Sometimes the fourth time is a charm. Lithium-mining giant
Albemarle
looks like it’s close to acquiring Australian lithium miner
Liontown Resources.
The deal will expand Albemarle’s lithium production to help meet the world’s growing appetite for electric vehicles.
Sunday, Albemarle (ticker: ALB) announced a “best and final” nonbinding proposal to acquire Liontown (LTR.Australia) for 3 Australian dollars in cash a share, or about $1.91. The deal values the development-stage miner at about 6.6 billion Australian dollars, or about $4.3 billion.
Lionstown shares jumped about 9% in overseas trading Monday to $2.85 from $2.62. The stock has been trading above the $2.50 Albermarle bid for months. Shares are at $2.78 in Tuesday trading. Albemarle stock is down 1.1% in premarket trading Tuesday, while
S&P 500
and
Nasdaq Composite
futures are down 0.1% and 0.2%, respectively.
Lionstown stock is below the new proposed deal price. There are a couple of reasons why. The company still has to agree to be acquired. The deal would also close early in 2024 if approved by the company and regulators. It will take a while for investors to get cash for their shares.
Liontown rejected prior bids at 2.20, 2.35, and 2.50 Australian dollars a share. The last bid before the latest bid came at the end of March.
The “waiting game pays off,” wrote Citi analyst Kate McCutcheon in a Sunday report. She rated Liontown shares at Sell heading into the latest bid. Shares were above her price target of 2.50 Australian dollars. She upgraded the stock to Hold while raising her price target to 3 Australian dollars.
“We see the offer as bullish for lithium, signaling that the largest producer is keen to secure more supply at a premium, or has a bullish view on long-term price, with low jurisdictional risk,” added McCutcheon.
Albemarle management said Tuesday morning that the deal will earn roughly two times the company’s cost of capital with lithium prices at roughly $28,000 per metric ton. Earning more money than it costs to grow is a way to generate shareholder value. Benchmark lithium prices today are at about $28,000 a metric ton, but they averaged roughly $55,000 a metric ton over the past year.
Australia is considered a low-risk place to mine—one reason Liontown is an attractive asset. Another is supply agreements with
Ford Motor
(F),
Tesla
(TSLA), and lithium-ion
LG Energy Solution
(373220.Korea). Automakers and battery producers are keen to lock up lithium supply to ensure enough batteries to power electric vehicles.
So far in 2023, sales of all battery-electric vehicles are up roughly 25% year over year in China, 45% in Europe and almost 50% in the U.S. BEV sales now account for roughly 15% of total light vehicle sales in developed markets around the globe.
Albemarle has the capacity to produce roughly 225,000 metric tons of lithium raw material a year and plans to roughly triple that by 2030. The Liontown project in Kathleen Valley, in Perth, Western Australia, should be able to produce about 35,000 metric tons of lithium raw materials a year. How much the second project, in Buldania, in Eastern Goldfields Province of Western Australia, will be able to produce isn’t yet clear.
Coming into Tuesday’s trading, Albemarle shares are down about 8% year to date, slipping as lithium prices have dropped to $28,000 per metric ton from about $70,000. Commodity-related stocks have a tough time overcoming lower commodity prices.
Write to Al Root at [email protected]
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