Pilbara Minerals buying shares in SQM target Azure Minerals: sources

Despite the falling price of lithium, resources companies in the space remain in hot demand from suitors Picture: AFP/Mathieu Dupuis

Speculation is mounting that another party could be about to enter the fray for the $1.9bn Azure Minerals, with suggestions that Pilbara Minerals could be amassing shares in the company on Tuesday.

The price of Azure Minerals shares soared on Tuesday, gaining more than 4.5 per cent by midday, although trading volumes were not particularly large before closing at $4.04.

Some have pointed to Pilbara Minerals as the buyer of about two to three per cent.

Should its stake climb to 10 per cent, Pilbara Minerals could end up as the king maker in SQM’s takeover battle for the lithium company, in that if it sells to SQM, it could be the difference between SQM gaining over 50 per cent, which gives it control of the company, or not.

SQM has been weighing its options over whether to continue its pursuit for the lithium company after billionaires Gina Rinehart and Chris Ellison amassed major blocking stakes, but it will not make its next move until it can gain clearance from the Foreign Investment Review Board to proceed with the acquisition.

Chris Ellison, through his Mineral Resources, has gained 12.29 per cent and Gina Rinehart earlier bought 18.9 per cent.

Together, the pair have enough votes to prevent a scheme of arrangement vote getting up given it requires three quarters of shareholders to vote in favour of a transaction.

SQM has offered $3.52 per share for Azure Minerals or $3.50 per share for a takeover offer, but is not bound to launch a takeover bid as part of its agreement with the target.

The question is whether SQM now sells its controlling 19.9 per cent, with few sellers of shares on the register making it tough for it to get to more than 30 per cent in addition to its 19.9 per cent holding.

After SQM announced an agreed deal to buy the lithium company for $1.6bn, Mrs Rinehart raided the stock.

Mrs Rinehart secured 18.9 per cent, and her company Hancock Prospecting said in a statement it had achieved its strategic objective.

It came after a move to secure 19.9 per cent of Liontown Resources prompted US-based suitor Albemarle to abandon its $6.6bn buyout plans.

Shares were trading at $4.22 in Azure Minerals at 1.30pm AEDT.

The $10bn-plus lithium producing-Pilbara Minerals has more than $3bn of cash on its balance sheet and is speculated to have been poised to embark on a major acquisition, with top former investment banking operatives in its top ranks.

DataRoom understands it is not positioning itself to bid for Azure Minerals, with it being currently internally focused on operations.

However, some have questioned whether the company itself could be a target, as the land grab for lithium producers continues and Wesfarmers and Rio Tinto are said to be keen to involve themselves in industry acquisitions.

Lithium prices have fallen in the past three months after soaring highs on the bet of future use for batteries used in electric vehicles.

Last month, Pilbara boss Dale Henderson said he expected lithium prices to remain volatile in the short term, after a 31 per cent price plunge for its concentrate in the September quarter.

The company booked operating cash flow of $257.9m for the quarter on the back of the sale of 138,200 tonnes of concentrate in the period at an average unit operating cost — delivered to customers — of $1122 a tonne.

When Azure Minerals announced its agreement to a buyout by SQM, chief executive Tony Rovira emphasised the cost and risk of delivering Azure Mineral’s large and highly lucrative Andover lithium project, particularly in the context of an uncertain broader economic outlook.

Andover, strategically located only 50km from Port Hedland, is yet to identify a mineral resource, but drilling results so far suggest it will produce a large amount of high quality lithium after a Final Investment Decision is made in the coming years.

Western Australia prospector Mark Creasy is the joint venture partner on the Andover project and his wife, Annie Guo, is a Azure Minerals director.

It is understood that he is yet to determine how to vote his 13.21 per cent interest in Azure Minerals over the SQM offer.

Mr Creasy owns 40 per cent of the underlying Andover lithium asset that Azure Minerals is developing.