Tesla and Ford mineral supplier takeover collapses
Albemarle steps away from offer for Western Australia battery metal mining project
One of the world’s largest lithium mining development projects has had a takeover offer withdrawn after US-based mining company Albemarle rescinded a buyout proposal set to be worth A$6.6bn ($4.2bn).
Albemarle has rowed back on an improved September bid for Liontown Resources, operator of the Kathleen Valley lithium project under development in Western Australia (WA).
North Carolina-headquartered Albemarle, which additionally operates the Marbl joint venture, a lithium hydroxide processing project also in WA, says that “the decision comes as Albemarle nears the end of its exclusive due diligence process” it entered into when it upped its bid to A$3/share last month.
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Liontown describes Kathleen Valley as a “Tier-1 battery metals asset with excellent grade and scale in one of world’s best mining districts”. First production is targeted for mid-2024.
The firm took FID on the project in June last year. Since then, the company says it “has executed binding offtake agreements with Tier-1, globally significant customers in the electric vehicles supply chain”.
Liontown has signed five-year deals to supply leading automakers Ford and Tesla, as well as South Korean EV battery maker LG Energy Solutions, calling them “foundation customers” for the project.
Last week, mining firm Hancock Prospecting, backed by Australia’s richest person Gina Rinehart, increased its stake in Liontown to 19.9pc. According to energy and utilities industry analyst Carl Surran, the move from Hancock complicated Albemarle’s acquisition bid by “making it likely that Rinehart could block the takeover proposal since many investors often do not vote”.
Surran notes that after Hancock increased its share in Liontown, Albermarle likely would have needed a 75pc vote in favour to execute its buyout. The firm cites “growing complexities with the proposed transaction” as a factor in withdrawing its bid for Liontown.
"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," says Kent Masters, CEO of Albemarle. "That said, moving forward with the acquisition, at this time, is not in Albemarle's best interests."
At the end of September, Liontown submitted finalised estimates of capital costs for the Kathleen Valley project of A$951mn. At the time, the company said it was “well advanced in discussions with a lender syndicate of commercial banks and government credit agencies to obtain the funding it requires to meet its final funding requirements”.
The company estimates its minimum funding needs for the project as $450mn for initial costs of mine development and said that it expected a funding solution in place by the end of 2023, with additional funding not required until early 2024.
Hancock has been a surprisingly equivocal shareholder thus far for one that has scooped up a fifth of shares in little over a month. Kathleen Valley does have “the potential to operate at scale,” it says.
But it also notes “a number of significant risks including resource conversion, construction execution, and metallurgical recovery”.
And there is wider concern over lower lithium prices making upstream mine investment less attractive. Consultancy Benchmark Mineral Intelligence says that “OEMs and battery makers are on alert” for the chance to lock in cheaper deals for the battery metal. And analysis firm S&P Global Commodity Insight has a similar short-term bearish take on lithium prices.
Liontown is now expected to turn to capital markets with an equity offering to try to secure the remainder of its project's requisite funding as a standalone independent.
As well as Kathleen Valley, Liontown’s other asst is Buldania, a highly prospective lithium project located south of Kalgoorlie in the eastern goldfields of WA. Its drilling programme there has confirmed a mineral resource estimate of 15mn t of 1.0pc lithium oxide (Li2O).