The Firefinch Ltd (ASX: FFX) share price went skywards today, rising 16.06% to finish the session at $1.12 after the company announced a proposed demerger of Leo Lithium Limited.
Firefinch is a gold miner and lithium developer in Mali, West Africa. It owns an 80% interest in the
Morila Gold Mine and 100% of the Goulamina Lithium Project.
The demerger would result in two independent ASX-listed companies — Firefinch and Leo Lithium, as well as the separation of Firefinch's gold and lithium projects.
Goulamina is among the world's largest spodumene mines. It has large scale, high grade, low impurity orebody. Under the proposed deal, Leo Lithium would own Goulamina and Firefinch would own a 20% stake in Leo Lithium.
Why break up?
The rationale behind the demerger is to create "a pure-play lithium developer on the ASX with funding to help accelerate development and growth plans at Goulmamina", the company says.
Leo Lithium has lodged a prospectus for an initial public offering (IPO) of its shares. It has also given the ASX a demerger and offer briefing document explaining the effect of the demerger.
What's the nitty-gritty?
Firefinch shareholders will vote on the demerger at the general meeting in Perth on 31 May. If the demerger proceeds, eligible Firefinch shareholders will be entitled to receive one share in Leo Lithium for every 1.4 Firefinch shares held at the demerger record date of 6 June.
Eligible Firefinch shareholders will also be able to buy Leo Lithium shares at 70 cents per share in a pro-rata priority offer to raise up to $80 million for Leo Lithium to spend developing Goulamina.
Investors can subscribe for one Leo Lithium share per 10.33 Firefinch shares held. Up to 114 million Leo Lithium shares will be issued under the pro-rata offer. The record date for the pro-rata offer is 5 May.
Firefinch directors say 'vote yes'
Firefinch directors have unanimously recommended that Firefinch shareholders vote yes to the demerger. According to the company, every director intends to participate in the pro-rata offer.
Firefinch will subscribe for up to $20 million in Leo Lithium shares, which will be in addition to the pro-rata priority offer, to maintain a 20% interest. Firefinch says this reflects "the conviction Firefinch has in Leo Lithium".
The pro-rata offer implies a 65% attribution of Firefinch's market capitalisation to Leo Lithium.
Firefinch has released a shareholder letter and a prospectus for the demerged Firefinch entity.
Subject to ASX approval, it is anticipated that Leo Lithium shares will begin trading on 16 June.
Firefinch share price recap
The Firefinch share price is up 195% over the past 12 months and almost 22% in the year to date.
