The European Lithium Ltd [ASX:EUR] is set to purchase Petro Consulting and initiate a $20 million capital placement.
Petro Consulting is applying for special permits to extract and process lithium at two projects in Ukraine.
European Lithium follows Volt Resources Ltd [ASX:VRC] into Ukraine, with Volt owning a 70% interest in the graphite mining business ZG Group, located 280km away from Kyiv.
European Lithium Ltd [ASX:EUR] share price is currently trading at 14 cents per share, up 3.70%.
EUR is another junior lithium stock benefiting from hot interest in the ASX lithium sector, gaining 275% over the last 12 months.
Will this acquisition help EUR sustain its momentum?
European Lithium to acquire Ukraine explorer
European Lithium entered binding agreements to acquire Petro Consulting under somewhat convoluted terms.
Under the agreement, EUR will acquire Petro, who is applying for 20-year special exploration and production permits from Millstone and Company Global DW (Millstone).
In turn, Millstone will subscribe for $20 million in EUR shares, with $2.5 million invested immediately, $2.5 million subject to shareholder approval, and the balance ($15 million) conditional on completion of the acquisition of Petro.
The permits in question relate to two Ukraine projects — Shevchenkivske and Dobra, which EUR thinks are ‘underexplored by modern exploration standards’.
Both projects also contain ‘significant’ exploration targets according to historical data, EUR said.
The Shevchenkivske project has an exploration target ranging from 11.0–14.0 million tonnes at 1.2–1.3 % Li2O.
The Dobra Project has an exploration target ranging from 80–105 Mt at 1.1–1.4% Li2O.
The quantity and grade of the projects’ targets are conceptual in nature, EUR admitted. Insufficient exploration to date prevents the estimation of a mineral resource.
EUR mentioned if the acquisition succeeds, it will undertake a maiden JORC compliant mineral resource estimate based on verification works.
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Investor beware: EUR flags risk
EUR was upfront the acquisition was subject to plenty of conditions…and risks.
As European Lithium advised:
‘There is a risk that Petro Consulting may not be successful in court proceedings, public auction and/or production sharing agreements, or that the process is delayed or changed. Petro Consulting and Millstone have 12 months to be issued/re-issued special permits over both projects, failing which the acquisition and outstanding portions of the placement may be cancelled.
‘Investors buying and selling EUR’s securities are cautioned to have regard to the risk and uncertainties in making investment decisions regarding EUR’s securities.’
EUR share price outlook
Tony Sage, EUR non-executive chairman commented (emphasis added):
‘I’m very excited about the opportunity to potentially purchase these Ukrainian lithium assets to add to our advanced Wolfsberg Lithium Project.
‘If the acquisition completes, we aim to become the first and largest local producer of lithium hydroxide in Europe.’
With Europe firmly setting course to an EV future, lithium firms are eyeing Europe as a key market hungry for the white metal.
This is in part why we have seen such a large run-up in the price of Vulcan Energy Resources Ltd [ASX:VUL].
VUL aims to supply Europe with ‘green’ lithium and diminish Europe’s reliance on China for critical battery grade lithium chemicals.
But as the recent short-seller report on Vulcan demonstrates, the presence of a large addressable market does not guarantee smooth sailing.
In VUL’s case, it must vindicate its extraction methodology on a commercial scale.
For EUR, it must verify the Ukraine projects are economically viable…provided the acquisition is successful.
Riches may be in sight, but the road is long and uncertain.
So if you want a guide, a great place to start is the latest Money Morning report on the lithium industry.
It’s worth having a look.
For Money Morning
PS: Our publication Money Morning is a fantastic place to start on your investment journey. We talk about the big trends driving the most innovative stocks on the ASX. Learn all about it here