Wesfarmers Mounts Takeover Play For Lithium Miner Kidman

First, it tried to grab Lynas Corporation and its rare earths business, now Wesfarmers has launched a $776 million takeover bid for the lithium miner Kidman Resources, in a deal that may have more chance of taking the owner of Bunnings and Kmart into the future of electric vehicles.

Wesfarmers’ offer of $1.90 per share represents a 47.3% premium to Kidman’s closing price on Wednesday.

The offer has already won over the Kidman’s board and its Chilean joint venture partner.

Kidman shares jumped 45% to $1.87, meaning the market doesn’t see another offer emerging.

Kidman’s major asset is a 50% stake in the lithium project in Mount Holland, Western Australia, consisting of a mine (that is being built) and a lithium hydroxide refinery in Kwinana, south of Perth.

The most common sort of lithium ore in WA is spodumene which is being minded by Mineral Resources in the Pilbara in a joint venture with the big US chemical group, Albermarle, which also owns 49% of the old Greenbushes mine near Esperance which is now the world’s biggest lithium ore mine.

Lithium is an important component in the batteries used in electric vehicles (and electronic devices). The last five years has seen rapid growth in the lithium sector in WA to the point where Australia is now the world’s largest producer.

Albemarle’s lithium hydroxide facility will be built at Kemerton, which is about 17km from Bunbury and, once operational, is expected to be WA’s largest lithium hydroxide plant. Albermarle is partnering with Mineral Resources on a processing plant at Wodinga in the Pilbara.

The Kemerton plant will process a million tonnes of spodumene concentrate a year sourced from Albemarle’s 49%-owned Greenbushes mine. Albemarle owns a 49% stake in Talison Lithium, which operates the Greenbushes asset, with Chinese group Tianqi Lithium holding the other 51%. Talison said a year ago it would be expanding Greenbushes so that it will produce up to 2 million tonnes of spodumene concentrate annually.

Kidman’s joint venture partner is the Chilean group Sociedad Química y Minera (SQM) which supports the deal. It produces lithium from brines in Chile which is a longer and more expensive process.

The spodumene concentrate produced in WA can be directly processed to produce lithium hydroxide. Lithium from brines involves a different, more expensive process. Lithium hydroxide can be more easily processed to produce metal for batteries.
“The acquisition of Kidman provides an opportunity to invest in and develop a large-scale, long-life and high-grade lithium hydroxide project,” said Wesfarmers boss Rob Scott a statement yesterday.

“It also creates a unique partnership with SQM, a global leader in the lithium industry with a long operating history and deep market knowledge.”

Wesfarmers said it expected to spend another $600 million on developing the mine site, a processing plant and refinery, with construction expected to start in the 2020 financial year and the first lithium hydroxide to be produced in 2022.

Kidman’s major shareholders, board members and members of its key management, which together own about 17% of the company’s shares are supporting the takeover, as long as there’s no better offer.

The deal will require approval from Kidman’s minority shareholders to go ahead.

This deal makes clear that Wesfarmers is serious about wanting exposure to the growing demand for electric cars around the world via the rapidly growing lithium mining sector in WA.

Wesfarmers is trying to diversify its portfolio away from retail and re-grow its resources arm that up to last year was based on thermal coal from NSW and metallurgical coal from Queensland.

Wesfarmers made it clear yesterday it still had ambitions for Lynas and its rare earths business.

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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