Why are Core Lithium shares in a trading halt?

Core Lithium is looking to add to its portfolio with an acquisition.

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Core Lithium Ltd (ASX: CXO) shares aren't going anywhere on Monday.

After being paused from trade, the lithium miner's shares have now gone into a trading halt.

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Image source: Getty Images

What's going on?

The trading halt has been called after it was revealed that the lithium miner has followed in the footsteps of Pilbara Minerals Ltd (ASX: PLS) by launching its own takeover offer for a smaller industry player.

In case you missed it, last week Pilbara Minerals announced an all-scrip deal to acquire lithium developer Latin Resources Ltd (ASX: LRS).

Core Lithium appears to also believe that making acquisitions at the bottom of the lithium cycle is a good idea.

According to the release from its target, the company has made an offer to acquire Charger Metals NL (ASX: CHR).

Charger Metals is the owner of the Lake Johnston and Bynoe Lithium Projects in Western Australia and the Northern Territory, respectively. It commenced a process last year to investigate whether it could obtain better funding terms for its projects from strategic investors than those currently available in equity markets.

This led to the company agreeing a farm-in agreement with Rio Tinto Ltd (ASX: RIO) at Lake Johnston in January. This deal means that Rio Tinto can earn a 51% interest in the project by sole funding $10 million in exploration expenditure and paying Charger minimum further cash payments of $1.5 million. It can then increase its stake to 75% by sole funding $40 million in exploration expenditure or completing a definitive feasibility study.

This brings us to today. According to the release, Charger revealed that it has also been in discussions with several parties concerning potential options for maximising value for shareholders and retaining leverage to lithium prices going forward.

This led to Core Lithium making an unsolicited non-binding, conditional, indicative offer to acquire ownership of the company.

Takeover offer made

Core Lithium has made an all-scrip offer to acquire the ASX lithium stock for 0.9 Core Lithium shares for each Charger share. This equates to an offer of 8.4 cents per share, which represents a 23% premium to Friday's close price.

However, the Charger board is not biting. It advised that "the terms currently provided in the Core NBIO do not fully reflect the Company's value and prospects."

Though, it "remains open to continuing engagement with Core should it wish to do so, with the view to pursuing the best outcome for Charger shareholders."

In the meantime, Charger intends to continue dialogue with other parties with which it is already engaged. These discussions involve a range of potential alternative outcomes for advancing and maximising the value of the company and its projects.

Core Lithium intends to release an update on its approach by Wednesday. It said:

Core requests a trading halt to be placed on the Company's securities effective immediately pending the release of an announcement regarding the Company's response to the CHR Announcement.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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