Australia’s richest woman, Gina Rinehart, pushed rival US chemical maker Albemarle into a corner and dumped its $4.2 billion lithium play for Liontown Resources. The miner’s board last week granted the world’s biggest lithium chemical maker a four-week extension to examine its books, but that did not stop Albemarle from dropping its indicative offer of A$3 a share.
That bid would have paid a near-100% premium to Liontown’s undisturbed price. Albemarle said the bid was its “best and final,” but under Australian law, it cannot raise that bid unless there’s a better offer from another party.
It’s not clear why it did so, though. Albemarle cited “growing complexities” and said it would instead focus on its partnership with MinRes in its joint venture in China, where the US company has built two plants that convert Wodgina spodumene into lithium hydroxide. MinRes is set to start production in 2024 and will produce 25,000 tonnes of the metal each year.
Analysts say the decision to dump its non-binding proposal may indicate that Albemarle is worried about a capital cliff that would arise as development costs for the Kathleen Valley project in Western Australia ramp up. The project has offtake agreements from automakers like Tesla and Ford Motor Co. Still, the costs of developing the 500,000tpa-plus spodumene operation have shot up from the $473 million estimated in a feasibility study published in December 2021.
The withdrawal of the indicative offer will likely send shares in the Perth-based miner tumbling. Investors are already fretting about the rising costs and the risks posed by the prospect of a significant funding shortfall in 2024. The move also pressures banks to find other ways to finance the project, which will be in production by 2024.
Liontown shares traded down 4.9% in early trade. The halt will enable the miner to try and secure additional financing for the project, which has a pre-tax cost of more than A$8 billion.
Jarden Securities analyst Jon Bishop says the miner will have a more challenging time finding banks eager to lend, not least given the volatility in the lithium market. He expects Liontown to explore the option of an equity raising. He says the miner could sell up to 15% of its shares to help fund the project. Hancock Prospecting, an iron ore miner controlled by Australia’s richest person, Gina Rinehart, has bought Liontown shares. As of last week, it held 19.9% of the company, enough to block a buyout by Albemarle. The company is building a portfolio of mining projects in Australia and elsewhere to meet the growing demand for battery materials. Hancock, which makes most of its money mining for iron ore, owns about 19 assets worldwide, including a number in Australia. It bought a stake in the Liontown project for A$3 a share 2015. It will not raise that offering and is unlikely to take control of the miner.
