Exclusive: Sigma Lithium aims a sales deal by February

Shareholders of Sigma Lithium are actively engaged in a sales agreement, with the expectation of concluding it by mid-February, according to sources familiar with the transaction. The aim is to finalize the deal before the start of the Chinese New Year, which starts on February 10th.

As previously reported by EXAME INSIGHT, proposals from CATL, the Chinese battery manufacturer, and Volkswagen are on the table. The Chinese company is reportedly leading the negotiations with an offer superior to Volkswagen's, according to two sources who did not disclose the total value of each offer. However, these proposals are still non-binding and subject to modifications.

As announced by the company last month, the plan involves listing the subsidiary Sigma Brazil, the owner of the Grota do Cirilo mine project, on the Singapore and Nasdaq stock exchanges. This would be the entity to be acquired. Currently, it is the holding company that is traded on the Toronto and Nasdaq stock exchanges.

However, the company is not obligated to complete this step to finalize a sale. On the contrary, the plan is to reach a definitive agreement and include the listing as one of the conditions for the transaction's closing.

Discussions have progressed in recent weeks, including formal authorization from both bidders for the company to start investments in Phases 2 and 3 of the project, which have the potential to triple the production currently concentrated in one mine.

Initially, the company indicated that the start of investments would have to wait until the completion of the transaction because both CATL and Volkswagen wanted to work with their own suppliers, namely the construction companies responsible for the engineering works.

More recently, however, they agreed to use the construction company chosen by Sigma itself, which will proceed with the project, according to three sources.

Interlocutors close to the company believe that the initiation of expansion through Phases 2 and 3 is a sign of Sigma Lithium's confidence in the project's potential and an indication that the company would be willing to proceed independently, without a sale, if there is no agreement on the price with the current bidders.

"It is also a way for Sigma to more forcefully present this expansion potential in the valuation," notes a source following the process.

The engineering works to establish the new mines require minimal initial investment. The company is generating cash from Phase 1 and virtually has no debt, so it does not need capital to advance the operation.

Although it is considered a strategic asset by both CATL and Volkswagen, valuation is the main issue in the sales process. Lithium prices, which reached highs around $8,000 per ton, are now closer to $900, penalizing companies involved in lithium mining, essential for electric vehicle batteries.

Today, Sigma is valued at just over $3 billion on the Canadian stock exchange, a 5% decrease in the past 12 months. However, Ana Cabral has been seeking a premium for the substantial business, especially for the company's growth potential, having developed from scratch into one of the world's leading lithium miners in just under six years.

Without addressing the sale directly, at a conference in Riyadh in late October, the banker – a partner at private equity firm A10 – said that investors still underestimate the potential of the energy transition for mining companies.

"These [critical metal mining] stocks are growth stocks, but investors price them as if they were dividend stocks," said the businesswoman. For her, despite Sigma generating cash and having access to the debt market, this high cost of equity capital reduces the attractiveness of new investments in the sector at a time when the world needs this supply.

"If the growth projections for electric cars and battery capacity materialize by 2030, the supply of most of these metals will have to grow fivefold. Six years in mining time is practically tomorrow," she said at the time.

With the board considering various "strategic options" since mid-last year, in December Sigma Lithium formally announced that it was in the final stages of the business sale, with completion expected in 2024, rather than by the end of last year, as previously indicated.

At the time, Sigma Lithium founder Ana Cabral stated that the company had attracted interest from "some of the world's most admired battery and electric vehicle companies, including automakers and battery manufacturers," without naming names.

As part of the negotiations, the mining company announced the listing of Sigma Brazil, the subsidiary that actually holds the rights to its main project, on Nasdaq and in Singapore as a way to "maximize value for shareholders" and "level the playing field" in the offer.

According to sources close to the company, the structure aims to facilitate the business purchase by foreigners, especially the Chinese. A law enacted at the end of 2022 in Canada, where the Sigma Lithium holding was established, mandates that the local government must approve any change of control for companies dealing with critical minerals that operate in the country.

Another issue is taxation. If it directly sold the Brazilian operation, Sigma's current investors would need to pay a capital gains tax. In negotiations, Sigma had been stating that the potential buyer would need to make up this difference in the offer, diminishing the attractiveness of the asset.

In the new structure, buyers would acquire the business through a share offering on Nasdaq or in Singapore. The choice of both exchanges aims to enhance competitiveness for potential Eastern and Western buyers.

Contacted, Sigma Lithium has not responded to the report's inquiries.