- This is the end of Nano One as we know it. The company is transforming and with a new partnership with Rio Tinto, things could get very interesting.
- A new, stronger Nano One is emerging.
- With the partnerships in place, the stars are aligning for Nano One to transform into a future powerhouse.
- A document and an interview makes one ponder if indeed Rio Tinto will increase from 4.9% ownership long term and outright acquire Nano One in a few years.
Some time back, awakened from slumber at 3 AM, I checked my email to be confronted with Nano One (NNOMF) and $127 billion dollar market cap Rio Tinto (RIO), getting into bed with each other: Rio Tinto bought 4.9% of Nano One. Frankly, this is massive news and we will explain why in the article.
A Primer
For readers not familiar with Nano One they are a Canadian minerals technology company that basically takes a material such as lithium and enables it to last longer or not fail as fast. That is the ultra simplistic view point. For a much more detailed primer please read our article here .
The Standstill Clause
The Nano One we knew in the past is kaput; a new Nano One is emerging... a much stronger Nano One. A Nano One that might deepen its relationship with Rio Tinto given a few years. Rio Tinto is on the prowl for lithium in all shapes and forms. Buying a minerals technology company that can make lithium and cobalt (among other materials) better makes sense. Speculating on where the Rio Tinto relationship will go long term we see the gem from Nano One's June 27th, 2022 SEDAR post. This document has a section that covers take-overs via clauses in the section called "Standstill". Note the investor is Rio Tinto.
3.1 Standstill Subject to sections 3.2 and 3.3, the Investor shall not (and it shall cause its Affiliates to not), in any manner, directly or indirectly for a period of 12 months from the Closing Date (the “Restricted Period”): ((A)) to acquire any Common Shares or Convertible Securities (other than pursuant to the exercise of the pre-emptive rights under Section 2.1 or the exercise or conversion of Convertible Securities owned or controlled or directed by any Investor Group member, including the Warrants); ((B)) without the prior consent of the Board, commence a take-over bid for any securities of the Company or effect, seek, offer or propose any take-over bid, amalgamation, merger, arrangement, business combination, re-organization, restructuring or liquidation with respect to the Company or any of its subsidiaries, or disposition of more than a majority of the assets of the Company; |
Speculation: Investors will often associate the installation of takeover restrictions with an undervalued share price, and that could be the case here. We should note the clause is for 12 months. It leads one to assume Nano One would like to get the share price up before any serious consideration of a buyout would occur.
The purchase of 4.9% of Nano One allows Rio Tinto to dip its toe in the company and form a close relationship. If Rio Tinto starts to appreciate the long term picture and the technology, it is a possibility we will see a buyout eventually. How long is anyone's guess. In a recent interview by "The Armchair Trader", CEO Dan Blondal had this to offer:
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Dan discusses what each side brings to the table:
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Long term, Rio Tinto buying Nano One makes sense. It would allow Rio Tinto to integrate Nano One's technology and apply it to its materials. Nano One brings the innovation; Rio Tinto brings the mining muscle and deep experience...experience that will be useful as the world ramps various electric batteries.
Electric Battery Ramp (Nano One)
The End of Nano 1.0
Nano One has been on a zinger recently with news of the company acquiring a cathode plant followed by the BASF deal. These two events alone were company altering. Realize that the old Nano One was a technology play; the plan being to license out the technology to larger companies. One example of this might be the Volkswagen deal (as they have an NDA with them).
Once the technology was fleshed out and proven, then the larger companies would run with said technology to the final product stage. Things have changed. With the acquisition of the cathode plant from Johnson Matthey, the company's trajectory is altered. No longer do they have to be content with simply working on a project to integrate Nano One tech into it and then licensing. Now they can integrate-license and then move the product to the cathode facility. Think of it as vertical integration of a sort. Tech < licensing-collaboration < cathode production < closer to final product.
The Rio Tinto Partnership
When a company like Rio Tinto, with a $127 billion dollar market cap, buys a 4.9% of a small company (Nano One) one should pay attention.
Looking over the deal we see:
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Basically, this offsets the cost that Nano One would have incurred to acquire the cathode facility thus maintaining Nano One in a very strong cash position. Second we see:
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The translation is Rio Tinto will have its metal products (lithium / iron) qualified for Nano One's cathode facility. You can't just simply get some... say... nickel and slap it into a product. Each cathode facility has unique requirements. Rio Tinto is going to work with Nano One to be sure that its various metals jive with Nano One's cathode facility.
This interesting blurb caught my eye:
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It makes me ponder where they are going with scandium. Moving on.
Third, a partnership is formed via:
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Of course, the Canadian government is on board with the partnership via:
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The Canadian government has been a large supporter of Nano One and this proves up that past investments are supporting positive results. Hence, we might see continued Canadian government support combined with potential U.S. government support. Then, lastly, we see Rio Tinto supplying iron to Nano One via:
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Iron Production, Rio Tinto, & Lithium Iron Phosphate (LFP)
Pondering point #5 above, we see some color in the press release:
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Besides the obvious lithium supply that Rio Tinto will provide, it is most impressive to note they intend to provide iron as well. Nano One will need an iron supply for the cathode plant's intended lithium iron phosphate (LFP) production. You can read more about the three automotive deals in our prior Nano One article .
Rio Tinto Partnership Notes
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Nano One Financing Deal Notes
The Rio Tinto deal is very favorable for Nano One shareholders. Rio Tinto invests $10 million USD for 4.9% of the company at roughly $2.14 USD a share which was a premium before the 18% pop in share price. It is interesting to note the provisions of the deal:
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This prevents Rio Tinto from simply dumping the shares on a whim and allows them to keep 4.9% of the company if future placements happen for a period of 5 years by simply buying more equity.
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Hence, we see Rio Tinto will assist Nano One with the cathode facility as well as some warrant terms. Twelve months is a very short warrant term.
Nano One Risk
As of last March, Nano One had $48 million CDN. The cathode facility buyout and the Rio Tinto cash injection about cancel each other out. Factor in some burn rate and it is safe to guess the company has about $46 million left. The biggest risk is from a macro viewpoint of a slowing economy, inflation, and all the various lurking economic monsters that one is exposed to on a daily basis. The Canadian government has supported the company several times in the past and we can expect that to some extent in the future.
The Lithium Big Picture View
Looking at the big picture, we can see a lot of EV expansion ...expansion that might potentially translate into future business for Nano One.
For further details see:
Signs That Rio Tinto Could Buy Nano One