There was lots to cheer about for the ASX-listed lithium stocks when Wesfarmers (WES) rolled out its $776 million, or $1.90 a share, friendly takeover bid for Kidman Resources (KDR).
First, there was the 47% premium to Kidman’s last sale, confirming what was said here last month that there was value to be had in the lithium stocks because the equity market had overdone last year’s great sell-off in the sector.
The sell-off was a response to price pressure on the lithium-ion battery material caused by lithium supplies temporarily getting ahead of the ability of the battery materials supply chain to absorb all the new production.
But that is temporary stuff. The entire battery materials supply chain is flat out expanding capacity to meet the wall of demand coming from the global revolution in electric vehicles and renewable energy storage.
Some of the lead-lithium producers acted on that thematic well before Wesfarmers arrived on the scene, funnily enough arguing that it tries not to get seduced by a thematic or a trend.
It’s why US group Albemarle bought a 50% stake in Mineral Resources’ (MIN) Wodgina project $1.16 billion last year and why Chile’s SQM bought a 50% stake in Kidman’s Mt Holland project two years ago while Wesfarmers was sleeping for $150m.
Importantly for the rest of the lithium sector, Wesfarmers is not an incumbent in the industry. So there is now third-party recognition that WA’s hard-rock lithium industry is the place to be as the EV and battery storage revolution unfolds.
It has be noted that the integrated Kidman-SQM Mt Holland project needs to have $1.2b spent on it to get into production by 2022 and that the Albemarle-MinRes joint venture is looking to spend $1.6b to make Wodgina a bigger and integrated business.
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