September 4, 2019 / 5:59 AM / 14 days ago

China's CATL buys into beaten down Australian lithium miner Pilbara

MELBOURNE (Reuters) - Chinese battery firm CATL has taken a stake in Australian lithium miner Pilbara Minerals, both companies said on Wednesday, after a supply glut hammered the sector and forced Pilbara to raise equity to fund working capital.

CATL, one of China’s leading electric-vehicle battery makers, has bought an 8.5% stake in Pilbara as part of a A$91.5 million ($61.8 million) capital raising, Pilbara said in an exchange filing.

CATL’s Hong Kong unit bought the stake through a A$55 million placement, while an additional A$36.5 million was raised through an institutional placement at A$0.30 a share. Pilbara shares fell to their lowest since April 2017 at A$0.315 per share on Aug. 26 after trading as high as A$0.80 in late May.

The move by Contemporary Amperex Technology Co (CATL) is the latest example of automotive battery makers taking stakes in mines to secure access to key battery ingredients such as lithium, nickel and cobalt ahead of an expected demand boom.

CATL said the investment was of “strategic significance” and would improve its upstream presence in the industry supply chain.

“In the long run, it will have a positive impact on the company’s future financial situation and operating results,” CATL added in a filing to the Shenzhen Stock Exchange.

The Chinese firm already has a 25.4% stake in another miner, North American Nickel Inc , which is evaluating a project in Greenland thought to be rich in two other battery metals, nickel and cobalt.

The placement, made when Pilbara’s shares are near a 2-1/2-year low, dilutes the value of the company’s shares at the same time analysts anticipate the sector struggling until at least the end of the year.

“Considering where the stock was closer to $1 not that long ago, it does seem quite dilutive to have to raise capital right now,” said a Melbourne-based fund manager, who declined to be named.

“It just shows you how desperate that industry is for some capital at the moment. It wasn’t completely a matter of survival but it would have meant a pretty drastic restructuring of their operations otherwise.”

The fund-raising comes after Pilbara last week withdrew from the market a stake in its flagship Pilgangoora lithium project in Western Australia for lack of an appealing offer, and cut its sales forecast and curbed spending plans

Australian lithium producers are cutting production as prices plummet on falling demand in the world’s top electric vehicle market after China altered its subsidies to the sector and because of increasing global trade tensions.

The raising will provide working capital for the ramp-up of the Pilgangoora operation and will also fund Pilbara’s participation in a joint venture with South Korea’s POSCO for a chemical conversion plant, the company said.

Pilbara said it will also offer a share purchase plan to raise up to an additional A$20 million.

Reporting by Melanie Burton; additional reporting by Aby Jose Koilparambil in Bengaluru and Tom Daly in BEIJING; editing by Richard Pullin and Christian Schmollinger

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