Monsters of Rock: Albemarle came to play baseball at Liontown only to find Australia plays cricket

Gina Rinehart’s successful pick up of $1.3 billion, 19.9% stake in Liontown Resources complicates Albemarle’s planned $6.6b takeover
The US suitor extended its month long due diligence by another week amid the ructions
Materials sector lifts with Pilbara Minerals top of the class

Two American giants have come to Australian shores to play ball this year.

But one looks to be hitting a homer at the same time as the other finds out its baseball nous could mean nothing when you’re forced to play cricket.

Newmont received the go-ahead back home for its takeover of Newcrest Mining (ASX:NCM) which would bring CDIs in the world’s biggest gold producer to the ASX by consuming the 2 million ounce per annum plus Aussie gold miner.

A massive 96% of its stockholders supported the bid, which now only needs to pass a vote among Newcrest shareholders in Australia. While an independent expert’s report said the offer was not fair it was regarded as reasonable and in the best interests of shareholders.

Meanwhile, Albemarle, which kicked off a one week extension to an initial four-week due diligence period, could be scuppered by Australia’s biggest mining name Gina Rinehart in its $6.6 billion cash bid for Kathleen Valley lithium mine owner Liontown Resources (ASX:LTR).

Albemarle boasts a US$20 billion market cap, but has proven outflanked by the nimble cash rich iron ore dynasty of Hancock Prospecting.

Rinehart, Australia’s richest person, has dropped around $1.3 billion on Liontown shares at or near the US lithium chemical giant’s offer price of $3 per share to take a 19.9% stake.

It worked for investors who wanted to cash in massive LTR gains early, before the risk of Albemarle walking away or other investors knocking down the seemingly out of this world deal emerged.

If they bought into Liontown early and held the faith, long before it started building the more than 500,000tpa Kathleen Valley mine last year, some were sitting on gains of over 14,000% (~140x).

Why not take the money and run?

Rinehart’s 19.9% stake now eclipses previous kingmaker — Liontown chair Tim Goyder (~15%) — as the company’s largest shareholder.

What happens now?

According to Australian law, Rinehart can’t go any further without making her own bid to acquire the company. That’s the way the game is played here.

Albemarle, which is yet to make any public comment on Hancock’s interruption in the bid process, could try get the deal up but would likely need just about everyone not called Gina Rinehart to support the offer.

The $3 per share proposal is currently non-binding and was only due to become binding if Albemarle liked what it saw of LTR after due diligence. Then the scheme would need 75% of the votes to get up … but Albemarle holds a bunch of Liontown stock and bidders generally have to refrain from the vote.

Rinehart’s interception was relatively low risk. Should the deal get voted up she would get back what she paid for the stake. If Albemarle gets jumpy it could be incentivised to ramp its bid even further, netting her a profit.

That would be a tough call to make (unless all this due diligence is going really swimmingly) given Albemarle only got Liontown’s board to the table after it had bids knocked back over the past 12 months of $2.20, $2.35 and $2.50 and spent almost six months mulling over its options before returning with the $3 per share offer.

Rinehart could chase a role in the project’s development, JV stake or just a board seat at a listed LTR if the ALB deal falls through. It gives her a far faster route to enter the lithium game than her exploration JV around the Mt Ida pegmatite district with Indian Government-backed Legacy Iron Ore (ASX:LCY) and Hawthorn Resources (ASX:HAW).

Even then, the only big discovery there — Delta Lithium’s (ASX:DLI) Mt Ida deposit, where Hancock also has a small stake — pales in comparison to the world class nature of the Kathleen Valley resource.

Hancock brings deep pockets to the development should Albemarle — which needs spodumene to satisfy a growing refining network in China and Australia, the latter where it has sanctioned a multi-billion plan to double the size of the Kemerton plant near Bunbury to 100,000tpa lithium hydroxide — walk away.

The cost of constructing Kathleen Valley has surged from $473 million in late 2021 to $951 million at LTR’s last estimate on scope changes and industry wide inflationary pressure. While Ford has tipped $300 million of project financing in and Liontown remains well-stocked until the end of 2023, it will require new funding next year if a sale does not transpire.

Liontown says it has $300 million of potential debt funding lined up from export finance agencies but Goldman Sachs analysts say after that it would need to secure over $150m in corporate debt as well to complete the job and could raise more to provide liquidity and a corporate buffer.

It also suspended plans to ship low grade DSO lithium to raise early cash after spodumene prices fell steeply in recent months.

The mine is the world’s first underground lithium development, expected to ramp up from an initial production rate of 3Mtpa on opening in mid-2024 to 4Mtpa by 2027.

Liontown Resources (ASX:LTR) share price today

And on the markets

Liontown shares fell 1.03% to $2.89 as hopes of Albemarle completing its deal faded, and investors tried to take gains below the offer price.

Newcrest on the other hand was up 2.06%, while lithium bellwether Pilbara Minerals (ASX:PLS) surged over 4%, taking its gain over the past five trading days to 6.87%.

Whitehaven Coal (ASX:WHC) fell 1.33% as the coal miner faced an escalation of pressure from activist shareholder Bell Rock Capital, which is urging the company to dump its plans to bid for BHP’s (ASX:BHP) multi-billion dollar Daunia and Blackwater mines.

That was despite a court win that will pave the way for the Federal Environment Minister to consider an extension that will keep its Narrabri mine operating from 2031 to 2044.

Gold and iron ore prices ran higher yesterday while base metals and battery metals remain in a holding pattern, as the materials sector closed 0.68% higher.