Australian lithium M&A heats up with Develop Global’s bid for Essential Metals

Australian base metals explorer Develop Global (ASX: DVP) is buying coveted fellow lithium developer Essential Metals (ASX: ESS) in a share-based deal worth about US$102 million (A$152.6 million).

The buyer, a junior backed by lithium producer Mineral Resources (ASX: MIN), said Essential’s board had unanimously recommended the deal in the absence of a superior proposal.

Mineral Resources, which also produces iron ore and offers mining services, took a key stake in Essential in April in a successful effort to block a joint takeover bid led by China’s Tianqi Lithium and Australia’s IGO Ltd (ASX: IGO).

In tandem with the bid, Develop has launched a A$50 million (US$33 million) capital raising split across a A$30 million (US$20 million) placement and a 1-for-29 non-renounceable rights issue. The offer price was pegged at A$3.20 a share, representing a 7.5 % discount to Develop’s last close.

The majority of the proceeds will be used to advance Essentials’ prospective Pioneer Dome hard-rock lithium project in the southwest of Western Australia state, which is about 100 km from Mineral Resources’ Mt Marion.

Funds would also help with the potential restart of the Woodlawn zinc-copper project, in New South Wales, Develop Global said. An updated life-of-mine plan for this asset is expected in the September quarter of this year, and Develop recently approved an A$8-million (US$5 million) underground development at the project to enhance an early restart scenario.

The company’s managing director Bill Beament noted that if the transaction is approved, Essential shareholders will become part of a diversified battery and energy transition metals group, reducing the risks associated with being a single-asset development company.

“Being a one-asset company, particularly in the development phase, brings significant risks and challenges,” he said.

There has been a flurry of activity in the lithium sector this year, with the merger between Allkem and Livent, which created the world’s third largest lithium producer, heading the list.

In March, Liontown Resources (ASX: LTR) rebuffed a US$3.7 billion buyout bid from Albemarle, after turning down two previous offers by the U.S. producer. Liontown said the world’s biggest producer of the metal’s proposals undervalued the company.

Tecpetrol Investments in June launched an all-cash buyout bid for Canada’s Alpha Lithium (US-OTC: APHLF), which is active in the Tolillar and Hombre Muerto salt flats in Argentina.

Canada’s Lithium One Metals (TSXV: LONE) followed with an announcement of its planned merger with Norris Lithium Inc. (CSE: CHCK).