SQM set to propose bullish Azure Minerals offer

Billionaire Gina Rinehart is amassing stakes in lithium groups across the market, including Azure Minerals. Picture: Philip Gostelow/ Bloomberg

If there’s one thing American lithium giants are learning in the Australian market, it’s that billionaires are not predictable when it comes to take over opportunities.

And it’s behind the latest chatter that SQM is set to put forward a knock-out offer for Azure Minerals.

Azure Minerals remains in a trading halt after receiving a buyout proposal, and DataRoom can confirm that the suitor is its 19.9 per cent shareholder SQM.

The understanding is that an agreement over price is yet to be reached, but all going well, a deal will be agreed and announced by Friday.

The logic behind offering a big price is a clean deal that is accepted quickly and difficult for an interloper to frustrate by amassing shares.

If suggestions are right that the offer will be highly compelling, you might see the Chilean lithium powerhouse turn up with a proposal in the order of about $3.50 per share.

If that’s the case, market experts believe that’s certaintly a knock out offer for a company yet to produce lithium, but perhaps they are not accounting for the growing urgency by SQM to buy assets outside its home soil on the back of new laws that would see the government take control of a sizeable stake of its flagship project.

Shares in Azure Minerals last traded at $2.44.

Broadly speaking, across the mining sector right now, buyout deals are getting done at premiums to about 35 per cent premiums to their last closing price.

But if SQM’s offer is a knock-out one, as some suggest, it’s likely to be over 40 per cent, so that could put it around $3.40 per share at the very least, not factoring in the takeover premium already baked into its share price.

After Liontown battered away the world’s largest lithium producer Albemarle, it came forward with an offer that was a 36 per cent premium to its initial $2.20 per share offer in October last year.

It was a 97 per cent improvement on Liontown’s share price the last trading day before Albemarle’s interest was disclosed on March 28.

Yet Albemarle walked away after billionaire Gina Rinehart amassed a 19 per cent stake, buying shares at the same price.

Apparently, Albemarle and Mrs Rinehart held no discussions before the former walked away from the proposal.

But the thinking is that it was scared off by Mrs Rinehart after challenges working together with billionaire Chris Ellison on ventures elsewhere.

For that reason, it’s unclear whether Mrs Rinehart wanted to work with Albemarle or prevent the deal all together.

Yet one thing is evident, and that is the demand for Australia’s lithium is not abating despite the recent fall in the commodity price, as the race is on to amass a large supply of the commodity used for batteries ahead of the anticipated transition to electric vehicles.

Mr Ellison has been busy building stakes in lithium groups around the market so, like Mrs Rinehart, he’s also a threat.

Both are understood to hold shares in Azure Minerals, as does Western Australia prospector Mark Creasy with a 13.21 per cent holding, the joint venture partner to Azure’s flagship Andover lithium project in Western Australia.

Some believe much of the deal hinges on whether Mr Creasy accepts and would be a strong negotiator.

It’s also worth noting that on the Azure Minerals register with a 10.8 per cent holding is Wilhelm Zours, the same German investor that stood between Genesis Minerals buying Dacian Gold with his blocking stake.

A sale by the investor of his holding could be one way that Mrs Rinehart or Mr Ellison could buy a seat at the table over Azure Minerals and it would be no surprise if there’s phone calls happening to test their appetite.

A knock-out offer by SQM, which in July came forward with a $2.31 per share offer that valued the group at $901m but was rejected, may save a lot of pain and panic for both the bidder and suitor, but also the advisers, desperately hoping all the early calls and late nights will this time have a more productive outcome.

Working for SQM is Macquarie Capital while Azure Minerals is advised by Barrenjoey.

DataRoom understands that SQM had been making approaches to Azure Minerals since August when the first $2.31 per share offer in July was disclosed.