In my opinion, the announced merger makes a lot of sense for Canada Lithium and not a lot of sense for Sirocco Mining (TSE:SIM). I’m incredibly bearish on Canada Lithium and think that its mine will be uneconomic in its first year of full commercial production. Peter Secker (Canada Lithium’s CEO) has made an incredibly smart move by merging Canada Lithium with Sirocco.
Sirocco has around $110M in current assets versus $52M in total liability. It is worth at least $58M (its mine, currently shut down, likely has some value too). I think that Canada Lithium is valueless… investors simply haven’t caught on yet. I definitely think that Sirocco shareholders should reject the merger. It might seem like Sirocco is getting the upper hand because its shareholders are receiving a takeover premium and Sirocco’s insiders will be in control of the resulting company. But I don’t think that they understand that Canada Lithium is much worse off than they are.
Canada Lithium receives a much needed lifeline
Sirocco has provided Canada Lithium with a $10M bridge loan, which is due 6 months after Sirocco decides that it wants its money back. In return, Sirocco receives call options. It has the option of converting its loan into shares of Canada Lithium at $0.399/share.
*Disclosure: I am shorting shares of CLQ. I may very well cover my short position because the shares may not go to 0, the current share price is low, and the borrow is very expensive. I am net long CLQ because I own shares in Northfield Capital, which owns the stock and debt of CLQ.