts a large percentage of the world’s highest-grade, yet lowest-cost lithium supplies.
 
Accordingly, Argentina’s federal government is keen to play a dynamic role in the clean energy revolution by supporting the development of a new generation of lucrative, low-cost lithium brine mines.
 
The nation’s pro-business president, Mauricio Macri, is reforming the country’s economy after 12 years of populist rule scared off most foreign investment with protectionist policies. 
 
Indeed, Macri realizes that his nation’s new lithium mines need to be commercialized on an expedited timeline. This isn’t just to keep up with burgeoning global demand; it is also necessary to stimulate Argentina’s recovering economy.  
 
 
M&A Suitors Vie for a Prospectively World-Class Lithium Asset      
So what are investment industry analysts predicting for Millennial Lithium in the near-term?
 
Most of the “smart money” is suggesting that big-league suitors are more likely to partner-up with Millennial Lithium, rather than acquire the company outright at such an early stage of development.
 
This is exactly what happened earlier this year when Ganfeng Lithium made a US $174 million strategic investment in another Vancouver-based start-up, Lithium Americas Corp. The deal also comes with a US $125 million line of credit.   
 
Now Millennial Lithium could be on the cusp of doing its own big-dollar strategic transaction.
 
Such an arrangement would also open the door to a strategic investor entering into an “off-take agreement” that guarantees future lithium supplies at a favourable pre-arranged price.
 
In return, the partner would be expected to provide some of the up-front capital expenditure costs of building and commercializing a prospectively large, lucrative mine at Pastos Grandes. As such, the mine could be commercialized in as few as three years.   
 
So is there any merit to all this speculation?
 
I recently sat down with company chairman spokesperson Graham Harris who has been hard to reach lately. He explains he has been mostly dividing his time between hosting site visits at Millennial’s flagship Pastos Grandes Project, as well as meeting with other end users and potential strategic partners from Asia.
 
He cautioned the investment community not to expect a major industry transaction to be announced imminently.
 
“Investors should realize that everyone is awaiting an independently-calculated maiden resource estimate at our flagship Pastos Grandes project, which is expected in the fall.
 
“Our results so far have encountered richer and much deeper brine lithium mineralization than we originally expected. We’ve also just acquired a hugely strategic land position contiguous to the highest grade results to date.
 
“Based on these major developments, we’re now targeting in excess of 1.5 million tonnes of lithium carbonate equivalent. That would give us a big enough resource to become a dominant player at the heart of some of the world’s richest lithium fields.
 
“This maiden resource figure should give us a good grasp on the potential size and grade of the salar.  Going forward we’d look to expand the resource with additional drilling from our recently acquired ground.”
 
Harris is coy as to exactly who is wooing Millennial Lithium at this time. But he did admit that non-disclosure agreements have been signed with household names in the electronics industry, as well as cash-rich State-Owned Enterprises, a.k.a. “SOEs”.
 
“With regards to a prospective major transaction, don’t discount the auto companies reaching down the food chain to source a secure supply of lithium to power their batteries” he elaborates.
 
Leveraging Argentina’s Lithium Riches
Pastos Grandes offers the competitive advantage of being ideally located among a cluster of the world’s lowest-cost but highest-grade lithium mines.
 
Also, all indications point to the fact that Pastos Grandes will prove to be a very large, richly-mineralized deposit. This certainly seems to be the case; recent exploratory drilling has demonstrated the presence of especially rich grades over wide intervals, which run as deep as 600 metres.

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Later this year, the company will also embark upon a preliminary economic assessment, or PEA (an initial blueprint for a mine).
 
Located within the famed “Lithium Triangle”, the world’s most lucrative lithium mines (and mines in-the-making) can be found among expansive salt flats in a mountainous hinterland region where Argentina, Bolivia and Chile all intersect. This remote, high-altitude expanse of salt flats boasts the highest concentrations of lithium in the world.
 
It’s also the global hotspot that is expected to supply most of the world’s lithium needs in the coming decades. This is due to the consistently high grades among this cluster of deposits, as well as their amenability to low-cost mining methods.

This is why Millennial Lithium is involved in a total of four proximal lithium brine projects, encompassing approximately 28,500 hectares.
 
Ultimately, it’s the company’s project generator business model that offers to make it an attractive takeover candidate once one or more of its lithium projects have more clearly better demonstrated their economic potential.
 
 
Is Millennial Lithium Significantly Undervalued?
Of particular interest is how Pastos Grandes might measure-up against other proximal deposits. They include Lithium X’s Sal de Los Angeles brine deposit, which has a NI 43-101 resource estimate of 1.04 lithium carbonate equivalent (LCE) in the indicated category with an average grade of  501 mg/L Li.
 
Notably, this is only half the size of the two million tonnes being targeted by Millennial Lithium. In fact, the company’s recent acquisition of an addition 2,500 hectares of very strategically located land means that it now controls 86 square kilometres of the Pastos Grandes salt flats. In comparison, Lithium X controls around 57 square kilometres of the proximal Sal de Los Angeles.
 
Lithium X nonetheless has a market capitalization of around $170 million, whereas Millennial Lithium only has a market capitalization of around $50 million. Admittedly, the fact that Lithium X already has an independently-calculated maiden resource is obviously built into its share price.
 
However, if Millennial Lithium achieves a similarly sized maiden resource with comparably high grades (or better), the company’s valuation is likely to experience a re-rating within the investment community. This typically translates into higher share price valuations.
 
So the pending publication of an initial resource figure for Pastos Grandes promises to be a powerful value driver for the company’s share price.
 
 
Investment Summary
Investors can take heart from the fact that Pastos Grandes is largely de-risked by its apparent prolific size, its rich grades, and its amenability to low-tech, low-cost mining methods.
 
As a project generator, Millennial Lithium is also involved in no less than 28,500 hectares of lithium exploration projects at the heart of the famed Lithium Triangle — all of which could conceivably be commercialized within the next few years.

Click to enlarge
 
Additionally, the pending announcement of a maiden resource estimate at Pastos Grandes should represent a marquis milestone event for the company.
 
As a much-coveted, prospectively world-class lithium project, Pastos Grandes is clearly an attractive M&A candidate for the company’s various suitors. It is worth reiterating that they include household-name battery manufacturers and equally cash-rich Chinese SOEs — all of which want to lock-in inexpensive, long-term lithium supplies. 
 
To this point, Millennial Lithium is run by a top-flight management team of accomplished mine developers, who also have extensive experience as big-dollar M&A deal makers. This invaluable collective expertise will no doubt serve the company well in the coming weeks.
 
Without a doubt, the announcement of a preliminary resource estimate will be the first of several dynamic game-changers for Millennial Lithium this year. This alone should have a very positive impact on the company’s share price. So too will the subsequent announcement of a PEA.
 
Moreover, the looming prospect of a strategic M&A partner coming onboard promises to cap off what will certainly be a momentous year for Millennial Lithium.
 
Indeed, all of these company-building events seem destined to act as powerful catalysts to a sustained uptrend in Millennial Lithium’s share price — one that promises to gather considerable momentum in 2018, and beyond.
 
 
About the Author: Marc Davis has a deep background in the capital markets spanning 25 years. He is also a longstanding financial journalist, having worked for leading digital financial news agencies in North America and in London’s financial centre. He is also a former business reporter for CBC Television.
 
Over the years, his articles have also appeared in dozens of digital publications worldwide. They include USA Today, CBS Money Watch, Investors’ Business Daily, the Financial Post, Reuters, National Post, Google News, Barron’s, China Daily, Huffington Post and AOL.


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masterthink
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August 27, 2017
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