Liontown land acreage may tempt BHP deal

Liontown Resources chairman Tim Goyder.

Lithium operator Liontown may be fancied by some of the biggest names in mining, including Albemarle and billionaire Gina Rinehart, but some have suggested that also showing interest in the company is BHP.

Australia’s largest miner has sent a message to the market that lithium is not a commodity it is interested in gaining exposure to right now, but the reason Liontown is understood to have piqued its interest is because it backs on to its Mt Keith project 85km south of Wiluna in Western Australia.

Mt Keith is one of the world’s largest low-grade open pit nickel mines. The tenements stretch out to the border of Liontown’s Kathleen Valley lithium project.

It is understood BHP has been carrying out work on Liontown, and it has history in buying strategic assets adjoining its own operations, as was the case with its recent acquisition of Oz Minerals in relation to its South Australian copper operations.

But most believe a BHP bid for the lithium miner would be highly unlikely.

Yet what may not be out of the question is a joint venture deal with Liontown where BHP can buy additional land to bolster its nickel reserves.

BHP’s management team think long term with respect to acquisitions, but any acquisition of Liontown would likely cost the buyer about $9bn – an enormous price just to boost the prospects of its nickel operations.

The $6bn Liontown has attracted high-profile suitors, with suggestions that the mining interests of Gina Rinehart’s Hancock Prospecting is among them.

Another reason why BHP would be unlikely to buy Liontown is that it likes commodities with good cost structures, with the future of lithium uncertain, and if it was to change its strategy and become an investor in the lithium sector it would look at moving into the space in a larger way.

Liontown earlier this year rebuffed the world’s largest lithium producer, US-based Albemarle, which put forward a $2.50-a-share proposal to buy the company, taking its value to $5.5bn. Shares in Liontown closed at $2.71 on Tuesday.

Liontown expects to start direct shipping ore, which will release some early cashflow, from Kathleen Valley by the end of the year, bringing in $150m from the export of between 250,000 and 300,000 tonnes.

The initial cost of Kathleen Valley is $895m and will generate cashflow next year when production starts.

Estimates are the lucrative project could make somewhere between $2bn and $3bn in earnings before interest, tax, depreciation and amortisation from year one once it is fully commissioned and processing.

On its website, Liontown says 145 million electric vehicles will have taken to the road by 2030 and it is producing the resources needed to power the vehicles.

It will be one of the world’s largest lithium mines, supplying 500,000 tonnes of 6 per cent lithium oxide concentrate per year when it comes on stream in 2024.