Going, Going … Albemarle pulls the pin on $6.6 billion Liontown mega lithium deal amid Rinehart shenanigans
Gina Rinehart is now in pole position to take a starring role in the development of Australia’s next lithium mine after scaring the world’s biggest lithium producer Albemarle away from a $6.6 billion deal to buy Liontown Resources (ASX:LTR).
In the weeks since Liontown revealed it had granted due diligence to the Greenbushes mine owner on September 3 — which bumped up its offer from $2.50 to $3 a share to candy up the Kathleen Valley owner’s Tim Goyder led board — Rinehart’s Hancock Prospecting built an imposing 19.9% stake by buying up shares on market at or near the offer price.
Now the company’s largest shareholder, it meant any scheme vote was likely to fail given Albemarle would have needed a 75% yes vote and already couldn’t vote it’s own stock.
That made Hancock’s play as good as a blocking stake.
“Our engagement with the Liontown team has been meaningful and productive. We appreciate the level of cooperation we have received, and we thank the entire team for their efforts,” Albemarle CEO Kent Masters said.
“That said, moving forward with the acquisition, at this time, is not in Albemarle’s best interests.”
The company also winked at the Rinehart shenanigans, noting “growing complexities associated with the proposed transaction as a factor in its decision.”
It came after more than four weeks of due diligence, with Albemarle granted another seven days under the hood last week.
Hancock’s last statement on securing its 19.9% stake, the highest an investor can obtain on market before announcing a takeover offer, said it looked forward to having a ‘prominent influence’ on Liontown’s future.
It could seek a board seat, but Albemarle’s exit from the equation leaves open also the possibility of further action from Hancock including a takeover or perhaps some involvement — quarters have speculated — from Mineral Resources (ASX:MIN), which has lithium producing nous, a dominant influence in the Goldfields lithium game and a close relationship with Hancock at its iron ore interests in the Pilbara.
A deal with Albemarle would have not only netted a major payday for the true believers on the Liontown register, including almost $1 billion for WA mining influencer Tim Goyder, it also would have allayed concerns of a capital cliff coming as the development of Kathleen Valley ramps up.
Costs for the development have risen from $473 million in a December 2021 feasibility study to $895m in a January update and $951m last month.
Other development costs to be reported as opex would take the bill to over $1b.
It is a unique development. The 500,000tpa plus spodumene project is the first underground hard rock lithium mine in the world.
Its initial runrate of 3Mtpa — one of the largest underground producers in WA — would expand to 4Mtpa from 2027.
While it has a letter of support for $300 million in funding from the export credits agencies of Australia, the USA and South Korea and a similar commitment from US automaker Ford, Liontown is in need of funding elsewhere from next year.
Goldman Sachs analysts anticipated Kathleen Valley, half-completed when the cost estimate was updated last month, would require corporate debt finance in excess of $150m on top of the ECA funding.
It entered a trading halt today to allow for “the finalisation of funding associated with the Kathleen Valley Project.”
Hancock’s statements had included concerns about the large scale of the Kathleen Valley underground and execution risk, with Australia’s largest private miner noting its own expertise in funding and developing large scale resource projects.
However, the company counts a 70% share in the Roy Hill iron ore mine as its main bread-winner — a DSO hematite iron ore operation — and has no prior experience in lithium ops.
A Hancock spokesperson said it would not make any comment at this stage on the collapse of the Albemarle offer.
Albemarle, which owns 50% of the Wodgina mine in the Pilbara alongside MinRes and 49% of the Greenbushes operation near Bridgetown, had been keen to secure more spodumene concentrate feedstock for its refineries in China and WA, where its Kemerton lithium hydroxide plant is undergoing a multi-billion dollar expansion from 50,000 to 100,000tpa.