Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<a href="https://www.smartkarma.com/entities/1104" target="_blank" data-smartkarma-citation="entities:1104:1">Wesfarmers Ltd (WES AU)</a> has entered into a Process and Exclusivity (P&amp;E) Deed with <a href="https://www.smartkarma.com/entities/13917" target="_blank" data-smartkarma-citation="entities:13917:1">Kidman Resources (KDR AU)</a> to acquire 100% of Kidman for A$1.90/share (cash) by way of a Scheme of Arrangement. The price represents a 47.3% premium to last close and 44.4% over the 60-day VWAP.
Kidman's board supports the proposal. Under the P&amp;E, Wesfarmers will undertake exclusive due diligence - until no later than 29 May - during which, the two parties will negotiate a Scheme Implementation Agreement.
Shareholders with ~17% of Kidman shares, including EDM Trading and <a href="https://www.smartkarma.com/entities/15497" target="_blank" data-smartkarma-citation="entities:15497:1">Western Areas (WSA AU)</a>,  have indicated their support for the proposal and have entered into voting agreements with Wesfarmers.
Kidman's key asset is a 50% interest in the Mt. Holland lithium mine in Western Australia, which is jointly owned with Sociedad Quimica y Minera de Chile (SQM). SQM has indicated it supports Wesfarmers' proposal.
Wesfarmers' CEO Rob Scott said the acquisition (of Kidman oxide) "provides opportunity to invest in and develop a large-scale, long-life and high-grade lithium hydroxide project in WA", to capitalise on the demand for lithium from makers of electric vehicles. Kidman announced last year a lithium hydroxide off-take agreement with <a href="https://www.smartkarma.com/entities/20279" target="_blank" data-smartkarma-citation="entities:20279:1">Tesla Motors (TSLA US)</a>, and has signed additional off-take agreements with Mitsui and LG Chem late 2018.
Wesfarmers believes its share of the development costs to be ~A$600mn. This extends to the development of the Mt Holland mine and a 45,000-tonne p.a. lithium hydroxide plant in Kwinana (south of Perth). Subject to approvals, the construction of the plant is expected to begin next year, with production targeted for 2021-22.
This space is heating up - China's Tianqi Lithium’s 24,000 tonne/year refinery at Kwinana is in commissioning; while its 49% partner in the Greenbushes' lithium mine, <a href="https://www.smartkarma.com/entities/7678" target="_blank" data-smartkarma-citation="entities:7678:1">Albemarle Corp (ALB US)</a> is to develop its own plant at Kemerton near Bunbury (south of Perth), which is expected to produce up to 100,000 tonnes/year of lithium hydroxide monohydrate from five 20,000 tonnes/year process trains.
How does this affect (or tie-in with) Wesfarmers' <a href="https://www.smartkarma.com/entities/20374" target="_blank" data-smartkarma-citation="entities:20374:1">Lynas Corp Ltd (LYC AU)</a> bid? Scott added that Wesfarmers sees Kidman and Lynas as independent opportunities and "we will consider each separately". Certainly Kidman is an easier transaction than Lynas and it is understandable if viewed as a replacement deal to Lynas.
This is an indicative non-binding proposal, however, the support from 17% of shareholders and backing from SQM and Kidman's board indicate advanced discussions.
Nevertheless, a gross/annualised spread of 1.6%/5.2%, assuming late August completion, is punchy. Unless taking the view this fleshes out another suitor for Kidman. I'd be reluctant to chase this through terms.

Wesfarmers Ltd (WES AU) has entered into a Process and Exclusivity (P&amp;E) Deed with Kidman Resources (KDR AU) to acquire 100% of Kidman for A$1.90/share (cash) by way of a Scheme of Arrangement. The price represents a 47.3% premium to last close and 44.4% over the 60-day VWAP.
Kidman's board supports the proposal. Under the P&amp;E, Wesfarmers will undertake exclusive due diligence - until no later than 29 May - during which, the two parties will negotiate a Scheme Implementation Agreement.
Shareholders with ~17% of Kidman shares, including EDM Trading and Western Areas (WSA AU),  have indicated their support for the proposal and have entered into voting agreements with Wesfarmers.
Kidman's key asset is a 50% interest in the Mt. Holland lithium mine in Western Australia, which is jointly owned with Sociedad Quimica y Minera de Chile (SQM). SQM has indicated it supports Wesfarmers' proposal.
Wesfarmers' CEO Rob Scott said the acquisition (of Kidman oxide) "provides opportunity to invest in and develop a large-scale, long-life and high-grade lithium hydroxide project in WA", to capitalise on the demand for lithium from makers of electric vehicles. Kidman announced last year a lithium hydroxide off-take agreement with Tesla Motors (TSLA US), and has signed additional off-take agreements with Mitsui and LG Chem late 2018.
Wesfarmers believes its share of the development costs to be ~A$600mn. This extends to the development of the Mt Holland mine and a 45,000-tonne p.a. lithium hydroxide plant in Kwinana (south of Perth). Subject to approvals, the construction of the plant is expected to begin next year, with production targeted for 2021-22.
This space is heating up - China's Tianqi Lithium’s 24,000 tonne/year refinery at Kwinana is in commissioning; while its 49% partner in the Greenbushes' lithium mine, Albemarle Corp (ALB US) is to develop its own plant at Kemerton near Bunbury (south of Perth), which is expected to produce up to 100,000 tonnes/year of lithium hydroxide monohydrate from five 20,000 tonnes/year process trains.
How does this affect (or tie-in with) Wesfarmers' Lynas Corp Ltd (LYC AU) bid? Scott added that Wesfarmers sees Kidman and Lynas as independent opportunities and "we will consider each separately". Certainly Kidman is an easier transaction than Lynas and it is understandable if viewed as a replacement deal to Lynas.
This is an indicative non-binding proposal, however, the support from 17% of shareholders and backing from SQM and Kidman's board indicate advanced discussions.
Nevertheless, a gross/annualised spread of 1.6%/5.2%, assuming late August completion, is punchy. Unless taking the view this fleshes out another suitor for Kidman. I'd be reluctant to chase this through terms.

Wesfarmers Gets Hooked On Kidman's Lithium

Australia

Western Areas Ltd is an Australian-based nickel sulphide producer which owns the Forrestania Nickel Project, along with development projects in Canada and Finland.  The Company has two producing nickel mines, Flying Fox and Spotted Quoll.

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Wesfarmers Gets Hooked On Kidman's Lithium

Wesfarmers Ltd (WES AU) has entered into a Process and Exclusivity (P&E) Deed with Kidman Resources (KDR AU) to acquire 100% of Kidman for...

David Blennerhassett