CATL & Volkswagen are in the final stages of acquiring Sigma Lithium

December 18 2023, Exame IN

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Sigma Lithium, which owns a lithium mining operation in the Jequitinhonha Valley in Minas Gerais, announced today that it is in the final phase of negotiations for the sale of the business. The expectation was to conclude the transaction by the end of the year, but now the board expects the conclusion to occur only in 2024.

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According to Exame IN, two consortia are in the final stages of acquiring the business. The Chinese battery company CATL and the automaker Volkswagen are pointed out as the favorites.

 

In a statement released today, Sigma Lithium's founder, Ana Cabral Gardner, stated that the company has attracted the interest of "some of the most admired battery and electric vehicle companies in the world, including automakers and battery manufacturers," without naming specific companies.

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As part of the negotiations, the mining company announced the listing of Sigma Brazil, the subsidiary that factually holds the rights to its main project, Grota do Cirilo, on Nasdaq and in Singapore as a way to "maximize value for shareholders" and "level the playing field" in the offer.

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According to sources close to the company, the structure aims to facilitate the purchase of the business by foreigners – especially the Chinese. A law enacted at the end of 2022 in Canada, where Sigma Lithium's holding company is established, requires local government approval for any change of control in critical mineral companies operating in the country.

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Another issue is taxation, as pointed out by the Canadian brokerage Cannacord Genuity in a report. If Sigma sold its Brazilian operation directly, the current investors would have to pay capital gains tax. In the negotiations, Sigma had been stating that the potential buyer would need to make up this difference in the offer, which was reducing the asset's attractiveness.

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In the new structure, buyers would make the acquisition through a stock offering on Nasdaq or in Singapore. The choice of both exchanges aims to increase competitiveness for both Eastern and Western potential buyers.

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With a mine that produces lithium according to the highest ESG standards – with dry waste disposal and a dedicated fund – Sigma has attracted the interest of various players, interested in securing one of the main raw materials for manufacturing batteries for electric vehicles.

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Tesla had approached the company, but the deal did not progress. CMOC, a Chinese mining company focused on molybdenum, also evaluated the asset. PIF, the investment arm of Singapore's sovereign wealth fund, had also advanced in the negotiations, which cooled off, mainly due to price.

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Today, Sigma is valued at just over $3 billion on the Canadian stock exchange, a 15% decline over the year due to a drop in lithium prices. However, Ana Cabral is seeking a premium for the business, especially given the company's growth potential, which in just under six years has taken the project from scratch to building one of the world's leading lithium miners.

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Without touching on the subject of the sale, at a conference in Riyadh at the end of October, the banker – a partner at the private equity firm A10 – said that investors still underestimate the potential of the energy transition for miners.

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"These stocks [of miners of critical metals for transition] are growth stocks, but investors price them as if they were dividend stocks," said the businesswoman. For her, although Sigma generates cash and has access to the debt market, this high cost of equity capital reduces the attractiveness of new investments in the sector, at a time when the world needs this supply.

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"If the projections of growth in electric cars and battery capacity materialize by 2030, the supply of most of these metals will have to grow fivefold. Six years in mining time is practically tomorrow," she stated.