The Fight For Financing In Today’s Market

February 8, 2018


The SQM deal, combined with the overall market volatility, has dramatically affected the Lithium financing market.  Only a month ago, it seemed any Lithium junior with a decent grade project could easily and quickly secure funding.  We believe this has now changed.  Many advanced stage companies secured their funding and are through that stage (Pilbara, Tawana, Altura, Lithium America’s, etc).  But for many other junior miners that want to move toward production, they’ll need to raise capital, potentially even hundreds of millions of dollars worth.  In this article, we discuss some of those companies who still need to secure financing and what this new market environment means for them.  

What does the new market environment mean?  

If you’re an investor in the Lithium market who now knows a lot of proposed supply can potentially come online starting around 2020/2021 (due to the recent SQM deal), this changes the landscape of who you’re going to invest in.  Furthermore, if you’ve started seeing plunging equity prices, you might get nervous to invest at all, or prefer to hold off until equity prices drop even further, thus allowing for an attractive entry point.  From our conversations with investors, both retail and professional, this is certainly the sentiment we are gathering.  Additionally, market volatility could scare short term investors, or weak hands away from this space (or any space) if they perceive a downturn could happen shortly.   All of this could result in lower equity valuations, and less confidence from investors which will affect companies’ ability to raise capital. Consequently, new funding could drop off or become more expensive if dilution for shareholders comes at lower valuations.  

With that being said, it is important to note that despite the potential of capital markets tightening up for these companies looking to raise project funding, it’s possible that these speed bumps in the sector only increase the potential for M&A and/or continued offtake deals from downstream producers looking to secure supply.  While the some of the best projects may have the ability and choose to stave off offtake agreements by raising project capital from investors, not all of the juniors have that luxury or choose to go that route.  All in all, high quality projects will still raise capital, the journey and the cost to complete it will be harder than a few weeks ago.     

The Junior’s Who Need Financing:  

 

  • Nemaska Lithium

 

One of the next producers that needs project capex financing (and a lot of it at $616 Million USD), is Nemaska Lithium.  Based on their feasibility study which came out a few weeks ago, the company stated that they were confident that financing would happen “during the current {1st} quarter.”  This all took place before the SQM announcement and market volatility started.  Nearly half of the 1st quarter is finished and no further update has been given.  We imagine that if financing hasn’t taken place by their annual general meeting/special meeting of shareholders on February 16th, many investors will want to know what’s going on.  One would expect that financing will happen but one would also wonder if significant dilution of shareholders will accompany it.  

 

  • Bacanora Minerals

 

Bacanora Minerals is often thrown around as another upcoming producer.  Yet, they’ll need to raise at least 200 Million (USD) and many are suspicious of Lithium Clay projects. If we were to invest ourselves, Bacanora would not currently make the short list with all of the other buying opportunities in today’s market.  That being said, they’ve recently attained a sizable and significant investment from NextView capital which also recently acquired Lithium X.  

 

 

  • European Metals

 

The Europe based (Cinovec, Prague) project will need to raise $400 Million (USD) in order to get to production.  However, news recently came out that the Czech government may back out of a prior deal signed with European Metals to produce Lithium.  Such news, along with the general financing concerns we have outlined, will not be helpful to the company.  

 

 

  • Neo Lithium

 

According to the company, the 3Q project is “one of the best undeveloped Lithium projects in the world.”  To get to production, the company will need to raise $490 Million dollars (USD).  Financing discussions may have already started and will continue throughout 2018.  

 

 

  • Lithium Power International

 

Like Neo Lithium, they have one of the best brines outside of current producers, they’ll need to raise capital sometime around summer 2019 in order to fund their production.  

As always, we’ll continue pointing out companies that we believe fit that criteria, making your selection process easier.  So make sure to subscribe via email, and follow us on twitter to get our analysis as it hits the tape!

 

Disclaimer:  We currently own shares in Nemaska Lithium.