Kali Metals rallied 250% in three days. Here are key takeaways from the IPO

The newly listed Kali Metals (ASX: KM1) briefly hit 89 cents on Wednesday, marking an extraordinary 256% gain from its IPO – Which was priced at 25 cents per share.

The lithium sector might be a shell of its former self but that hasn't stopped heavyweight players from undertaking strategic mergers and acquisitions. In this piece, I highlight some of the key takeaways and learnings from the blockbuster IPO.

Kali Metals at a glance

• IPO details: Raised $15 million at 25 cents per share for an indicative market cap of $36 million. It's worth noting that Kali Metals is a spinout of Kalamazoo's (ASX: KZR) Australian lithium assets

• Pro forma cash at listing: $14.9 million

• Pilbara Projects: Subject to the completion of tenement sales agreements, Kali Metals will operate three lithium projects in Western Australia. These include DOM's Hill (located within proximity to Pilbara Minerals' Pilgangoora and MinRes' Wodgina), Pear Creek and Marble Bar.

• Kalgoorlie Projects: The Higginsville Project neighbours MinRes' Bald Hill Project and Mt Marion Project as well as the Pioneer Dome Project (formerly owned by Essential Metals)

• NSW and Victoria Projects: Kali Metals owns a significant tenure in the merging Lachlan Ford Belt region. The Jingellic and Tallangatta Projects are two early-stage projects located around the New South Wales-Victoria border.

Heavily oversubscribed

Kali Metals opened its IPO on Tuesday, 14 November 2023 to raise between $12 million to $15 million. The IPO closed in less than 20 minutes after it was open due to significant oversubscription, according to the AFR.

“We are delighted that the IPO of Kali has received such strong support and investment from a wide range of high calibre investors who as shareholders will support Kali on the next stage of its journey," said Kali Managing Director Graeme Sloan.

"Some of these same investors have also indicated their interest in potentially exploring strategic opportunities with Kali as we move past the IPO process," he said.

Investors typically do not receive their full allocation in a heavily oversubscribed IPO. In some extreme cases, you might only receive 10-20% of your desired investment. Investors either have to accept the smaller allocation or buy on-market.

Stacked top 20

Kali's top 20 holder report features several big names including the following (as a percentage of issued capital as of 3 January 2024) :

• Wabelo (4.85%): A private company owned by MinRes' Managing Director Chris Ellison

• Warburton (2.77%): Former MinRes Director Tim Roberts is a director at Warburton

• Carjay Investments (2.42%): A private company owned by Rod Jones – the founder and Chairman of Navitas, a global educational services and learning company

Wabelo and Warburton were the third and fourth largest shareholders behind Kalamazoo Resources (22.1%) and Karora Resources (20.2%), which combined to spin out Kali.

MinRes' Big Stake

At 8:18 am AEDT on Wednesday, 10 January, Kali announced a new substantial shareholder.

With the above comments from Sloan and top holder data in mind – It's fairly unsurprising to see MinRes push itself into the register.

The sub holder announcement noted a 9.97% interest or 14.4 million shares in Kali.

More specifically, MinRes purchased 13 million shares on Monday, 8 January, the day in which Kali made its ASX debut.

Shares in Kali closed at 43.5 cents with 21.9 million volume. This suggests that MinRes dominated the tape and its buying accounted for almost 70% transactions.

On Wednesday, 10 January, Kali shares opened 11.3% higher at 59 cents and surged intraday to close 43.4% higher at 78.5 cents.

MinRes told the AFR that Kali declined its approach for a potential joint venture. Here are some of the key comments from the article:

• “Kali has been explicit about its decision to exclude companies such as MinRes from the IPO."

• “The MinRes investment in Kali Metals, which has assets in proximity to our Mt Marion and Bald Hill operations, is consistent with previous strategic acquisitions in numerous junior lithium companies with assets in the Goldfields and Pilbara regions."

• "MinRes is confident these investments will deliver shareholder value over time."

Momentum is Key

Hot IPOs have the tendency to run for a couple of days, if not weeks. But all good things come to an end. And given the current circumstances for battery metals – It's not uncommon for gains to go full circle.

A good example is the newly listed Brazilian Rare Earths (ASX: BRE), which listed on the ASX on Thursday, 21 December 2023 after successfully raising $50 million at $1.47 per share.

Shares in the explorer finished the first session at $1.60 and rallied to a high of $1.98 by Wednesday, 27 December.

The stock hit a brief low of $1.60 on Wednesday, 10 January 2023.

Gina Rinehart's Hancock Prospecting was the company's 8th largest holder, with 12.5 million shares or 5.85% of issues shares.

As for Kali Metals, Sloan said in a CNBC interview that "we expect lots of results to come from there. In fact, we are pretty confident about a consistent newsflow coming into the market."