The Mineral Resources Ltd (ASX: MIN) share price is trading lower on Tuesday.
At the time of writing, the mining and mining services company's shares are down almost 2% to $72.58.
This is despite the company announcing a new lithium acquisition.
Image source: Getty Images
What did Mineral Resources announce?
According to the release, the company has entered into an implementation agreement with the deed administrators of Alita Resources regarding the proposed acquisition of the Bald Hill lithium mine in Western Australia.
Mineral Resources swooped in after a proposed acquisition by China-linked Austroid Corporation was blocked by the Foreign Investment Review Board (FIRB) in July.
The deed administrators of Alita, KordaMentha, have commenced an application in the Supreme Court of Western Australia seeking various orders. This includes for Alita to be placed into liquidation to allow for the implementation of the proposed acquisition.
If all goes to plan, Mineral Resources will pay out Alita's secured debt and acquire its interest in the Bald Hill mine. The consideration that Mineral Resources will pay under the transaction is subject to a number of factors, including an independent expert valuation. However, it expects to fund the transaction from existing resources and does not intend to raise capital.
However, management has warned that the outcome of applications in the Supreme Court is currently uncertain and there is no guarantee that the transaction will be able to proceed.
Is acquiring this mine a good idea?
While investors may have concerns about the company acquiring a mine that is operating at a loss, management highlights that this is reportedly due to the previous operators wanting to avoid paying state royalties. It explains:
It has been reported that the Bald Hill lithium mine operates under effective foreign control through a complex corporate structure. It is reported that the lithium mine operates at a loss under these arrangements, with profits transferred overseas via an offtake agreement with a Hong Kong-registered entity, Yihe Cleantech Material Limited. It has been alleged that this offtake agreement has also led to an under-payment of state royalties.
By taking control of the mine, management highlights that "any profits are generated and taxes and royalties paid in Australia to the benefit of Australian taxpayers."
The Mineral Resources share price is still up 21% over the last 12 months despite today's weakness.
