Gina Rinehart/Liontown: dabble trouble as Albemarle quits bid

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Gina Rinehart sees her Hancock Prospecting as a partner of other businesses. Others might prefer terms like dabbler. Rinehart’s privately held iron ore miner has ventured into beef and natural gas exploration, and most recently lithium. She has accumulated a 19.9 per cent stake in locally listed Liontown Resources, just shy of that requiring a bid.

Other shareholders will not thank her. On Monday, US lithium miner Albemarle abandoned its A$6.6bn ($4.2bn) deal to buy Liontown, a miner of the lithium-rich mineral spodumene. At the A$3.00 share offer price, Liontown was worth the equivalent of A$1,940 a tonne of spodumene. Its local lithium peers trade about a fifth lower, says Macquarie.

Hancock makes its money from iron ore and not much else. True, mining spodumene could use the logistics expertise that direct shipping iron ore can bring. But turning spodumene into lithium concentrates for electric vehicle batteries also requires understanding of processing and refining.

Here Albemarle has form and needs more lithium for its Kemerton lithium plant in Western Australia. In May, the US group promised to double output there. Rinehart’s team would have little but capital to offer.

Liontown will need that too, around A$450mn by the end of 2023. It must consider Plan B, which was really just Plan A, to finance the annual production of 500,000 tonnes of spodumene beginning from mid-2024. It has lined up future customers such as battery makers LG and EV producers Tesla and Ford.

About half of funding should come from both banks and state agencies such as Export Finance Australia. But without near-term revenues, some A$225mn of equity will be needed, reckon analysts at Wilsons.

Still, Liontown’s Kathleen Valley asset has the fifth-largest lithium resource in Australia. And an equity raising should not amount to much more than 4 per cent of Liontown’s market value. That offers an opportunity for long-term believers in lithium, less so for dilettantes.

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