HomeBusiness DigestChinese shareholder red flags Bikita deal

Chinese shareholder red flags Bikita deal

THE board of directors of Chinese miner, Sinomine Resource Group Co, Ltd (SRGCL) has written to its Hong Kong subsidiary raising concerns over purchasing Zimbabwean lithium miner, Bikita Minerals.

Through its Hong Kong listed unit, the firm announced two weeks ago that it will be buying 100% shareholding in African Metals Management Services and Southern African Metals and Minerals, the firms that control 74% shareholding in Bikita Minerals.

The latter is headquartered in Mauritius.

The deal is worth US$180 million.

Bikita Minerals is situated in Bikita Hills, near Masvingo. The firm has been operating for around 100 years.

On January 29, SRGCL’s wholly owned subsidiary, Sinomine (Hong Kong) Rare Metals Resources announced a ‘share and debt sale agreement’ to acquire the assets.

“Your company disclosed the…acquisition of Zimbabwe Bikita Lithium mine,” the SRGCL board said in a letter posted on its website.

“Your company intends to acquire 18 000 shares…of African Metals Management Services Ltd (hereinafter referred to as “Afmin”) 100% equity and Southern African Metals & Minerals Ltd (hereinafter referred to as “”Amzim”) 100% equity,” reads part of SRGCL letter.

“Afmin and Amzim have total holding of Bikita Minerals (Private) Ltd Company (hereinafter referred to as “”Bikita Company”, “Target Company”)… Bikita’s main assets…are located in Zimbabwe Bikita Lithium mine project. Our department expresses concern about the above matters,” the letter states.

According to the letter, the concerns include Bikita Minerals’ negative financial position.

“Please explain Bikita’s reasons for negative net assets. Please (explain) Bikita’s…sales situation and mining situation. Bikita’s operating income fluctuates greatly.

Explain Bikita’s reasons for continued losses and large fluctuations in net profit. Please explain the specific measurement method adopted by your company, specific comparable companies and comparable… resource reserves of the target company, comparable transaction prices and the price-earnings of listed companies in the same industry ratio…and other indicators, as well as the situation that the target company’s net assets are negative and continue to lose money,” the letter reads.

Given these concerns over Bikita’s health, SRGCL said its subsidiary needed to explain the reasons and rationality in the payment terms it had set out to acquire Bikita.

Another concern raised in the letter was that Bikita had failed to get Reserve Bank of Zimbabwe approval to restructure in preparation of the share and debt sale agreement.

The approval is needed as the transaction involves foreign currency.

“Please indicate whether the transaction consideration has fully taken into account the impact of internal restructuring and share repurchase,” the letter further states.

SRGCL also wanted its subsidiary to explain how the share and debt sale agreement would be affected as the governments of China, Zimbabwe and Mauritius must approve the deal.

“Please explain your company’s reports to relevant government agencies in China, Mauritius and Zimbabwe. Fulfill the necessary filing, approval procedures and obtain access to the Chinese government…to remind of relevant risks,” SRGCL said.

The deal is still subject to approvals by the three governments.

The company also plans to buy out the other shareholders to gain 100% of Bikita Minerals, according to official statements.

The other shareholder is Dzikamai Mavhaire, who holds 16% in the business, along with Nehemiah Mutendi, with 5,25% shareholding, according to online publication, NewZwire.

NewZwire said Sinomine’s deal valued Bikita Minerals at around US$243 million, which would leave Mavhaire about US$39 million richer, while Mutendi, the Zion Christion Church leader, with US$12,7 million.

Sinomine says the acquisition is necessary to “increase the company’s lithium mineral resource reserves (and) improve the company’s lithium salt business raw material self-sufficiency rate”.

But the company cautions that the resource and reserves numbers for Bikita are still inconclusive, and that more data will be needed on recoverable reserves.

Previous estimates have put Bikita’s lithium ore reserves at 29,4 million tonnes, according to NewZwire.

“The acquisition target company is located in Zimbabwe, and the follow-up operation of the mine is subject to Zimbabwe’s macro-environment, industry policies, exchange rate fluctuations and laws,” Sinomine said three weeks ago.

However, should the proposed purchase go through, Chinese investors would effectively control most of Zimbabwe’s lithium reserves, during a period when some countries have moved to classify the resource as a strategic mineral where foreign interests may either be limited or excluded.

This comes as SRGCL is the second Chinese state entity after, Zhejiang Huayou Cobalt Company Ltd, to buy Zimbabwe’s strategic lithium reserves.

Huayou reportedly acquired 100% shares of the Australian Stock Exchange listed lithium miner, Prospect Resources, for US$422 million last December, in a deal that effectively reshaped the country’s lithium mining landscape.

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