Why has the Lithium Australia (ASX:LIT) share price plunged 7% today?

The Lithium Australia NL (ASX: LIT) share price is sinking today after the company announced plans ahead of its joint venture partner's IPO.

The Lithium Australia NL (ASX: LIT) share price is sinking today after the company provided updated plans ahead of its joint venture partner's initial public offering (IPO).

At the time of writing, the Lithium Australia share price is down 7.6%, swapping hands for 12 cents.

Let's look closer at the news Lithium Australia shared today.

asx share price falling lower represented by investor wearing paper bag on head with sad face

Image source: Getty Images

Shifting assets

Today, Lithium Australia reiterated its offer for its joint venture partner, Charger Metals NL, to purchase 70% of a number of its projects ahead of Charger's ASX debut.

Lithium Australia plans to keep a hold of the projects by assuming the role of Chargers' majority shareholder after its IPO.

The offer was first made public in December 2021, though it wasn't met with any particular reaction from the company's share price at the time. Unfortunately, this time, the Lithium Australia share price hasn't responded positively to the plan.

Lithium Australia states its shareholders will be offered a priority allocation in the Charger IPO, worth around $500,000. 

There are 3 projects in contestation due to Chargers' planned IPO. Lithium Australia has given Charger until 4 September 2021 to acquire 70% of their joint venture projects. These include:

  • the Coates project – situated in the highly prospective Western Yilgarn nickel, copper, and platinum group elements belt, it's close to Chalice Mining Ltd's (ASX: CHN) Julimar discovery. Lithium Australia states the Coates project exhibits similar geology to the Julimar discovery.
  • The Lake Johnston project – positioned near Southern Cross in Western Australia. It's prospective for lithium, gold and nickel.
  • the Bynoe project – located near Darwin, the Bynoe project is prospective for lithium and gold.

If Charger agrees, it will provide Lithium Australia with 9.6 million fully paid ordinary shares in Charger, as well as paying $100,000 to reimburse the projects' costs thus far. 

Charger will also pay Lithium Australia's joint-venture expenditure share until it receives a receipt of the definitive feasibility study.

This cost to Charger will increase by $200,000 or 2 million shares if the projects' resources increase significantly.

Lithium Australia have stated, for the extra charges to be applied, the resources would have to increase to equal or more than the follow amounts:

  • over 10,000 tonnes of nickel equivalent
  • 10 megatons of equal or greater than 1.2% lithium oxide
  • or, 100,000 ounces of gold equivalent at equal or more than 2 grams per tonne.

Commentary from management

Lithium Australia's managing director Adrian Griffin commented on the proposed arrangements:

The Company retains significant exposure to battery minerals and potential supply solutions while maintaining a focus on its core business – that of ensuring an ethical and sustainable supply of energy metals to the battery industry via the creation of a circular battery economy.

Lithium Australia share price snapshot

While today hasn't been a good day for the Lithium Australia share price, it's been performing well this year.

Currently, the Lithium Australia share price is up 100% year to date. It's also up by 140% over the last 12 months.

The company has a market capitalisation of around $117 million, with approximately 901 million shares outstanding.

Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned.

The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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