The Energy Report - Tue, Apr 10, 2018

'Major Project Endorsement': SoftBank Invests $99M in Lithium Development Firm

Ryan Walker, an analyst with Echelon Wealth Partners, explained the agreement and its implications.

Lithium battery

An April 6 research note indicated that SoftBank Group has agreed to invest up to CA$99 million in Nemaska Lithium Inc. (NMX:TSX; NMKEF:OTCQX). The vehicle is a private placement of 88.5 million common shares subscription receipts at $1.12 per share. "SoftBank's investment is an important project endorsement, providing credibility for Nemaska to pursue and close additional equity and debt financing options," wrote analyst Ryan Walker with Echelon Wealth Partners.

SoftBank Group is a US$78 billion, Japanese-based multinational conglomerate holding company whose business divisions include energy, mobile, Internet, robot and business.

As for the details of the SoftBank-Nemaska arrangement, the gross proceeds of the placement would be held in escrow until, for one, Nemaska completes additional financing. The company needs a total of $775-825 million for the commercial-scale Shawinigan plant, the Wabouchi mine (both located in Quebec) and working capital.

Walker explained that "if the escrow release conditions are not met or waived by Aug. 6, 2018, the funds would revert to SoftBank and the financing automatically canceled." If all stipulations are met and the financing gets completed, SoftBank would have the right to own 9.9% of Nemaska.

At that point, should SoftBank owns at least a 5% interest in Nemaska, it would have these additional rights:

  1. The right of first offer to purchase up to 20% of the lithium hydroxide and carbonate produced at the Shawinigan plant from Wabouchi "at pre-agreed discounts applicable to a pre-determined price-based formula," said Walker.

  2. The right to one nominee for director of Nemaska.

  3. The right to participate in any future equity offerings.

Nemaska continues working on obtaining supplementary financing, "including US$300-350M in debt, closure of a recently announced US$150M streaming facility and additional private and/or public equity," Walker noted.

He added that Echelon is confident the lithium firm will accomplish the needed capital, particularly with the confidence boost from Softbank. Were Nemaska to complete all additional financing by early August, then the plant and mine would be on track for commercial production in H2/20.

Echelon has a Speculative Buy rating and a CA$3 per share price target on Nemaska Lithium. The company's shares are currently trading at around CA$1.32 per share.

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