A lithium explorer backed by Canadian mining magnate Frank Giustra dropped in Toronto trading amid speculation that its prospective buyer, a Chinese investment company, may fail to cough up the cash.
Vancouver-based Lithium X Energy Corp. fell the most in nearly two years Wednesday, the latest casualty in a sector that's been pummeled this week on forecasts that a supply glut may loom for the metal used in electric-vehicle batteries.
In the midst of the lithium boom in December, Beijing-based NextView Capital had struck agreements with two Canadian lithium explorers -- a roughly $53 million deal to buy a 20 percent stake in Calgary-based Bacanora Minerals Ltd. and a few days later a $265 million plan to acquire Lithium X, founded by Giustra's Vancouver-based Fiore Group.
The first of those seemed to have officially toppled Wednesday as Bacanora announced that NextView had defaulted on its agreement after failing to come up with the funds and that talks had not resulted in any alternative proposals.
That's spurring doubts about the Chinese buyer's ability to come up with five times the amount to finance its acquisition of Lithium X, which holds rights to a lithium deposit in Argentina's Salta province.
In a note to clients about the outlook for Lithium X titled "Next View Not Pretty," Canaccord Genuity Group Inc. analysts Eric Zaunscherb and Tom Gallo said the Bacanora default revives earlier speculation that the NextView-Lithium X transaction may not close.
The default "may justify increased doubts around Lithium X's acquisition" and prompt another "leg down" in Lithium X's share price, they wrote. In a broader morning note, Canaccord told clients to expect that the spread on Lithium X's risk arbitrage may "blow out" on the deal's uncertainty.
Lithium X fell as much as 16 percent, it's biggest intraday decline since May 2016, and was down 11 percent to $2.11 at 3:17 p.m. in Toronto. That compares with NextView's bid of $2.61 a share.
Lithium X, NextView and Fiore didn't immediately respond to requests seeking comment.
Lithium X is among a crop of companies globally that sought to profit from a boom for the lightweight metal, whose benchmark South American price rose 40 percent last year. Yet in recent weeks, some have questioned that run up.
Lithium prices will almost halve by 2021 because the growth in electric cars will be insufficient to soak up rising supply from the largest producer in Chile, Morgan Stanley said in a forecast this week.
"It is a bubble," Pierre Lassonde, chairman of Franco-Nevada Corp., the world's most valuable streaming and royalty company, said Tuesday in an interview in Florida. "It's not like gold. You produce a gold bar, and you throw it over the fence and somebody is there to catch it. Copper, you produce a ton of copper, you call your broker, there's someone there to catch it."
In contrast, lithium is only as valuable as the contract secured: "It doesn't matter how good your mine is, it doesn't matter how good your deposit could be, if you don't have a contract you've got nothing."
Earlier this month, Lithium X said that just about all conditions of its deal with NextView had been fulfilled except for receipt of the cash and that NextView was "seeking alternative funding from a commercial lender in order to obtain the required funds on the most competitive terms available." Lithium X said that NextView expected to have the funds "shortly" but that the loan would be delayed until after the Chinese New Year holiday, which ended last week.
Lithium X said it expected the remaining funds would be wired to Canada "during the first full week of March" and that in the meantime it was holding a break fee of C$20 million, according to a Feb. 14 statement.