Lithium Royalty Corp. plans $150-million IPO to boost investment in mines

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Five-year-old Lithium Royalty Corp. is going public with a planned $150-million-plus stock sale, raising money to fund the mines that feed a rapidly growing battery industry.

Lithium Royalty filed the paperwork on Wednesday for an initial public offering on the Toronto Stock Exchange, after tapping institutional investors for approximately $130-million and profitably investing in 27 projects.

Despite a recent selloff in lithium stocks, driven by falling prices, Lithium Royalty expects to raise at least $150-million, according to investment banking sources. The Globe and Mail agreed not to name these sources because they are not authorized to speak at this stage in the IPO process. The offering would qualify as one of the five largest IPOs on the TSX in the past year, a dry period for public market debuts.

Royalty companies finance mining or oil and gas projects in return for a share of future revenue. The concept has proven its merits across economic cycles, creating public companies such as Franco-Nevada Corp. FNV-T, which was launched in 1983 and has a $33.5-billion market capitalization, and the oil patch’s PrairieSky Royalty Ltd., valued at $5.3-billion and founded 10 years ago.

Toronto-based Lithium Royalty plans to use cash from its IPO to increase the size and pace of its investments in lithium mines, according to its prospectus. Right now, the company holds royalty agreements on 27 projects in seven countries, investing an average of $4.5-million in each mine.

Two Lithium Royalty mines, both in Australia, are producing. Four properties, in Argentina, Brazil and British Columbia, are under construction. The remaining projects are still in the development stage. Royalties typically continue after a mine changes hands, a critical factor in a consolidating sector. Lithium Royalty helped fund a Neo Lithium Corp. project in Argentina and will still collect payments after China’s Zijin Mining Group Ltd. acquired the company.

Lithium Royalty earned net income of $10.2-million on its investments in the first nine months of 2022, compared with $5-million in the same period the previous year.

The company plans to focus on investing in North American hard-rock lithium mines, including projects in Quebec, to meet automakers’ demands for shorter, reliable supply chains. Chinese producers dominate the lithium market. In its regulatory filings, the company said: “Battery supply chains are growing increasingly localized and we believe that battery metal resources in North America will grow in strategic importance.”

Ottawa approves new Quebec lithium mine, as Canada doubles down on efforts to challenge Chinese dominance

In January, General Motors Co. invested US$650-million in TSX-listed Lithium Americas Corp. to help develop a US$2-billion mine in Nevada. Last year, Stellantis NV, another major global automaker, took an equity stake in an Australian lithium producer.

Lithium prices have been volatile over the past 12 months, down approximately 30 per cent since peaking in November, in part on concerns about demand from Chinese battery makers. However, analysts say the sector’s long-term growth prospects are strong, owing to demand for batteries that power electric vehicles and renewable power storage facilities.

“The year ahead could be sloppy for the spot lithium market,” analyst Ben Isaacson at Bank of Nova Scotia said in a recent report. “Beyond 2024, we are stumped as to where supply will come from to satisfy demand.”

The International Energy Agency forecast demand for lithium will grow by 30 per cent annually over the next decade, outstripping growth in the market for other minerals critical to a decarbonized economy, such as nickel and copper.

The founders of Lithium Royalty have more than a decade of experience and relationships in the sector. Chief executive officer Ernie Ortiz oversaw investments in lithium and battery technologies for fund manager Tide Point Capital Management in Greenwich, Conn., prior to launching the company in 2018. He is a member of the London Metal Exchange’s lithium advisory committee.

Toronto-based Waratah Capital Advisors CEO Blair Levinsky and former GMP Securities LP mining banker Mark Welling co-founded Lithium Royalty, along with Mr. Ortiz. Waratan oversees $4-billion in client assets and Mr. Levinsky runs the firm’s global electrification and decarbonization fund.

St. John’s-based Altius Minerals Corp., which also owns mine royalties, was also an early backer. In 2021, Lithium Royalty raised US$71-million from institutions, including New York-based private equity fund Riverstone Holdings LLC.

Investment banks Canaccord Genuity Corp. and Citigroup are leading Lithium Royalty’s IPO, along with TD Securities Inc., Cormark Securities Inc., National Bank Financial Inc., BMO Nesbitt Burns Inc., Scotia Capital Inc., Raymond James Ltd. and Red Cloud Securities Inc. Law firm Davies Ward Phillips & Vineberg LLP is advising the company, while Blake, Cassels & Graydon LLP is the investment banks’ counsel.