MONTREAL, Sept. 3, 2020 /CNW Telbec/ - The president of the Nemaska Shareholders' Group, Alain Clavet, sent the following letter to the Premier of Quebec, François Legault.
Dear Premier Legault,
I am writing you today as president of the Nemaska Shareholders' Group, which represents 2,800 shareholders, holding 140 million NMX shares on the Toronto Stock Exchange and therefore 17% of the company's equity.
The cabinet will soon be called upon to allow an initial $95 million investment by Investissement Québec in a private company equally owned by The Pallinghurst Group and Investissement Québec for the purchase of assets of Nemaska Lithium Inc.
If the amount to be invested by Pallinghurst is unknown, it is obvious that the sums being discussed are derisory compared to the real financial needs of Nemaska's revival.
The cabinet will therefore be called upon to authorize an incomplete and insufficient investment for the relaunching of this project, whose needs and schedule are for the moment unknown. As of today, there is no guarantee that The Pallinghurst Group will be able to meet its financial commitment to invest the required money in time. If anyone wants to talk about poorly structured financing, in the future it is this that we will hear about.
We ask you to ensure that the current shareholders are part of the refinancing solution and, to do so, we ask you to urge the cabinet to refuse to authorize this investment in its current form, and rather to support any refinancing proposal of the same amount that takes into account the current shareholders. If the government of Québec decided to inject directly into NMX the same amount that it is proposing with Pallinghurst, it is likely that a significant portion of current shareholders would respond to a capital call.
We also believe that your upcoming decision will have devastating a long-term effect on Québec's credibility if ever the shareholders of NMX are, unfairly and without valid reason, cheated.
In this context, the question you must ask yourself is the following: how can we attract foreign capital to our public Québec companies in the future if the government deceives them without restraint and without reason? Attracting venture capital in Québec if, at the first occasion, while the investment risk is less, its own government can shamelessly cheat the very people that allowed a project's inception? To ask the question is to answer it.
Historically, the rules for obtaining an investment from the Fonds mines et hydrocarbures (later folded into Ressources Québec) have always been clear: the Québec government's contribution should always be the last money required to tie up financing, the objective being to attract foreign capital.
For example, since 2016, Ressources Québec invested $90 million in equity in Nemaska Lithium and Investissement Québec has subscribed $50 million in guaranteed bonds, which were fully repaid and earned 11.5% interest. The $90 million in equity invested by Ressources Québec enabled Nemaska Lithium to raise between March 2016 and May 2018, approximately $1.23 billion, including
$506 million in equity. The Government of Québec therefore contributed approximately 11.4% of the overall funding during this period and 17.8% while taking only equity into account. This percentage is important, because one of the rules imposed by Ressources Québec (to present to the cabinet) is that Québec's position should not exceed 20%. In the decision that will be presented to you shortly, we are talking about holding 50%, at a minimum.
We should remind you that Ressources Québec is presently the main shareholder of NMX, since its initial investment of $10 million in March 2016 (which brought it a profit of approximately $9.7 million following the exercise of warrants in December 2017). During the development of the financial package totalling more than $1.11 billion closed in May 2018, Investissement Québec imposed itself and dictated the terms of this package, asking, among other things, to increase its stake to more than 10% and imposing additional rules of governance, including the appointment of representatives to the board of directors of NMX.
As of February 2019, when the need for an additional $375 million was announced, Investissement Québec's representatives were involved in the analysis of refinancing solutions. Instead of playing its role of principal shareholder and ensuring the sustainability of its investment as part of its restructuring, Investissement Québec decided to partner with a particular bidder. It would have been much more judicious to confirm to any party interested in the case its openness to participate financially, at the same level, provided that the activities of Nemaska Lithium Inc continue as a public company.
On the contrary, Investissement Québec clearly mentioned before December 2019 that it could not commit to seeking the approval of the cabinet without full and committed funding, thus discouraging various potential investors who wanted to know what the principal shareholder's, and representative of the provincial government's position was.
Minister Pierre Fitzgibbon has mentioned on several occasions that Nemaska should never have been a publicly traded company. We feel this assertion is wrong. In fact, almost all of the mining projects developed in Québec are developed by companies listed on the stock exchange, the vast majority of which have no income and require foreign investment. It is thanks to the fact that Nemaska was a public company since January 2010, that it has managed to develop over the years. Indeed, a company that is listed on the stock exchange can employ additional financing methods, without neglecting the interest and ability of shareholders to participate in future financing.
To demonstrate, NMX managed to interest nearly 50 institutional investors from around the world (Japan, Singapore, Hong Kong, Australia, Sweden, Finland, United Kingdom, the United States and Canada to mention the main ones) and raised the sum of $119 million during the July 2016 and June 2017 financings. Most of these also participated in the 2018 financing, while new investors were also added. Resources Québec's investment therefore made it possible to achieve a very important objective, namely to attract foreign money.
If Investissement Québec/Ressources Québec had supported NMX in February 2019 with the same amounts that it is preparing to inject initially in the partnership with The Pallinghurst Group, NMX would have completed its construction and the Whabouchi mine would be in production, all of the financing required being acquired at that time and all stakeholders would have been respected.
Today, almost 18 months later, and tens of millions of dollars wasted on legal fees and others, we cannot allow the shareholders to be abandoned, including more than 25,000 Québec families who, with their savings, allowed for the development of this unique project.
Premier Legault, I beg you, for the good of Québec and its citizens, do not support the current form of the request that will be brought to your cabinet. The government of Québec must not throw itself blindly into a poorly put together, insufficiently funded project, without a specific timetable and with a partner whose financial capacity remains to be demonstrated.
There are other ways to secure funding for this unique project. If the government nevertheless decides to support a takeover offer that leaves NMX shareholders high and dry, it will be seen as a decision to abandon the 25,000-Québec families who have contributed their savings over the past ten years.
In the hope of hearing from you, please accept, Premier Legault, my best regards.
SOURCE Nemaska Shareholders’ Group
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