Biggest billionaires in the west battle it out for lithium

With all the focus of the government on lithium and a bigger role for Australia in lithium processing and battery manufacturing, it pays to keep an eye on what’s happening on the ground in relation to the boom mineral — and the way it exposes the incestuous nature of Perth’s resources sector, which is supposed to be at the vanguard of Australia’s energy transition.

The cast of this particular story includes recent lithium convert Gina Rinehart, CEO of Mineral Resources Chris Ellison, Chilean lithium giant SQM (which is nearly 25% owned by China’s Tianqi Lithium), legendary WA prospector Mark Creasy, the world’s biggest lithium player and US giant Albemarle, and Australian-listed lithium player Azure Minerals.

The drama focuses on the battle for control of the Andover lithium prospect in the Pilbara.

Andover, 60% owned by Azure and 40% by Creasy, has emerged in recent months as one of the richest lithium hard rock (spodumene) prospects in the world and SQM (which also owns 50% of the Mount Holland lithium mine in WA with Wesfarmers, as well as half of a lithium hydroxide refinery being built at Kwinana) nailed down a 19.9% stake in Azure earlier this year. Using that stake as a base, SQM made an offer for Azure in late October at $3.52 a share, but it also has an off-market bid at $3.50 as a fallback.

SQM’s Chinese part-owner Tianqi Lithium also owns a stake in Greenbushes, the world’s biggest lithium mine down at the bottom of south-western WA, with IGO, another Perth miner started by Creasy. The billionaire Creasy owns around 9% of that mine and 13% of Azure. But the biggest shareholder in Greenbushes is Albemarle, with a 51% stake. Albemarle also owns what will be the largest lithium refinery in Australia, now partly completed at Kemerton, also in the southwest, with an annual capacity set to be over 100,000 tonnes.

To complicate things, earlier this year Albemarle bid $3 a share, costing $6.6 billion, for Liontown, developer of another global-level lithium prospect called Kathleen Valley in central WA. Albemarle was set to turn the offer into an actual bid, when Rinehart and her Hancock group snapped up 19.9% of Liontown, forcing Albemarle to abandon the bid and Liontown to hurry a fundraising deal at $1.80 a share.

Hancock’s 19.9% stake cost an estimated $1.2 billion — but based on Liontown’s price on Monday of $1.49, she’s looking at a paper loss of around $500 million. As they say in the movies, forget it Gina, it’s Liontown.

The week before last, Rinehart and her company similarly revealed an 18.3% stake in Azure. Then Chris Ellison popped up with a 12.3% stake as well. Together, Rinehart and Ellison control nearly 30.6%. SQM has 19.9%. If anyone goes past the 19.9% stake, SQM, under its off-market offer, can buy shares in the market — but it will have to make changes to its terms with the market price at $3.98.

But remember Creasy owns the other 40% of Andover — and lifted his stake in Azure from 12% to 13.2% in October and will decide the fate of the bid. Everyone has to be nice to Creasy. The $1.6 billion offer from SQM effectively values the Andover deposit at more than $2.2 billion, meaning Creasy’s 40% is worth over $600 million (but more given a control premium), plus around $200 million if he sells his 13.2% stake at the $3.52 offer price.

Azure briefly reached $4.00 last week in the wake of the revelation of Hancock and Ellison’s interest. But the collapse in the Liontown share price also suggests that the battle for Azure is more than $600 million overvalued — more if the battle drives the value of the bids any higher. That means more paper losses for Hancock and Ellison — but SQM is sitting on big profits for its 19.9% which was bought earlier at much lower prices.

Indeed all this posturing and punting is ignoring the collapse in lithium prices in the past year from around $US89,000 ($AU139,900) a tonne a year ago to around $US24,000 ($AU37,726) a tonne. S&P Global says the price for spodumene, the hard rock concentrate shipped mostly to China (and to be the feedstock for WA’s refineries) has slumped 76% in the past year.

As we reported from China recently, the formerly booming market for electric vehicles there is currently soft and vehicle manufacturers are operating well below capacity. Price cuts were revealed last week by BYD, the world’s biggest producer of electrified vehicles, while Nio, its smaller Chinese manufacturer, is cutting 10% of its staff to control costs and boost margins, even though sales continue to rise. And there’s a growing oversupply from more lithium mines and refineries around the world.

Here, the government has been encouraging investment in lithium refining and Labor’s agenda extends to us becoming a renewable energy superpower, including potentially in areas like battery manufacturing. Even the Productivity Commission last week was formally told to jump on the team and come on in for the big win on interventionist industry policy. Ego and market misjudgments are already a characteristic of the lithium boom. Adding government handouts and industry intervention to the mix will only make things worse.