• Bid shows disparity between what equity investors (less knowledgeable) and market participants (more knowledgeable) believe a company is worth
  • Tier 1 assets like Liontown’s Kathleen Valley are in the M&A crosshairs
  • Other tier 1 takeover targets: Leo Lithium, Sayona Mining, Patriot Battery Metals, Galan Lithium, Lithium Power International


Liontown’s prompt rebuff of Albemarle’s third takeover bid – valuing the company at a record-high $5.2bn – shows investors just how much industry participants are pricing tier 1 lithium assets in the current market.

The bid, revealed by LTR yesterday morning, set off a rocket underneath the near term miner and the wider ASX cohort.


Nearly every miner, project developer and explorer enjoyed strong gains which was welcome relief after months of share price losses.

The reason for the poor performance of lithium equities in 2023 is simple. Since reaching a peak November last year lithium prices have fallen back significantly.

lithium pricing chemicals hydroxide carbonate
Pic: Benchmark Mineral Intelligence

Unsurprisingly, ASX equities have followed suit.

The difference is that the equities were never anywhere near peak pricing, says Canaccord Genuity mining analyst Reg Spencer.

“They were always undervalued compared to where market pricing was for lithium products,” he told Stockhead.

“Now this bid for Liontown shows what price a buyer is willing to pay for a tier 1 asset.”

This bid shows the disparity between what equity investors (less knowledgeable) and market participants (more knowledgeable) – carmakers, OEMs, chemical companies, other lithium companies – believe a company is worth.

$US25bn capped Albemarle (NYSE: ALB), one of the world’s largest lithium producers, is the perfect example of a company that should know its stuff. Same goes for Liontown (ASX:LTR).

“Clearly Liontown see a lot more value than what was implied by that bid,” Spencer says.

“I don’t necessarily disagree. Pilbara Minerals (ASX:PLS) is a very good example of what can happen when you get some good pricing, with a big asset and production at scale.

Liontown is going to have that in a few years’ time.

“The other strategic aspect, which is hard to quantify and certainty wasn’t reflected in the bid price, is what value do you place on Liontown, knowing they will be a supplier to North American industry participants?

“They meet a lot of the requirements under the Inflation Reduction Act, which means if Tesla makes an EV using Liontown lithium [they] get a tax credit.

“There is quite a strategic value to Liontown, and that is certainly not reflected in that bid price, in my view.”

The dance between Albemarle and Liontown may not be done.

Bell Potter has a base case valuation of $2.81/sh for Liontown “using what we consider a conservative lithium price outlook (long term US$1,300/t  SC6)”.

It currently has a $3.35/sh valuation on the stock.

“Acquiring LTR would deliver ALB (or any acquirer) a large, long-life bolt-on project with production ramping up from mid-2024; complementing its existing Australian mining operations (49% of Greenbushes, 60% of Wodgina) and downstream lithium business (85% of Kemerton Lithium Refinery),” Bell Potter says.


Which other ASX stocks else could rerate on M&A action?

Spencer says tier 1 assets like Liontown’s Kathleen Valley are in the crosshairs.

“The long-term growth of this sector, the challenges associated with bringing on new supply, and the fact that there isn’t that many tier 1 assets in the market makes some of these things quite attractive to potential M&A,” he says.

So, what does a tier 1 lithium project look like?

In hard rock, Spencer says anything over 100Mt with the potential to do 500-700,000ta a year of spodumene.

“For the hard rock guys Leo Lithium (ASX:LLL) has a big resource,” he says.

Sayona (ASX:SYA) in Quebec also has total project resources in excess of 100Mt and they are about to go into production.”

Then there’s Ken Brinsden’s Patriot Battery Metals (ASX:PMT) in Canada.

“Even though they don’t have a resource yet the drilling is looking very, very good and all indications are that they would have something of scale,” Spencer says.

Brine deposits also boast scale potneial, which makes them attractive from an M&A standpoint. Especially to the Chinese.

“The Chinese are effectively locked out of Australia and North America, so if you have a good brine project in South America you are going to attract the interest of the Chinese,” Spencer says.

“For those guys you are looking at companies like Galan Lithium (ASX:GLN) and Lithium Power (ASX:LPI) – companies that have long life and scale potential.”

Tier 1 takeover targets


M&A discussions ‘happening everywhere’

You can bet all manner of M&A discussions are happening behind the scenes, especially now equity prices have pulled back, Spencer says.

“The pullback in equity valuations suddenly makes lithium assets cheaper than what they were six months ago,” he says.

“This is why I think you are going to start to see more M&A in the sector.

“You might recall a month or two ago there was speculation that Tesla was looking at Sigma Lithium, a Canadian listed company with a big asset in Brazil.

“I would expect this to continue.

“It goes to show that strategic players in the sector are thinking about these assets a lot differently than the equity investors.”