Shares of Australia’s Liontown Resources (LTR.AX) shot up 11.5% after the lithium developer’s board backed on Monday a refreshed A$6.6 billion ($4.3-billion) Bid from Albemarle Corp (ALB.N), the world’s biggest producer of the battery material. The Bid represents a 68% premium to Liontown’s last close and is 20% higher than an offer in March that the company rejected. Albemarle said it had made the new proposal because of its “significant chemical conversion abilities and existing links with Liontown’s customers.”
The offer also takes advantage of a global rush to secure mineral supplies used in batteries for electric cars and mobile phones as governments and consumers push to reduce carbon emissions. Emerging Australian lithium companies are experiencing a surge in buyouts as their lower valuations and cash needs lure some of the world’s top lithium producers and others racing to secure supplies.
Lithium developers face steep capital costs when building mines and refineries to meet demand growth forecasts for the hottest metal in years. The cost of constructing a lithium mine and plant is typically five to ten times more than for best-in-class peers.
Mining and processing firms also compete for talent in a tight labor market. This is because the work involved in lithium operations requires specialized skills and knowledge of safety and regulatory requirements. It is also critical to locate facilities near attractive housing for fly-in/fly-out and residential workers, allowing them to make the most of low living costs in Australia.
Despite the tight labor market, many emerging lithium projects in Australia have attracted workers by offering attractive packages and incentives such as free-living expenses and generous bonuses. However, attracting and retaining skilled staff is becoming more challenging as the industry grows.
In addition to the tight labor market, some of the most significant projects are being built in remote regions where environmental approvals and construction timelines can be lengthy and complex. These projects are also farther away from markets where lithium can be sold, which is essential for profitability.
For example, the Millennial Lithium project in Canada is not expected to start production until 2024 at the earliest, while the Kathleen Valley hard rock project in Western Australia will only be ready for commercial operation in mid-2024. These factors could make the projects less profitable in the long run. For this reason, some experts are cautioning against investing in new developments until there is more clarity about the demand outlook and a clearer picture of capital expenditures. Nevertheless, the current rally in prices and share values for lithium has led investors to be more optimistic about the prospects for the sector. Albemarle’s new offer for Liontown is the latest in a series of deals illustrating how investor interest is growing for a commodity that has emerged as one of the most significant drivers of global economic change. Reuters’ Sammy Tan and Ben Cox contributed to this report.
