(Yicai Global) Dec. 5 -- Tianqi Lithium, which produces more than half of the world's lithium, has spent USD4.1 billion to buy a further 23.8 percent stake in Chilean miner Sociedad Quimica y Minera after a lengthy acquisition process.
The firm is buying the shares from Canadian fertilizer giant Nutrien, the Chilean Stock Exchange and Tianqi announced on Dec. 3 and yesterday. SQM's Atacama salt lake is rich in lithium resources, Tianqi said, adding that the mining sector there is mature so operating costs are low and the Sichuan-based firm can obtain sustained, stable returns on the investment.
Tianqi, which indirectly acquired a 2.1 percent stake SQM for USD209 million in 2016, has been looking to make the deal since late last year -- but has hit several hurdles along the way.
Existing SQM shareholders Pampa Calichera, Potasios de Chile and Global Mining requested courts suspend the deal in October, saying the anti-trust investigation into the deal was not correctly conducted. The appeal was accepted for review but rejected by a three-to-two vote.
The Chilean Stock Exchange has also probed Tianqi with 26 questions about the acquisition to investigate its funding arrangements, the value of its assets and its corporate governance. The bourse also queried profit forecasts suggesting SQM would make USD1.1 billion in net profit in 2021 and USD1.7 billion in 2022, wondering whether these were reasonable.
The Chilean firm made USD282 million in 2016, USD428 million last year and USD114 million in the first quarter of 2018, according to Tianqi.
"Funds for the acquisition are mainly from debt financing and the company's own money," Tianqi said in its statement. "The debt financing is large and paid in advance, so the firm's liabilities and financial expenses will increase significantly short term".
There is also a risk of business performance being dramatically affected if the firm fails to optimize its finances through reasonable equity financing and other measures, it added, saying its asset-liability rate was at 42.4 percent. Tianqi valued the target firm using the income and market comparison method, so there are risks that the estimated value does not match its actual value, it continued, saying there is also a possibility future profit will not reach the forecast made at the time of valuation.