Aterian (LON: ATN) shares are up 10% this morning. ATN shares are also down considerably from their opening price. The movement is all about a deal they’ve struck with Rio Tinto about their lithium property in Africa. This is the same question that every early stage explorer faces. Having found something of interest well, what do we do next? Do we raise the capital to then move to the next stage of proof or development? Or do we sell the prospect on for the value we’ve got it to and try again elsewhere?
The actual announcement from Aterian: “RIO has the option to invest US$7.5 million in two stages to earn up to a 75% interest in the Licence to explore for minerals vital for a successful energy transition to renewable energy. Stage 1 exploration expenditures of US$3 million over a period of up to two years to earn a 51% interest in the Licence. Stage 2 exploration expenditures of US$4.5 million over a follow-on period of up to three years to earn a further 24% interest in the Licence, taking RIO's interest in the Licence to 75%. Cash consideration of US$300,000 over the two stages. A 2% capped Net smelter return ("NSR") granted over the Project (capped at US$50 million).”
This is not an unusual agreement nor an unusual decision by Aterian. The whole of the junior mining world is familiar with these sorts of arrangements. Sometimes they work out, sometimes they don’t.
Aterian share price from Google Finance
As we can see from that share price the original announcement was well marked up but as the market started to trade the excitement faded.
The basic decision faced by Aterian. They’ve got some nice fields with interesting rocks in. That sounds facile but it’s pretty close to the truth. Someone, somewhere, has to spend the money to really explore, to drill, map out, test. Aterian could raise the money themselves. Be very dilutive, obviously, but it could be done. Or, they can do what they are doing. Sell the bulk of the project to someone else. They then spend all that money doing the detailed exploration. Aterian is left with a little bit of cash now, a nice royalty over-ride if there is something interesting. That is also highly dilutive of course - but it removes much of the risk to current shareholders.
There’s no right or wrong in such agreements. It’s always a balance. We’d not say this is a bad deal either, it looks fairly standard for this sector of the market.
