Brazil mineral rights dispute casts shadow on Sigma Lithium expansion

Sigma Lithium

28/09/2023 23:00

(Adds share reaction, paragraph 15)
    By Fabio Teixeira
       RIO DE JANEIRO, Sept 28 (Reuters) - A Brazilian court
injunction is halting the sale or mining of two plots of land
where takeover target Sigma Lithium  SGML.V  is planning open
pits, according to court documents seen by Reuters.
    Vancouver-based Sigma Lithium is one of the hottest names in
Brazil's budding lithium sector – a pioneer in sustainable
mining practices and, according to the firm, a potential
acquisition target for some of the world's top carmakers.
    But in recent months, Sigma has been embroiled in a legal
battle between the husband-and-wife pair who ran the company
together until earlier this year. The couple's ongoing divorce
touched off at least five lawsuits over the businesses they
built, including a dispute over some of the mineral rights where
Sigma plans to build mining pits.
    Reuters reviewed four previously unreported lawsuits in
Brazil involving current Sigma Chief Executive Ana
Cabral-Gardner and Calvyn Gardner, her husband and former
co-CEO, who stepped down in January, when Sigma gave no reason
for his exit.
    Asked about issues raised by Gardner in the lawsuits, a
Sigma spokesperson said in a statement: "The majority of these
allegations are factually incorrect, and we look forward to
seeing them proved false during court proceedings."
    Gardner declined to comment. Cabral-Gardner did not reply to
a request for comment.
    In one of the lawsuits, Gardner accused his wife of misusing
her powers as a majority shareholder in a firm they both have
shares in, called RI-X Mineracao e Consultoria, to transfer
mineral rights from an RI-X subsidiary to Sigma at no cost.
    That transaction, Gardner's lawyers argued, would grant
Sigma mineral rights to valuable lithium deposits and hurt
RI-X's ability to develop its own mining project. At the time of
the transfer, Gardner owned 49% of RI-X and Cabral-Gardner held
51%, documents show.
    RI-X did not reply to a request for comment.
    In a June 27 ruling, a Sao Paulo state judge issued an
injunction over that May mineral rights transfer, on the grounds
that the free transfer of the rights may harm Gardner's
interests. While the judge did not reverse the transfer, the
injunction froze Sigma's ability to sell, mine or use the two
plots as collateral.
    Reuters could not establish how or when the injunction may
be lifted. 
    The disputed plots are located in the middle of two proposed
mining pits planned for the second and third phases of Sigma's
flagship Grota do Cirilo project, in Minas Gerais state,
according to documents in the lawsuit submitted by Gardner's
lawyers.
    Sigma told Reuters the injunction would not hurt its
expansion, as it said it can develop the area via a "waste
sharing agreement" it signed with RI-X in August. The miner also
said its dealmaking efforts were not affected.
    "The dispute over these two small plots is not an impediment
to Sigma's ability to conduct its strategic review of potential
partners in the global energy, automobile, battery and lithium
refining industries," the spokesperson said.
    Sigma shares, which had been up 4% in afternoon trading on
Thursday, erased gains to close more than 2% lower after Reuters
reported on the court injunction. 
    The disputed plots include a combined area of at least 15
hectares (37 acres), according to a court filing, and Gardner's
lawyers estimate a value of 2.9 billion reais ($595 million). 
    Sigma disputed that valuation, calling it "outlandish" and
adding that Gardner had previously agreed to the transfer in
emails. Reuters could not independently confirm this.    
    The plots "contain no mineral reserves or resources," Sigma
said, adding that it has contracted Deloitte for a fair market
valuation, "which we anticipate being not material."
    Deloitte declined to comment.
    Sigma's lawyers have asked the judge to lift the injunction,
arguing in an Aug. 28 petition that it "affects the free
development of Sigma Mineracao's business." 
    They also asked the judge to seal the lawsuit, in order to
"preserve sensitive commercial data and information that
emerges." The judge has yet to rule on that motion.
    Mining is already underway in the first phase of the Grota
do Cirilo project, Sigma's only productive asset, about 6 km (4
miles) north of the disputed area.
    Sigma said in a press release this month that it expects to
produce 270,000 metric tons of lithium concentrate in its first
year of full operation - over twice the 112,000 metric tons of
lithium concentrate produced in all of Brazil last year,
according to the Brazilian Mining Association. 
    Sigma also said this month that the two-phase expansion,
which it could start as soon as next year, according to a June
30 financial report, would boost output to 766,000 metric tons
per year. 
    Sigma's share price has risen around 20% this year on
expectations of a takeover. Sigma said this month it had
received multiple takeover offers from "global industry leaders
in the energy, auto, batteries and lithium refining industries."
    The couple's divorce has already cast a shadow over Sigma's
plans to sell itself, according to the miner. Last month, Sigma
sued Gardner in a New York court, accusing him of stealing trade
secrets to undermine the miner's dealmaking efforts and "gain
leverage in the divorce proceedings."
    Sigma declined to comment on the New York lawsuit, and said
"the divorce proceedings are a private, personal matter and have
no impact on how Sigma Lithium conducts business." 
    Gardner declined to comment on the New York lawsuit.

 (Reporting by Fabio Teixeira 
Additional reporting by Ernest Scheyder 
Editing by Gabriel Stargardter, Brad Haynes and Rosalba O'Brien)
 ((rosalba.obrien@thomsonreuters.com, Twitter: @rosalbaob;
+1-646-988-3014;))