The IGO Ltd (ASX: IGO) share price has been on a tear this month following the mining company's $766 million capital raise to acquire a stake in Tianqi Lithium Energy Australia Pty Ltd.
Shares in IGO have rallied 31.2% since the beginning of December on the news, compared to a 0.09% increase in the S&P/ASX 200 Index (ASX: XJO)
The nickel miner has optimism swirling around it with its plans to create a 'unique clean energy metals company'.
Give me the details
On 9 December IGO announced to the market its intentions to acquire a 49% stake in Tianqi Lithium Energy Australia Pty Ltd. The deal would provide IGO with a 24.99% indirect interest in the Greenbushes Lithium Mining and Process Operation and a 49% indirect interest in the Kwinana Lithium Hydroxide Plant.
The total transaction value of the deal being considered is $1.9 billion. $1,100 million of this will be funded through new debt facilities; $766 million from their latest equity raise; and the remaining $85 to $149 million from existing cash reserves.
This deal is strategically focused to put IGO on the map when it comes to supplying metals that are required in the clean energy future.
IGO expects the transaction to be earnings per share accretive from FY23. Subject to shareholder approval the completion of the deal is expected to be in the June 2021 quarter.
Broker upgrades
Broker, Jarden, is particularly pleased with the acquisition and has upgraded IGO to "outperform" from "neutral" – calling it a "game changer" for the company.
The deal comes at an opportune time, addressing the concerns of the short mine life of IGO's flagship Nova nickel mine – which is estimated to only have roughly 6 years left in it.
Jarden points out that they believe IGO managed to get an exceptionally attractive price for their stake in these high-quality assets.
Next steps from here
IGO will need to get shareholder approval in early February 2021, which shouldn't be an issue given the optimism. From there it is a process of completing the Tianqi restructure and signing off on the transaction completion in the June quarter of 2021.
We will have to keep a watch to see how well IGO leverages these new assets, and what cost synergies may form.
IGO Ltd's market capitalisation is $4.65 billion at the time of writing.
