Why is ASX lithium share Essential Metals exploding 40% today?

The Essential Metals Ltd (ASX: ESS) share price is rocketing higher on Monday morning.

At the time of writing, the lithium explorer’s shares are up 40% to 48.5 cents.

As you can see below, this is the highest level the Essential Metals share price has traded at since October.

Why is the Essential Metals share price rocketing higher?

Investors have been scrambling to buy the company’s shares this morning after it accepted a takeover offer from Tianqi Lithium Energy Australia.

Tianqi Lithium Energy Australia is a joint venture lithium business owned by lithium giants Tianqi Lithium and IGO Limited (ASX: IGO).

According to the release, the parties have entered into a scheme implementation agreement that will see Tianqi Lithium Energy Australia acquire 100% of Essential Metals for 50 cents per share in cash via a scheme of arrangement.

This represents a 45% premium to the Essential Metals share price at Friday’s close and values the company at $136 million on a fully diluted basis.

The Essential Metals board of directors has unanimously recommended that shareholders vote in favour of the scheme, and each director intends to vote their shares in favour of the scheme. This is in the absence of a superior proposal and subject to the independent expert’s report

Why acquire Essential Metals?

Essential Metals is a lithium exploration company which owns 100% of the Pioneer Dome Project in Western Australia.

It is one of only 14 JORC compliant spodumene lithium resources in Australia, with a defined JORC resource of 11.2 Mt @ 1.16% Li2O. The company also holds several other interests in early-stage exploration projects across lithium, nickel and gold.

IGO’s acting CEO, Matt Dusci, explained the rationale for acquiring the company. He said:

Both IGO and TLC are committed to progressing and growing our lithium joint venture business. The ESS transaction provides an opportunity to accelerate lithium exploration to bring new resources to production. It also complements the significant growth opportunities within the TLEA [Tianqi Lithium Energy Australia] business which include the continued expansion of the Greenbushes operation, the successful ramp up Train 1 of the lithium hydroxide facility at Kwinana and progressing towards the financial investment decision for Train 2.

We look forward to supporting TLEA with future work programs over the ESS assets, as the joint venture seeks to bring new resources to production to address the market deficit of raw materials critical for clean energy transition.

The post Why is ASX lithium share Essential Metals exploding 40% today? appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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