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Kidman in deal with lithium giant SQM

July 13, 2017
Chemical Value Chain

Lithium hopeful Kidman Resources has struck a $US110 million deal with lithium giant Sociedad Quimica y Minera de Chile, in a deal that sells down 50 per cent of the Mt Holland lithium project in Western Australia to world’s biggest lithium producer, funds a mine and paves the way for a $400 million refinery.

The announcement saw shares of Melbourne-based Kidman (KDR) hit hard after a strong recent run-up.

But managing director Martin Donohue, one of his institutional shareholders and analysts who had been following the stock, said the deal was a strong one and that the potential to develop a refinery differentiated Kidman from its lithium mining peers.

“In some ways, we didn’t expect the broader market to understand the transaction in the first five minutes,” Mr Donohue said.

“We are confident this is a good transaction for our shareholders and it will take a little while before everyone understands it and the business model is a bit different to everyone elses’s.”

He said the integrated model, combining a mine with a refinery, should generate more free cash in the good times and help ride out the inevitable bad times.

After the announcement, Kidman shares slumped 8.5c, or 12 per cent to 62.5c, leaving the company’s market value at about $206m.

In the two months leading up to the announcement, shares had risen 90 per cent, driven in part by a successful court battle, decided in Kidman’s favour last week, with Marindi Resources over Mt Holland.

Kidman has agreed to sell a 50 per cent stake in Mt Holland (and the Earl Grey lithium deposit) to the New York-listed SQM for $US30m upfront and $US80m of stages funding payments.

With Mt Holland, about 200km southwest of Kalgoorlie, becoming a 50-50 joint venture, the $US80m represents a $US40m payment to Kidman and, when combined with the $US30m upfront figure, a $US70m sale of the half stake.

That said, SQM needs to spend the full $US110m to earn the stake.

Kidman will also keep rights to Mt Holland’s gold.

The funding will be directed to finishing mine feasibility studies, developing the mine and plant and studying a refinery.

PAC Partners analyst Andrew Shearer applauded the deal.

“It’s a positive announcement,” Mr Shearer said. “It goes a long way to making Kidman an integrated producer.”

Analysts said a refinery could cost an extra $400m, based on the cost of the lithium refinery at Kwinana in WA planned by China’s Teniq.

Kidman said SQM, which has a $US9.4 billion market value, had unmatched expertise in the lithium business as the world’s biggest producer.

Mr Donohue said there had been significant global interest in the process Kidman had been running in recent months.

Paragon Funds Management’s John Deniz, whose fund owns about 4 per cent of Kidman’s stock, said he did not think Kidman could have attracted a better partner.

The deal is conditional on Foreign Investment Review Board and West Australian government approval.

“The project characteristics, coupled with our expertise in lithium production and the lithium market will make this project a great addition to our production portfolio,” SQM chief executive Patricio De Solminihac said.

He said it was good to see a Chilean company investing in Australia after many Australian mining companies had invested in Chile.

If a refinery is built, SQM and Kidman want to be producing 40,000 tonnes of lithium carbonate equivalent at Mt Holland from 2021.

It is the first foray of SQM, who produces iodine and specialty fertilisers as well as lithium, outside South America.

By Matt Chambers

Source: The Australian

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