Curious case of the billion-dollar lithium mine sold for a song
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Hong Kong: High in the Andes, in northwest Argentina, stories are told of fortunes being made in lithium, the wonder metal inside iPhones to Teslas that has captivated global investors from Warren Buffett down.
This is not one of those stories.
It begins in the lithium-rich salt pans of Argentina’s Salta Province and stretches all the way to South Korea and Hong Kong, leaving a trail of lawsuits and unhappy investors.
The drama reinforces a timeless lesson about sinking money into natural resources: Chasing the latest rush, whether in lithium, uranium or oil, is a high-risk game.
Just five years ago, investors were told that lithium mining company Lithea Inc. soon might be worth $1.4 billion. But last month, after various legal wrangles, a Hong Kong court ordered the assets of a businessman behind Lithea to be frozen as investigators chased him over unpaid debts.
The man in question, Choi Sung-min, got in early on the lithium rush. In 2009, his British Virgin-registered Cordia Global Ltd. gained control of Lithea for $15 million, company and court documents show.
Three years later, with the lithium rush in full swing, an investor presentation produced by Lithea valued Choi’s stake at $250 million. It went on to predict that its value would quickly quintuple once the mining company went public.
Enter Kwon Ohjoon, chairman of Posco, the South Korean steel giant. Under Kwon, Posco had developed a new extraction method designed to speed up the processing of lithium-rich brine, which currently takes many months.
Posco hired a geological firm run by Hong Kong-based Herman Tso, to assess two deposits in Argentina as potential partners for its technology, including Lithea.
It turned out to be a controversial choice. Only a few months earlier, Tso had appraised a Russian coal mine part-owned by Choi, and his report was used to help raise millions in debt.
Investors later claimed the mine was worthless—and the mine’s owner, Siberian Mining Group, saw its market value virtually wiped out in Hong Kong. Last year, a court in the city judged that Tso wasn’t even qualified to assess mines.
Tso declined to comment on the report, while Choi says he has acted properly throughout. Posco said Tso’s bid was chosen because it was the fastest and cheapest.
All of that came to light only after Posco’s foray into Argentina. In July 2013, Tso travelled to Salta Province near the Chilean border and pronounced Lithea’s project to be “technically viable” and worth $280 million, according to a copy of his report seen by Bloomberg.
While Posco was talking with Lithea, troubles began to pile up for Choi. He was investigated by the Korea Deposit Insurance Corp., the government agency that insures bank deposits. Choi had guaranteed several loans from a Korean bank that had collapsed amid scandal, according to court documents.
KDIC was trying to get the money back and said that Choi had routed a $2 million loan from the failed bank through various companies to his Russian coal mine.
In an interview in Hong Kong, Choi denied KDIC’s version of events, saying he mostly used money made from an Indonesian mine venture to fund his investments. In 2014 he sold his stake in Lithea for $1.3 million -- less than 1 percent of the value that Tso had placed on the company a year earlier.
The intrigue didn’t end there. The buyer was BMC Global Ltd., a BVI-registered firm owned by an associate of Choi’s who had worked with him on the Siberian Mining venture, corporate documents show. Choi said he sold his stake to BMC because of debts he owned to a Hong Kong lender and not to hide assets from KDIC.
After learning about Choi’s troubles, Posco said it broke off talks with Lithea, only to reopen them in late 2014, on the understanding that Choi would no longer be involved. But a photo on Posco’s website shows Kwon and Choi together at the Argentina mine in early 2016.
Choi said he was acting as a consultant. Posco said Kwon, 66, wasn’t available for interview.
At the same time, KDIC continued to exert pressure on Choi. In February 2016, a BVI court agreed to freeze assets worth up to 102 billion won ($85 million) owned by Choi and six firms connected to him, court documents and Hong Kong exchange filings show.
KDIC said it also obtained an order to freeze Choi’s $3.4 million Manhattan apartment.
The Posco-Lithea venture, meantime, began to unravel. Last September, Posco finally pulled out, citing breach of contract, a Hong Kong court document shows. BMC was sued by a creditor, Tor Asia Credit Master Fund LP, according to Hong Kong court documents.
The fund’s adviser, a firm set up by former Goldman Sachs banker Chris Mikosh and former Citadel LLC executive Patrick Edsparr, declined to comment.
BMC last month agreed to sell Lithea to a Canadian company, LSC Lithium Corp., for $44 million. A spokeswoman for LSC declined to comment on the sale because the deal has not yet closed.
The sale brings the story of the Argentine lithium deposit full circle, with a value of roughly twice what Choi paid in 2009—far less than the $280 million in Tso’s official valuation or the $1.4 billion Lithea’s presentation once boldly predicted.
The mine has yet to produce any commercial lithium.