Mining company IGO Ltd (ASX: IGO) announced this morning that it has entered into a binding agreement with Chinese company Tianqi Lithium Corporation, to acquire a 49% stake in Tianqi’s Australian lithium mining business for $1.9 billion.
Before market open this morning, IGO asked the ASX to temporarily halt trading of its shares, pending the release of an announcement about the accelerated entitlement offer related to the acquisition today.
The trading halt will last until Friday 11 November 2020, unless revised otherwise.
The IGO share price closed yesterday at $5.095.
First foray into the lithium market for IGO
Today’s acquisition will effectively provide IGO with a 24.99% indirect interest in Greenbushes Lithium Mining and Processing Operation, and a 49% indirect interest in the Kwinana Lithium Hydroxide Plant – both located in Western Australia.
This marks IGO’s first first foray into the lithium market, which analysts believe will boom in the coming years along with the popularity of electric vehicles.
IGO intends to fund the deal through a combination of $1.1 billion of new debt facilities, an equity raising of up to $766 million, and existing cash reserves of between $85 million and $149 million.
The company said that both Greenbushes and Kwinana were world-class assets with attractive growth profiles that together provided the platform for building a global lithium business.
IGO managing director and chief executive, Peter Bradford, said the deal was consistent with IGO’s strategy to become a global leader in clean energy:
This is a genuinely transformational transaction for IGO, and one that delivers on our strategy to become a global leader in the supply of metals critical for enabling a clean energy future.
We see Tianqi, a leader in the global lithium industry and with strong alignment to our strategy, as the ideal partner for IGO.
How has IGO performed recently
The mining company has delivered record profits for the last two consecutive years.
In FY19, the company delivered a net profit after tax (NPAT) of $76 million, a record profit for the company at the time. That was followed by another record NPAT of $155 million in FY20.
In September, investors were excited with news that IGO was considering to offload its $1 billion stake in the AngloGold Ashanti’s Tropicana gold mine. That plan is still on the table, as the company pivots its focus to the clean energy business.
About the IGO share price
The IGO share price has lost 15% of its value in 2020. The current share price is still a long way from its 52-week high of $7.11. The company commands a market cap of $3 billion.
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Motley Fool contributor Eddy Sunarto 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 Bruce Jackson.
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