Ground Breakers: Azure lithium takeover alive again as SQM and Hancock join forces
King (or Queen) maker Mark Creasy has backed a $3.70 per share offer for lithium hopeful Azure Minerals (ASX:AZS) from Chilean giant and Gina Rinehart’s Hancock Prospecting that would mint a a near 17x gain for shareholders who bought into the boom explorer at the start of the year.
It comes after manic buying from major investors above its $3.52 offer price scuppered SQM, a near 20% owner of Azure, from completing a takeover previously approved by the Andover majority owner’s Tony Rovira led board.
A gridlock had formed with a handful of major players as Rinehart and Mineral Resources built big stakes. Super prospector Creasy, who made his fortune off the Bronzewing gold and Nova nickel discoveries and owns the other 40% of Andover, had not indicated which way he would vote, while 10.15% holder Delphi Group, led by German investor Wilhelm Zours, had backed SQM’s offer.
It was a situation that led MinRes boss Chris Ellison to say SQM’s offer was dead in the water.
Until now that is. Rinehart and SQM will jointly run a scheme to acquire the rest of Azure they don’t hold, valued in the bid at close to $1.7 billion. It comes at a 5.1% premium to SQM’s offer and 63.9% premium to Azure’s 10-day VWAP before the announcement of the previous Azure bid.
A secondary off-market takeover offer for $3.65 per share could be triggered if SQM and Hancock aren’t successful in their scheme deal.
Ironically, SQM had included a similar clause in their previous offer to avoid a repeat of Albemarle’s failed $6.6 billion bid for Liontown Resources (ASX:LTR), which was torched after Rinehart built a blocking stake in a $1.3 billion splurge.
Together Hancock and SQM already own over 37% of Azure’s shares, making the offer despite the fact its 60-40 Andover JV is yet to report a resource.
Still the offer would mean a $1000 investment at the start of the year would convert to around $16,800 if it goes ahead. Incredible.
But in a test of the apparently cozy relationship between MinRes and its billionaire boss Chris Ellison and Gina Rinehart, MinRes could give rise to a defeating condition if it were to increase its holding to more than 15%.
It controlled 13.56% at last notice. But if MinRes had the inclination to lob a competing bid it would need to do so well above the offer price, given filings suggest its share purchases came around the $4 mark. AZS shares peaked at $4.11 on November 21 this year.
Ellison showed no appetite for that at the lithium, iron ore, gas and mining services player’s AGM in Perth last month, telling journalists he’d be happy to emerge with a part of the whole.
$13 billion stock though it is, MinRes doesn’t have the firepower to compete with the biggest players in the game. But it does have a close kinship with Hancock, having partnered on port and rail infrastructure to open up stranded iron ore deposits in the Pilbara and sharing an apparently convivial position on the register of MinRes influenced junior Delta Lithium (ASX:DLI).
Azure boss Rovira, whose company was sitting on a solid nickel-copper deposit at Andover in the Pilbara before making the stunning lithium pegmatite discovery, said the transaction delivered a ‘fantastic outcome’ for Azure shareholders.
“… including a significant uplift in value from the Original SQM Transaction despite elevated market volatility and the recent deterioration in lithium prices,” he said.
“The Transaction also represents a great outcome for wider stakeholders in Andover, who will benefit from the significant financial strength and expertise of one of Australia’s largest and most well-respected mining and exploration companies, Hancock, combining with SQM to oversee the successful development of Andover.
“We encourage all Azure shareholders to support the Transaction.”
A sudden shift to a state of oversupply has hurt lithium pricing, with spot spodumene falling from over US$8000/t to US$1100/t in around 12 months on assessments from Fastmarkets.
Other price agencies have similar takes.
But that hasn’t stopped lithium majors positioning for the future, seeking control of resources in the expectation that the market will shift to a big and continued supply deficit as electric vehicle penetration expands in the latter half of the decade.
SQM, which is the world’s second biggest lithium producer based on its Chilean brine portfolio and is starting up a large integrated spodumene to lithium hydroxide business in WA with Wesfarmers (ASX:WES) based around their Mt Holland mine, has shown its intent to diversify and grow its West Australian business.
Currently WA accounts for more than half of the world’s lithium raw materials.
But the incursion of Rinehart into lithium this year and the ambitious buying of MinRes — which spent $840 million in just five months acquiring the Bald Hill Lithium Mine and buying shares in promising WA juniors — has shown just how desperate industry titans are to grab a foothold in the sector despite the price volatility.
“SQM is delighted to partner with Hancock to present this highly attractive revised offer for Azure shareholders, providing a compelling cash value in a time of broader market volatility,” SQM CEO Ricardo Ramos said about the bid with Hancock.
“We are pleased to have received the unanimous support from the Azure Board and support from substantial shareholders Delphi Group and Creasy Group for the Transaction.”
“As Azure’s 19.4% shareholder, SQM is pleased with the progress Azure’s management team have made in understanding the potential of Andover through exploration drilling.
“Moving forward, SQM will look to deploy its lithium expertise alongside Hancock’s significant local mining knowledge and track record of project development to manage the elevated risk profile associated with early-stage exploration projects.”
Hancock CEO Garry Korte had similar sentiments, saying the bid continued “Mrs Rinehart’s substantial support for the West Australian mining industry”.
Azure placed an exploration target earlier this year of 100-240Mt at 1-1.5% Li2O, which would place it among the biggest lithium finds in the world if realised, comparable to early JORC resources at Pilbara Minerals’ nearby Pilgangoora and MinRes and Albemarle’s Wodgina mine.
And it’s not only Azure where SQM is showing its hand in WA.
It has also agreed to pay $10m for a 75% interest in five tenements held near Andover by newly dual-listed gold explorer Novo Resources (ASX:NVO).
Also having an interest in some Pilbara ground that is part of the new Kali Metals float, SQM has added another early stage investment in the Novo deal, which also includes a 12-month option over other Novo tenements in the Pilbara.
Novo’s focus is on ground where it is exploring for a Hemi-style gold discovery in concert with De Grey Mining (ASX:DEG). It also holds gold exploration ground in Victoria and a JV with Liatam Mining to look for lithium at the Quartz Hill project near Nullagine.
Novo exec co-chair and acting CEO Mike Spreadborough said the deal would boost cash reserves for its gold exploration efforts.
It includes tenements immediately west and east of Azure and Creasy’s Andover nickel and lithium finds.
At Stockhead we tell it like it is. While Azure Minerals is a Stockhead advertiser at the time of writing, it did not sponsor this article.