April 6, 2018 / 2:10 PM / a year ago

SoftBank's first lithium deal raises prospects for junior miners

TORONTO/VANCOUVER (Reuters) - SoftBank Group Corp’s (9984.T) entry into the lithium sector, a hot commodity for electric car batteries, is raising hopes that small miners struggling to secure bank funding can tap alternative financing to cash in on booming demand.

FILE PHOTO: The logo of SoftBank Group Corp is displayed at SoftBank World 2017 conference in Tokyo, Japan, July 20, 2017. REUTERS/Issei Kato/File Photo

Japan’s SoftBank, with investments including ride-services firm Uber [UBER.UL] and Chinese online retailer Alibaba (BABA.N), will invest up to C$99.1 million ($78 million) for a stake of up to 9.9 percent in Nemaska Lithium Inc (NMX.TO).

Separately, Nemaska is also in talks with U.S. private equity firm Orion Mine Finance on a streaming deal, a type of specialized mining finance, people familiar with the transaction told Reuters.

Nemaska shares jumped as much as 20.5 percent on Friday, giving the Quebec-based company a market value of C$566 million.

“These alternate forms of financing, I think, are going to become more common,” said Tim Johnston, chief executive of Desert Lion Energy (DLI.V), developing a lithium mine in Namibia.

Nemaska, which last week said it was in the final stages of negotiating a $150 million streaming deal, and Orion declined to comment on the stream. Sources declined to be identified as talks are confidential.

Under streaming deals, which have become a popular means to fund mine development, financiers typically advance funding in return for a portion of future output at a discounted price.

Orion may additionally provide debt financing to Nemaska, one person said.

“It’s a stamp of approval ... that lithium is moving in the right direction,” Eight Capital analyst David Talbot said of SoftBank’s investment. “This is a huge company coming in - and they buy and sell winners, for the most part.”

Many banks are uneasy lending to lithium miners because the commodity is not openly traded, removing a key source of information for risk assessment, Johnston said.

Lithium is a key ingredient in rechargeable batteries that power electric cars. Forecasts of soaring demand for vehicles like Tesla Inc’s (TSLA.O) Model X and General Motors Co’s (GM.N) Chevy Bolt, have lifted lithium carbonate prices more than two times above early 2015 levels.

But as miners ramp up production, some analysts predict supply will outpace demand as early as 2019, including BMO Capital Markets and Morgan Stanley, which forecasts a 45 percent fall in lithium prices by 2021.

There are only a handful of projects with good odds of getting financed by the small group of funds and investors who understand the sector, said Stormcrow Capital President Jon Hykawy.

“They need to strike while the iron’s hot and they need to be able to prove to some very knowledgeable investors that they ... will survive no matter what,” he said.

Nemaska, seeking up to $825 million for its mine and plant, has a patented electrolysis process to produce battery-grade lithium and supply deals with cathode maker Johnson Matthey PLC (JMAT.L) and chemical company FMC Corp (FMC.N).

Reporting by Susan Taylor in Toronto and Nicole Mordant in Vancouver; Editing by Bernadette Baum and Richard Chang

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