Budding lithium producers Lepidico Ltd [ASX:LPD] and Desert Lion Energy [CVE:DLI], have agreed to merge in order to further consolidate the market and create a ‘global leader in the development of lithium chemicals from Lepidolite.’
The arrangement comes after Lepidico reached out to Desert Lion as part of the company’s long-term strategy to acquire lithium assets in the East African region.
Canadian-listed Desert Lion currently owns the Rubicon and Helikon deposit sites located in Namibia.
Lepidico’s share price is valued at 33 cents, down 13.16%.
All roads lead to virtually integrated lithium production
The definitive agreement assures that Lepidico will assume all of Desert Lion’s shares at a transaction of 5.4 ordinary Lepidico shares for every 1 Desert Lion share.
The agreement will combine Lepidico’s own lithium processing capabilities (including the L-Max process, which facilitates high quality lithium hydroxide) and Desert Lion’s existing lepidolite mineral resources to make a ‘vertically integrated lithium development company.’
Lepidico maintain that they share a common goal with Desert Lion, saying they want to:
‘Get to free cash flow generation as swiftly as possible by developing a scalable, vertically integrated new lithium chemical business based on lithium mica and lithium phosphate minerals.’
To enhance this cash flow generation, Lepidico has committed to an Entitlements Offer priced at $0.029 per New Share in the hopes that it will raise $10.8 million, which will ‘advance its technologies and projects to be development ready, and ultimately…demonstrate the commercial viability of L-Max® and LOH-MaxTM, and become a globally significant, vertically integrated lithium chemical producer.’
‘The Desert Lion transaction will provide Lepidico with a direct controlling interest in its first quality lepidolite deposit under an awarded mining license, providing a clear path to development.’
‘A clear path’
Given the assets that both Lepidico and Desert Lion are bringing to the table with this merger, you might think their vision for bigger, better lithium exploration would be what investors would want.
But Lepidico’s share price has fallen almost 14% since market open. With a stable quarterly activities report showing increased lithium resource tonnage and cost savings, it’s hard to know what’s causing the sell-off.
Management believe that the L-Max and LOH-Max processes could potentially lead to extra lithium supply — and extra disruption of the market. Whether or not this is true, it seems investors will need more in the way of collateral until they commit.
For Money Morning
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