Sigma Lithium stock surges on Tesla takeover rumours

Shares of Sigma Lithium (TSXV: SGMA) rose more than 20% on Tuesday morning following a long-weekend media report that electric vehicle manufacturer Tesla (NASDAQ: TSLA) is in takeover talks with the Brazil-focused lithium developer.

Bloomberg reported late on Feb. 17 that Tesla was weighing a takeover of the company.

The report cites unnamed sources “with knowledge on the matter,” stating that Elon Musk has been “speaking with potential advisers about a bid.”

Sigma, however, is said not to be the only firm that Tesla is considering acquiring.

Sigma’s largest shareholder, 46%-owner Brazilian private equity fund A10 Investimentos, is reported to have been exploring the potential for a sale of the company while taking interest from miners and carmakers alike. Discussions with Tesla, meanwhile, are said to be in the early stages and may not yet result in a transaction.

Tesla did not respond to Bloomberg, Reuters or The Northern Miner regarding the matter. Sigma Lithium meanwhile declined to comment on rumours.

The Vancouver-based company is developing the Grota do Cirilo property in Minas Gerais state, Brazil, which is said to be the largest lithium hard-rock asset in the Americas. It has been producing battery-grade lithium concentrate at the project since 2018 on a pilot scale, with phase one output slated for 36,7000 tonnes of lithium carbonate equivalent (LCE) per year.

The first phase of production, the development of which is said to be fully funded, is expected to have an operating life of 13 years and is likely to result in an average annual free cash flow of US$1.8 billion. Phase one is slated to begin in April this year, with feasibility studies and detailed engineering for the second and third phases targeted to be completed in the current quarter.

A Dec. 2022 updated technical report outlined positive economic results to potentially triple Grota do Cirilo’s integrated production of battery-grade sustainable lithium concentrate from 270,000 tonnes per annum (36,700 tonnes per year LCE) starting in 2023 to 768,000 tonnes per year (104,200 tonnes per year LCE) in the second year.

In its December press release, the company said that the production expansion study demonstrated robust project economics, highlighted by an after-tax NPV of 8% of US$15.3 billion, incorporating production from Phase 1 (nearing commissioning ) combined with Phase 2 and Phase 3. The project’s after-tax IRR is 1,273%, and the payback period is one month.

Tesla’s potential move to acquire Sigma follows General Motors’ (NYSE: GM) deal recently to secure raw materials for batteries. GM earlier this month revealed that it would be making a $650 million investment in Lithium Americas (TSX: LAC) and their Thacker Pass project in Nevada.

GM has agreed to invest those funds in two tranches, with its investment part of a deal to secure an off-take agreement related to the phase one production of the mine once final approvals and construction are completed. The off-take arrangement outlines that GM will have exclusive access to lithium carbonate produced in the first phase of production, which is estimated to amount to 30,000 tonnes per year.

GM, meanwhile, is also said to be mulling taking a stake in the Brazilian nickel miner Vale (NYSE: VALE), which could amount to up to a 10% interest in the miner.

Sigma’s Toronto-quoted equity jumped more than 20% on Tuesday to $48 per share, giving it a market cap of $4.9 billion. Shares have tested $11.25 and $54.23 over the past 12 months.