On October 27, 2016 Dajin Resources Corp. (TSXV:DJI) (OTCMKTS: DJIFF) (Germany: C2U1) announced the completion of a share purchase agreement with Lithium S Corp. (“LSC”), granting LSC the right to earn a 51% interest in the Company’s South American subsidiary, Dajin Resources S.A. (“Dajin SA”).
On October 27, 2016 Dajin Resources Corp. (TSXV:DJI) (OTCMKTS: DJIFF) (Germany: C2U1) announced the completion of a share purchase agreement with Lithium S Corp. (“LSC”), granting LSC the right to earn a 51% interest in the Company’s South American subsidiary, Dajin Resources S.A. (“Dajin SA”). LSC can earn 51% with a cash payment of C$1.0 M (paid) and by incurring expenditures of C$2.0 M on mineral concessions, (or concession applications), held by Dajin S.A. In addition, LSC injected a further C$500,000 by subscribing to common share units in Dajin. Importantly, Dajin now has virtually no capital requirements in Argentina until LSC earns its 51%. Therefore, the C$1.5 million in cash from LSC can be used to fund the Company’s activities in Nevada. More about Nevada later, this article is about activities in Argentina.
As a result of this transaction, Dajin (Market Cap $18 M) has graduated from one of about a dozen publicly-traded, non-producing lithium juniors in Argentina, [up against peers like Lithium Americas [TSX: LAC] (Market Cap $235 M), Lithium X Corp [TSX-V: LIX] (Market Cap $145 M) and Neo Lithium Corp [TSX-V: NLC] (Market cap $85 M)], to part of a larger, highly prospective lithium brine play. Dajin SA has hitched its wagon to LSC, who is working with by privately-held Enirgi Group, which in turn is wholly-owned by The Sentient Group of Global Resources Funds. The Sentient Group has over $2 billion in assets under management, mostly in metals, minerals & energy assets across the globe.
The Dajin story unfolding in Argentina reminds me of Lithium Americas’ announcement in March 2016 of a JV with giant lithium producer SQM. When that news hit the tape, my initial reaction was lukewarm, at best. I thought that LAC selling half its flagship Cauchari-Olaroz project was a great deal for SQM, but not necessarily for LAC. However, I failed to appreciate the tremendous benefits SQM is contributing to the project by providing critical financial backing and very substantial technical / managerial experience. The probability of LAC owning 50% (instead of 100%) of a prominent mine soared, as did the stock price.
I see a similarity in LSC’s vote of confidence in Dajin’s Argentinian lithium portfolio. The financial terms mentioned in the opening paragraph are important, but even more important is that the probability of Dajin ultimately owning 49% (instead of 100%) of an economically viable project, is considerably higher, and the Company probably has at least a year before it will need to contribute a meaningful amount of cash, if warranted. Yet, Dajin’s stock price is down 36% (in line with the sector) since the August 8th announcement of the now completed LSC/Dajin transaction.
At the risk of beating a dead horse, to recap, if Enirgi and LSC make a big splash in northern Argentina, Dajin will be in the enviable position of being able to raise capital on favorable terms to maintain its 49% stake, or monetize some or all of it. In the meantime, Dajin does not need to deploy additional capital in Argentina. Instead, management will spend a lot more time and resources in Nevada, where it has 3 attractive prospects, Teels Marsh, Gabbs Valley & Alkali Lake.
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