It is indeed true that Gina Rinehart has built a 20% position in Liontown Resources (ASX: LTR) and she’s long been known as a very canny strategic player in the metals business. But that’s not to say that she – or anyone else – is always right in this space. It’s equally possible to believe that Albemarle (NYSE: ALB) has had a lucky escape here. Note that one of those is a truth, the other a possible belief.
But the background here is that Albemarle has been trying, for about a year, to take over Liontown. One is a large and producing lithium miner (ALB) and the other (LTR) the owner of a large but as yet untapped lithium reserve. The idea of one miner taking over another isn’t that odd. Further, the idea of one operating and cashflow (even profitable!) positive miner taking over an as yet untapped project isn’t just not odd it’s entirely normal. Mining can work just like development pharma, or tech start ups, the little companies do all the risky exploration work to be bought out by the biggies when they prove to be right.
Gina Rinehart intervenes
So, what went wrong here? The Rinehart empire has been built off the back of the iron ore discoveries of Gina’s father out in the Pilbara. She’s then been a very canny manager of that fortune. She’s also looking to redeploy some of it into the battery critical minerals space – so, she bought 20% of Liontown (19.9%, just shy of requiring to bid). That crippled the Albemarle bid (which requires 75% acceptance to be worthwhile). This then led to an emergency rights issue from LTR as they’d been waiting a year to see what happened and when the bid didn’t go through they desperately needed cash and right now.
Well, OK, takeover battle, one buyer frustrated by another, this is again nothing all that out of the ordinary. But there’s more to it than this. For there is that other view, that Albemarle has had a lucky escape here. For it is possible to think that the lithium price has peaked. On the obvious ground that it has as we’ve mentioned before – the lithium price is down 75% in fact. The next question is how much further down is it going to go?
Which way is the lithium price going to go?
Views there are mixed. Some say the lithium price has much further down to go: “JPMorgan predicts spodumene prices will average $US1950 a tonne next year and $US1800 a tonne the following year before sliding to $US1551 a tonne in 2027 under the weight of excess lithium supply. “ I’m a lot more bearish than that – I think the old days of $700 and $800 are entirely likely to return but that does make me a very gloomy outlier. But the point about the Albemarle bid is that it valued that as yet unmined lithium inside Liontown at $1,900 or so. And they were willing to pay cash for it too – locking in that acquisition price for all time.
So, did Albermarle have a lucky escape here?
Which is where we can gain that view about a lucky escape from. Back when they first started this lithium – by the same price index – was up at $6,000 to $8,000. Buying 6 for 1.9 is pretty good, buying 1.5 for 1.9 doesn’t look so sensible, thus the escape. At which point we might also point out that Ms. Rinehart’s carefully nurtured fortune has done very well from iron ore indeed – and not so well from the varied diversifications made away from that product.
Of course, the current price of lithium isn’t quite the point. It’s what will the price be during the run of life of the mine. There current market estimates are rather higher. Mine is still lower – which makes me the iconoclast here on lithium pricing and we’ll have to see who is right in a few years’ time. In my defence I’d call into evidence all those finds that are being made at Andover (also in the Pilbara). I could even quote one of my favourite current numbers – 2,850,000 billion tonnes. That’s the amount of lithium we have on the planet. According to Tesla we need about 20 million tonnes of that for batteries (note the b in the first number, the m in the second).
But it is still possible to see this Albemarle and Liontown story my way. Sure, Gina Rinehart crashed the party and that 19.9% stake means Albermarle’s bid was never going to go through. Which is lucky for Albermarle shareholders because it meant they didn’t end up buying millions of tonnes of lithium at the top of the market. Perhaps they should send Gina a nice floral arrangement in thanks?
