Friday, February 22, 2013

Barrick Targets Nevada

Dr. Brian Meikle, (the late) Bob Smith and Peter Munk
overlooking the Betze-Post at Goldstrike
Barrick Targets Nevada

Liezel Hill: Commodities Industry Reporter at Bloomberg

"Barrick Gold Corp. is betting growth will come from Nevada, where the world’s largest producer scored its first big success three decades ago, after more than $9 billion in writedowns and cost overruns in the past two years on projects from Zambia to the Andes.

Chief Executive Officer Jamie Sokalsky said yesterday the Toronto-based company doubled the estimated resources at the Goldrush deposit in Nevada last year, even as it sells assets and cuts spending elsewhere to revive shares that slumped 24 percent. Barrick is also pushing ahead with Pascua-Lama, a gold and silver mine on the Chile-Argentina border it expects to open next year.

“The priorities for the company, once we finish Pascua-Lama  really are focused on Nevada,” Sokalsky said yesterday on the company’s earnings call. “We have one of the most exciting exploration finds in recent memory, the Goldrush discovery, to ultimately add to this Nevada production in the future.”

Sokalsky’s mantra yesterday was steady and safe. The CEO, who took the job June 6, said the company has no plans to build more new mines and is looking to sell lower-return assets including its energy unit and the 50 percent it owns in a nickel project in Tanzania.

Shareholders reacted positively to Sokalsky’s moves to do “anything that will increase shareholder value” yesterday, lifting the stock 2.3 percent in Toronto.

‘Looking for Safety’

“Investors are definitely looking for safety,” Adam Graf, a New York-based analyst at Dahlman Rose & Co., said yesterday in a telephone interview. Nevada is “the only place that they’ve been able to execute successfully if you think back to the last several years.”

Fifteen analysts recommend buying Barrick’s shares, while Graf is among 13 analysts that have a hold rating, according to data compiled by Bloomberg.

Barrick has declined 6.8 percent this year, compared with the 10 percent decline in the 30-company Philadelphia Stock Exchange Gold and Silver Index. The S&P/Toronto Stock Exchange Composite Index is up 2.3 percent.

The shares rose yesterday after the company reported adjusted fourth-quarter earnings that beat analysts’ estimates and Sokalsky said the company has received interest from “serious buyers” for its assets.

Flagship Asset

Barrick is optimistic the sales process for its energy unit will be successful and the company has held talks with potential buyers for its 50 percent stake in the Kabanga nickel project, Sokalsky said in an interview. Xstrata Plc owns the rest of Kabanga.

Barrick’s two biggest mines in Nevada are Goldstrike, which became the company’s flagship asset after it was acquired in 1986, and the Cortez operations. Nevada accounted for more than 40 percent of Barrick’s production last year and represents about a third of its total 2012 reserves, the company said yesterday.

Barrick mentioned the state 17 times yesterday on the earnings call, compared with just once a year ago.

“In an environment where you see so much concern about geopolitical risk around the world and resource nationalism, I think sometimes people lose sight of the fact that we have these huge core assets in Nevada,” Sokalsky said in the interview. “That’s a real competitive advantage for us.”

Barrick Gold (TSX: ABX | NYSE: ABX) Weekly: 2008 - Present with Fibonacci Technical's

Focused Abroad

Analysts and investors have been more focused abroad in recent years, as the company spent C$7.3 billion ($7.29 billion) to acquire Equinox Minerals Ltd., owner of a Zambian copper mine, and Barrick poured billions of dollars into two Latin American projects.

While Pueblo Viejo, Barrick’s joint venture with Goldcorp Inc. in the Dominican Republic, started production in August last year, the company delayed the expected start date for Pascua-Lama by about a year and raised the cost forecast for the mine twice in 2012. Barrick yesterday maintained its latest cost range of $8 billion to $8.5 billion for the mine.

It makes sense that the company would look to Nevada for its future growth, after operational and political difficulties elsewhere, said George Topping, an analyst at Stifel Nicolaus & Co. in Toronto.

“That’s a focus that investors want,” Topping said in a phone interview. “If you compare the difference: let’s go and build Pascua-Lama on the very top of the Andes straddling two countries that don’t really like each other, or let’s build it in Nevada where it hardly ever snows.”

Impairment Charges

Barrick reported a surprise fourth-quarter net loss after taking a $3 billion writedown on its Lumwana copper mine, which was acquired in the Equinox deal. Barrick is the latest mining company to take a multibillion-dollar impairment charge as producers grapple with rising costs and reassess expensive deals.

Kinross Gold Corp., the third-largest Canadian gold producer, said Feb. 13 it took a $3.09 billion writedown on its Tasiast mine in Mauritania. The company took a $2.49 million writedown on the same project a year earlier.

Kinross, which acquired Tasiast when it bought Red Back Mining Inc. for about C$8 billion in 2010, also rose yesterday after it reported earnings excluding one-time items that beat analysts’ estimates. The shares gained 5.4 percent in Toronto, the most since Nov. 8.

“The market is perceiving that Barrick and Kinross have taken their medicine,” David West, a Vancouver-based analyst at Salman Partners Inc., said yesterday by phone. “They are trying to move in the right direction, they are trying to increase their margins, they are trying to look in-house and grow organically.”

By focusing on Nevada, West said, Barrick is “getting back to the basics.”"

--- Liezel Hill: Commodities Industry Reporter at Bloomberg lhill30@bloomberg.net
Editors:  Simon Casey: scasey4@bloomberg.net | David Scanlan: dscanlan@bloomberg.net


Johnston-Sequoia Commentary:

" Nobody said it was easy - No one ever said it would be this hard - I'm going back to the start."
--- Chris Martin:  Coldplay - The Scientist

The market certainly has not been kind to the world's largest gold producer over the past two years - cost overruns, nine billion dollars in write-downs & project delays have resulted in a 43% decline in share price for the industry giant since April 20th, 2011.  It would appear for the moment that Barrick  has chosen to push the reset button and refocus on the area of the world that brought them to where they are today - Nevada.

“In an environment where you see so much concern about geopolitical risk around the world and resource nationalism, I think sometimes people lose sight of the fact that we have these huge core assets in Nevada - That’s a real competitive advantage for us.”

--- Jamie Sokalsky, Chief Executive Officer - Barrick Gold

Factors to consider:

1) What are Barrick's most interesting assets in Nevada?

Legacy Discovery:

Goldstrike: Carlin Trend, Nevada:  

"The Goldstrike property, located in the Carlin trend in Nevada, contains a diverse group of Carlin-type deposits, including some of the largest and highest grade examples known. The largest deposit, Betze-Post, has a gold endowment of approximately 40 million ounces (1,244 metric tons [t]) of gold, and the Meikle deposit, which contains 7 million ounces (198t) of gold, has an average grade of 0.72 troy ounces per short ton (opt) or 24.7 g/t of gold. Goldstrike is part of the larger Blue Star-Goldstrike subdistrict, which has an areal extent of 5.3 by 1.2 miles (8.5 by 2 km) and a total gold endowment of 63 million ounces (1,960 t). The first discovery of gold at Goldstrike was in 1962. Subsequent exploration culminated in the discovery in 1986 of large high-grade orebodies beneath smaller, lower grade orebodies. Exploration over a 40-year period has relied on the evolution in understanding of geology and ore controls, supported by the application of geochemical and geophysical exploration techniques...


... In January 1987, American Barrick Resources acquired the Goldstrike property from the Western States - Pancana joint venture for a total cost of $62 million. Reserves at the Post deposit at this time were 11,366 million short tons (10.314 Mt) of oxide ore at a grade of 0.055 opt (1.9 g/t) gold, totaling 0.63 million ounces (19.6 t) of gold. An aggressive deep drilling program outlined the large, high-grade Deep Post orebody, which was subsequently found to continue onto the adjacent property owned by Newmont Mining. Exploration drilling in 1987 to 1988 led to the discovery of a number of other deposits similar to Deep Post hosted in the Popovich Formation. These included Betze and Screamer, which together with Deep Post, comprise the Betze-Post orebody."


--- Keith Bettles: Exploration and Geology, 1962 to 2002, at The Goldstrike Property, Carlin Trend, Nevada

Barrick's Betze-Post Open Pit mine at Goldstrike

In one of the more ironic tales in mining history - the market had actually criticized Barrick for the Western States-Pancana transaction, claiming that at $62,000,000 Barrick had "over paid" for the 630,000 ounces at Goldstrike.  As it turns out Goldstrike itself had a total endowment of well over 60,000,000 ounces of gold - making it the most well endowed project in the Western Hemisphere. 

Mature Discovery:

Cortez: Lander County, Nevada

" The Cortez mine is located 100 kilometers southwest of Elko, Nevada in Lander County. The Cortez property covers approximately 2,800 square kilometers on one of the world’s most highly prospective mineral trends...

... With 2011 production of 1.42 million ounces at total cash costs of $245 per ounce, Cortez is one of the world’s largest and lowest cost gold mines, and the property also has excellent upside exploration potential. Production in 2012 is anticipated to be 1.20-1.25 million ounces at total cash costs of $300-$350 per ounce, reflecting a higher proportion of underground ounces and lower open pit grades as part of planned mine sequencing. Proven and probable mineral reserves at Cortez as of December 31, 2011 are 14.5 million ounces of gold."

--- Barrick Gold Operations: Cortez
Evolving Trend: Incubator Discovery:

Spring Valley: Pershing County, Nevada

"The Spring Valley Gold Project located in Pershing County, Nevada. Spring Valley is a joint venture between Barrick Gold Corp. and Midway Gold Corp., where Barrick has the right to earn 60% interest in the project by completing work expenditures totaling US $30 million before December 31, 2013.

Spring Valley hosts a NI 43-101 resource of 2,160,000 ounces of in the Measured + Indicated catagories and 1,971,000 ounces inferred.  This resource estimate was announced May 2nd, 2011 and was a 225% increase over the previous resource estimate completed just before the joint venture was finalized.

Spring Valley (Photo taken from "the saddle" at Terraco Gold's Moonlight Project)

Midway has done a phenomenal job of growing this resource from 434,000 ounces in April of 2006 to 993,000 ounces in January 2008 to 1,835,000 ounces in March of 2009 to the current (combined MI & I) resource of 4,100,000 ounces in of gold at Spring Valley (announced May 2011).  Midway CEO's Brian McAlister, Alan Branham and now Ken Brunk have done what so many nano-cap resource company executives are unable to do - grow a resource to a size where a major producer will seek to acquire the asset to replenish their reserves.

Midway Gold (TSX: MDW | NYSE.A: MDW ) Weekly: 2008 - Present with Fibonacci Technical's

Spring Valley Royalties:

Terraco Gold Royalty Option on the Spring Valley Project***

Terraco's net smelter returns ("NSR") royalty coverage includes the option to acquire a 2.5% NSR royalty (by December 2016) on claims covering the majority of the Spring Valley deposit and an additional direct ownership and option for a 1% NSR royalty covering the remaining portion of the Spring Valley deposit."



Terraco Gold NSR Royalty options on Spring Valley (Click to enlarge)

Terraco Gold Corp. (TSX.V: TEN | US: TCEGF) has positioned itself tremendously well in this evolving district with a 2.5% & 1.0% NSR royalty options on the Barrick Gold - Midway Gold Spring Valley Project and 100% ownership of the 35 sq km (Terraco's Moonlight Project) that adjoins the north side of this evolving Nevada discovery.



Terraco Gold (TSX: TEN | US.P: TCEGF) Weekly: 2008 - Present with Fibonacci Technical's


2) Where will New Discoveries come from in Nevada?

Innovative exploration techniques in gold exploration have resulted in the discoveries of Goldstrike, the Ken Snyder "Midas" Mine etc.  May I suggest that contemporary techniques will lead to the next major discovery in Nevada as well.  Please take the time to watch the 8 minute video below when you have a moment.





3) What is really happening with gold?

While attempting to finish this piece over the past couple of evenings I've had an unprecedented number of e-mails and phone calls, all asking the same question - "What's happening with gold"? My intention is not to take away from the importance of Barrick refocusing on Nevada - it's merely to quickly comment on what I perceive to be transpiring at the moment.

Spot Gold (Weekly): 2008 - Present with Fibonacci Technical's

Please note specifically from the chart above the Relative Strength Index (RSI - is a momentum oscillator that measures the speed and change of price movements) - The last time we had Spot Gold oversold to this level was August 8th, 2008 (which hit a weekly low of $777).  Please now note the price action immediately following that oversold signal in gold (August 8th, 2008 to October 22nd, 2008) gold "coiled" and hit an interim low of $683.00, then proceeded to touch $777 once again (on October 22nd) - before ultimately taking a staggering run up into September 2nd, 2011 topping out at $1,919.50.

I would suggest (from my perspective) at this moment in history we're witnessing the very beginnings of a concentration of capital wave in gold - Meaning that Large Institutions, Hedge Funds, Family Office, Private Equity, Corporations,  Pension Funds, Governments, Central Banks - then of course retail investors will move to accumulate gold in one way shape or form.  This would take the gold price to levels that (by today's interpretation and standards) most individuals in the investment community would never subscribe to.  That is the characteristics of a concentration of capital though - they're an anomaly and they do not conform to reason.

I am an advisor of Terraco Gold Corp. & own shares in the company.  As always, please do your own due diligence.

Thursday, December 27, 2012

Barrick Hits 118.9 meters of 2.33 gpt gold at Spring Valley, Nevada


Spring Valley looking South from Terraco Gold's Moonlight Project (Click to Enlarge)
Barrick Hits 118.9 meters of 2.33 gpt gold at Spring Valley, Nevada






Midway Gold Corp. (TSX.V: MDW | AMEX: MDW) reported on the development at Spring Valley, where Barrick Gold Exploration Inc. ("Barrick") (TSX: ABX | NYSE: ABX) is earning into Midway's multi-million ounce gold project in Nevada.

Drilling Highlights

"...An infill drill program within the existing deposit boundaries has continued to increase the certainty of the current resource, including several intercepts well in excess of the current resource grade. Highlights included:

  • SV12-561c 18.6 meters of 6.79 gpt gold
  • and 118.9 meters of 2.33 gpt gold, including 17.1 meters of 8.06 gpt gold

  • SV12-583c 58.8 meters of 1.06 gpt gold, including 1.5 meters of 12.00 gpt gold
  • SV12-584c 36.3 meters of 1.92 gpt gold, including 3.2 meters of 14.67 gpt gold
  • SV12-594 27.4 meters of 1.68 gpt gold, including 1.5 meters of 12.79 gpt gold

Additionally, drilling at the northerly extent of the resource area indicates the potential for expansion of the resource to the north and at depth.

Earn-In Update

Barrick has accelerated their rate of expenditures to earn-in to Midway's Spring Valley project, where Barrick can earn a 60% interest in the project by completing expenditures totaling US$30 million before December 31, 2013. Projected expenditures by Barrick in 2012 amount to $10.2M, which combined with spending through 2011 of $17.7M at Spring Valley (see April 11, 2012 press release), would bring total cumulative expenditures by Barrick to approximately $27.9M by the end of 2012. Based on the rate of expenditures through the third quarter of 2012, it is expected that Barrick will complete their earn-in of 60% of the Spring Valley project by early 2013. Barrick may further elect to spend an additional $8 million on or before December 31, 2014 for a total expenditure of $38 million to increase their ownership interest in Spring Valley to 70%.

Please see Barrick Gold Corporate video below:




Development Activity

Within the quarter, additional development drilling has gathered metallurgical, hydrological and geotechnical data to be used in a scoping-level economic evaluation. Metallurgical samples were collected for a second round of metallurgical testwork that is currently in progress. Hydrological work is underway to better characterize groundwater conditions for a potential open pit. Further development activities included potential pit slope stability studies, mine facility design, seismic hazard analysis, and humidity cell tests..."

December 6th, 2011 Spring Valley advanced from Barrick's Exploration team to their Mine Development Group:


Barrick Gold Weekly Chart 2012-12-27
Q3 Drill Results

"...During the third quarter, Barrick completed 3,072 meters of reverse circulation (RC) and 2,387 meters of core drilling. This drilling included four core holes used for metallurgical sampling, four holes for geotechnical testing (SV12-611c to 614c), and eight water-monitoring wells (SV12-600w to 608w). Total drilling for the year through the third quarter is 11,834 meters of RC and 6,240 meters of core..."


The link below shows the locations of drill holes in relation to the current Spring Valley resource estimate:

Please see May 24th, 2011 Midway Gold Corp. NI 43-101 Technical Report for Spring Valley below:

Please see Midway Gold Presentation from the Denver Gold Forum contained in the video link below:

Midway Gold Weekly Chart 2012-12-27

Johnston-Sequoia Commentary:

"What you see depends on what you thought before you looked."
--- Eugene Taurman

I was recently sent a copy of a Bob Bishop interview with a very famous Nevada Geologist the late Dr. Ralph Roberts (who is credited with the discovery of the Carlin and Battle Mountain Gold Belts, the richest gold-mining region in United States) from September 1988.  (Dr. Roberts published a very famous report titled "Alignment of mining districts in north-central Nevada" which posed a theory that when tested by then Newmont Geologist John Livermore led to the discovery of the Carlin mine in 1961).  Dr. Roberts discusses with Bob Bishop his vision of the evolving nature of the Carlin trend (in 1988) & when cross referenced with what we now know today of the Carlin trend - his accuracy truly incredible.

Interestingly Dr. Roberts discussed the implementation of deeper drilling which ultimately led to the discovery of both the Betze-Post (now Barrick's Goldstrike mine);

Barrick's Goldstrike mine, Nevada

and Newmont's lowest cost producing mine - the Ken Snyder "Midas" mine:

Newmont's Ken Snyder "Midas" mine, Nevada
Gathering each piece of the puzzle is what makes the Discovery process so fascinating.  When I was first introduced to this evolving Humboldt district in May 2008 Midway Gold still controlled 100% of the project and Barrick was simply an equity investor in Midway with approximately 10% ownership in MDW.  At that time the NI 43-101 resource was  "just" 993,000 ounces of gold in the measured, indicated and inferred ("MI & I") categories.  Today Spring Valley sits at 4,100,000 ounces in the MI & I categories (which is based on a May 2nd, 2011 resource estimate).  The evolution of this district has been truly remarkable and we have now seen the single best intercept to date at Spring Valley {which lends itself to Dr. Roberts deeper drilling discussion as hole SV12-561c mineralized zone starts at 1,061 feet (323.4 m) and ends at 1,451 ft (442.3 m)}:

  • SV12-561c 18.6 meters of 6.79 gpt gold and 118.9 meters of 2.33 gpt gold, including 17.1 meters of 8.06 gpt gold


*** "Drilling at the northerly extent of the resource area indicates the potential for expansion of the resource to the north and at depth."

Terraco Gold Royalty Option on the Spring Valley Project***

"Terraco has royalty coverage on claims covering the Spring Valley Gold Project located in Pershing County, Nevada. Spring Valley is a joint venture between Barrick Gold Corp. and Midway Gold Corp., where Barrick has the right to earn 60% interest in the project by completing work expenditures totalling US $30 million before December 31, 2013.


Terraco's net smelter returns ("NSR") royalty coverage includes the option to acquire a 2.5% NSR royalty (by December 2016) on claims covering the majority of the Spring Valley deposit and an additional direct ownership and option for a 1% NSR royalty covering the remaining portion of the Spring Valley deposit."




Terraco Gold Royalty Option on Spring Valley, Nevada (Click to Enlarge)

Nano-cap Terraco Gold Corp. (TSX.V: TEN | US: TCEGF) has positioned itself very well in this evolving district with a 2.5% & 1.0% NSR royalty options on the Barrick Gold - Midway Gold Spring Valley Project and 100% ownership of the 35 sq km (Terraco's Moonlight Project) which adjoins the north side of this evolving Nevada discovery.




The History of the Evolving Humboldt District - Pershing County, Nevada

The Evolving Humboldt District looking south over Terraco`s Moonlight Project (Click to enlarge)




History of the Barrick Gold/Midway Gold Spring Valley Project:


"Placer gold was discovered in Spring Valley Canyon in the 1880’s and has been mined intermittently since that time. A gold dredge operated in the eastern portion of the project area in the 1910’s and 1920’s. The current Spring Valley resource lies in an alluvial-filled valley immediately west and upslope from the placer workings. Modern exploration at Spring Valley began with 4 holes drilled by Kennecott in 1996. Echo Bay acquired the property in 2000 and drilled the discovery hole in 2001. MGC gained control of the property in 2003, and immediately began a drill program that continued through 2008. MGC signed the Exploration Agreement with Barrick in 2009. During the earn-in period Barrick is conducting exploration pursuant to the terms of the agreement while MGC maintains 100% control of the property. Barrick has drilled 72 drill holes through the end of 2010 to better define the known mineralized area while continuing to test mineralized controls along strike to the north..."


Terraco Gold's Moonlight Project History & Production

"John Livermore (discoverer of the original Carlin Deposit) of Cordilleran Exploration (CORDEX) became interested in the Moonlight Mine and visited the area several times during the period between 1981 and 2003.... The samples range in value from (one sample) below detection limits up to 415 opt silver (non-NI 43-101 compliant). All samples returned only trace amounts of gold. John Livermore and CORDEX returned to the Moonlight in 1999, staking an unknown number of claims around the original Grant Patent and leasing the patented claim from John Heizer. A series of thirty samples were collected from the Moonlight Mine (the original Grant Patent) by geologists for CORDEX. Of those samples, the assay certificate from Legend, Inc., of Reno, Nevada, indicates that several samples were anomalous in silver and gold, with values up to 1,329 ppm (gpT) or 38.76 opt silver and 4.801 ppm (gpT) or 0.140 opt gold (non-NI 43-101 compliant)....

Recent History of Nearby Properties or Projects in the Humboldt District

...Nearby in the Humboldt Range, recent history includes developments at Coeur d’Alene Mining’s Coeur Rochester Mine and the Midway-Barrick Spring Valley Joint Venture. Coeur's 100% owned Rochester mine has produced more than 127 million ounces of silver and 1.5 million ounces of gold since production began in 1986 (Coeur website, Nov 2010)...  Proven and Probable reserves at Rochester, according to the Coeur website at year-end 2009, totaled 42.4 million tons containing 25.9 million ounces silver and 233,000 ounces gold..."


Please see Terraco Gold Corporate video below:


Will the evolving Humboldt District one day be recognized as a major Nevada Gold Trend? - only time will tell. What we do know is that Midway Gold and now Barrick have done (and are currently doing) a tremendous job of defining this new Nevada discovery.  

I am an advisor of Terraco Gold Corp. & own shares in the company. As always, please do your own due diligence.  To all of our readers - I hope you and your families have a safe and wonderful holiday season.

Your Editor standing along the Blackridge Fault on Terraco Gold's 100% owned Moonlight Project, Nevada

Sunday, December 9, 2012

Talison Lithium backs $848,000,000 Chinese Takeover Bid


Talison Lithium backs $848,000,000 Chinese Takeover Bid

“Talison Lithium Limited ("Talison" or the "Company") (TSX:TLH) announced that it has today concluded its discussions with Windfield Holdings Pty Ltd, an Australian incorporated wholly-owned subsidiary of Chengdu Tianqi Industry (Group) Co., Ltd (together "Tianqi") and reached agreement under which it is proposed that Tianqi will acquire the balance of the ordinary shares that it does not already own and options in Talison by way of schemes of arrangement for a cash consideration of C$7.50(1) ("Tianqi Schemes").

Highlights

The Tianqi Schemes constitute a superior proposal(2);
  • C$7.50 cash offer for each Share
  • US$25 million cash deposit paid by Tianqi in an Australian bank as a reverse break fee
  • Minimal conditions
  • Talison Directors unanimously recommend Tianqi Schemes, in the absence of a superior proposal
  • Talison and Tianqi have entered into a Scheme Implementation Agreement ("Tianqi SIA") with minimal conditions, subject to Rockwood's 5 business day matching right
  • Rockwood has a 5 business day right to match, although Talison notes that on November 20, 2012, Rockwood made a "best and final offer" statement which, under Australian policy, is expected to limit Rockwood's ability to increase its offer
  • If the Rockwood SIA terminates, Talison expects to pay Rockwood a C$7 million break fee

Tianqi Proposal

Background

On November 19, 2012, Talison received a non-binding, conditional proposal from Tianqi to acquire all of the Shares of Talison which it did not already own for C$7.15 per Share via a scheme of arrangement.

On November 21, 2012, the Talison Directors determined that to meet their fiduciary duties Talison would engage with Tianqi and its advisers to determine if the Tianqi proposal represented a superior proposal (as defined in the Rockwood Proposal).

On November 23, 2012, Tianqi received notification from the Australian Foreign Investment Board (FIRB) that it has no objections to Tianqi's proposed acquisition of Talison. Following receipt of this notification Tianqi would own 19.99% of Talison's issued share capital.

At the conclusion of negotiations between Talison and Tianqi an offer price of C$7.50 per Share was agreed. This values the equity of Talison at approximately C$848 million on a fully diluted basis.

Recommendation

The Talison Directors have now considered the Tianqi Scheme and determined that it represents a superior proposal (as defined in the Rockwood Proposal). The Talison Directors therefore unanimously recommend that Securityholders vote in favour of the Tianqi Schemes, in the absence of a Superior Proposal (as defined in the Tianqi SIA) and subject to an Independent Expert concluding that the Tianqi Schemes are in the best interests of Securityholders. Each of the Talison Directors intends to vote the Shares and Options held or controlled by them as at the registered holder record date in favour of the Tianqi Schemes.

The cash consideration of C$7.50 per Share offered under the Tianqi Scheme represents:
  • A 15% premium to the consideration under the Rockwood Proposal of C$6.50; and
  • A 77% premium to Talison's last closing price of C$4.24 on August 22, 2012, the day prior to the announcement of the Rockwood Proposal.
Resource Capital Fund IV L.P. and Resource Capital Fund V L.P. (collectively, the "RCF Funds") have each confirmed to Talison that, in the absence of an offer which the RCF Funds determine is superior, each of the RCF Funds intend to vote in favour of the Tianqi Share Scheme in respect of the Talison Shares held by them at the relevant time."




Talison Lithium Ltd. (TLH - TSX, $7.15)
Target Price: $7.50 ↑
Higher Bid from the Chinese Is Deemed "Superior"

Jonathan Lee, MBA
Battery Technologies and Materials Analyst: Byron Capital Markets
1.347.763.1497

  • "Higher and Binding Bid from $7.15 to $7.50: Winfield Holdings Ptd Ltd (Winfield), which previously had a non-binding $7.15/sh all-cash bid for Talison Lithium Ltd. (Talison) increased the bid to a "superior proposal" of $7.50/sh in cash. Talison's board of directors and the largest shareholder, Resource Capital Funds, recommended the bid and stated they would vote in favour of the new offer in the absence of a higher bid. We find this as positive news, and it gives comfort in the acquisition being completed. Additionally, as previously stated, Winfield received all Chinese approvals for the acquisition and also received Australian Foreign Investment Review Board (FIRB) approval. The expected timeline to finalize the deal is the end of February 2013, or three months from now. We maintain our TENDER rating and raise our target price to $7.50 as the new binding offer price is released. 
  • Bidder Showing Commitment: As a sign of Winfield's commitment to completing the deal, the company will put US$25 million in a trust fund in an Australian bank. The capital is paid to Talison if Winfield is unable to reach an agreement. We believe this additional US$25 million added to the already 19.99% ownership stake in Talison shows a significant commitment of over $150 million in the company. This gives us comfort that Winfield is serious about the strategic asset to build its existing lithium processing business. We believe that the company may vertically integrate Talison's operation with its downstream lithium processing company, Tianqi Lithium Industries (SZE:002466, Tianqi).
  • A Higher Bid Is Doubtful: Strategically, this acquisition for Winfield makes sense. Its related company, Tianqi, is currently dependent on Talison for its raw material and is also a marketer of Talison's material in China. With a market cap of US$575 million, $30 million in cash and US$7 million in income, the acquisition will be significantly accretive to Tianqi's Chinese lithium operations. This is why we believe Winfield is willing to bid $7.50/sh. Additionally, with Rockwood's final and best offer of $6.50/sh, we believe there is limited room to submit a higher bid.”
---Jonathan Lee, MBA
Battery Technologies and Materials Analyst: Byron Capital Markets
1.347.763.1497

Johnston-Sequoia Commentary:

"Patience and perseverance have a magical effect by which difficulties disappear & obstacles vanish"
--- John Quincey Adams

As a student of the market I have to say that I am extremely impressed with the chess game that Sichuan Tianqi Lithium Industries Inc. (CH: 002466) ("Tianqi") has played in its pursuit of Talison Lithium Ltd (TSX: TLH).  Going head to head with NYSE specialty chemical giant Rockwood Holdings Inc. (NYSE: ROC) (which announced its own unsolicited $724,000,000 all cash bid for TLH back in August) -  Tianqi (Talison's largest buyer of Lithium concentrate) quietly acquired 15% of TLH for approximately $6.50 per share.  Following this announcement Talison received a non-binding, conditional proposal from Tianqi to acquire all of the Shares of Talison for $7.15 per share on November 19, 2012.  Negotiations between Talison and Tianqi resulted in an offer price of C$7.50 per Share. This values TLH at approximately C$848 million on a fully diluted basis.

Tianqi's bid of C$7.50 per Share represents:
  • A 15% premium to the Rockwood bid of C$6.50; and
  • A 77% premium to Talison's last closing price of C$4.24 on August 22, 2012, the day prior to the announcement of the Rockwood bid.
To all of our Salares Lithium Inc. (TSX.V: LIT) and Talsion Lithium Ltd. (TSX: TLH) readers and shareholders who stuck with this story - congratulations.  This is again, Discovery Investing 101.  The Tianqi bid represents approximately a 1,671% ROI (557% per year ROI) in the past three years for Salares Lithium Inc. shareholders who held there shares since December 9th, 2009.

I am an advisor of Talison Lithium Ltd. (and formerly of Salares Lithium Inc.) and own shares in the company.  As always please do your own due diligence.