Lithium X shares slip ahead of Chinese acquisition

Shares in Lithium X Energy Corp. plunged Thursday morning, just days before the company is set to be acquired at a huge premium by a consortium of Chinese investors, suggesting market skepticism the deal will be completed.

The Vancouver-based company traded as low as $1.77 per share, before recovering to close at $2.21, up four per cent on the day. The buyout deal, which would pay shareholders $2.61, is set to close March 9.

The early day fall in Lithium shares comes a day after the proposed buyer, Nextview New Energy Lion Hong Kong Ltd., defaulted on a separate $53-million deal to purchase a 20-per-cent stake in a different Lithium explorer, Calgary-based Banacora Minerals.

But the closing of the deal also comes as analysts apply a fresh round of scrutiny to lithium supply and demand dynamics, and question whether the element — necessary for making electric vehicle batteries — can justify its dramatic rise in price in the past few year.

To assuage investors, Lithium X management issued a press release Thursday, assuring investors that its own proposed $265 million buyout by Nextview remains on track to close. “Everything we have from the company is their intention to move forward,” Brian PaesBraga, CEO of Lithium X, said in an interview. “We’re all heading towards a closing.”

The drop in stock price was so significant — more than 20 per cent at one point — it even resulted in a temporary halt in trading Thursday morning, the company said in a press release.

In a conference call on Tuesday, Paes-Braga said Nextview and its advisers on the deal have said they were continuing to finalize “debt facilities” to provide the remainder of the cash. If that fails, Nextview may lean on Tibet Summit Resources to provide the capital. Tibet Summit is a publicly listed company in China with about $3 billion market capitalization.

“That’s all the comfort we have,” said Paes-Braga. “We’re talking about large counter-parties.”

According to an announcement of the deal, Nextview is Tibet Summit’s second-largest shareholder, and the two companies teamed up in 2017 to create a US$1.5-billion fund to acquire overseas assets with a focus on new energy and resources. But it was vague on the source of its funds, citing “several well-known financial institutions, including China Huarong Assets Co., Ltd.”

Lithium X has assured investors it at least will receive a $20-million break-up fee if the deal fails, describing the amount as “significantly higher than the market standard for break-fees.”

The amount suggests fears about the financing may have existed even as the deal was negotiated.