Kidman takeover still playing

Wesfarmers’ takeover of Kidman is a step closer, even though a flagship project will cost $300m more than first thought.

Wesfarmers CEO Rob Scott. Picture: Colin Murty

Wesfarmers has taken another step towards completing its $776 million takeover of lithium play Kidman Resources, even after it found Kidman’s flagship Mt Holland project would cost $300m more to develop than first thought.

The two companies yesterday confirmed they had entered into a scheme implementation deed, paving the way for Wesfarmers to finalise its $1.90 per share offer for Kidman. The offer price is unchanged from that flagged by the duo when they announced the proposed deal earlier this month.

The progress came despite further signs emerging that lithium prices are continuing to weaken, with Wesfarmers’ future joint venture partner in Mt Holland — Chilean lithium heavyweight SQM — warning of a sharp fall in prices over the next six months.

While Wesfarmers said due diligence in the past few weeks had confirmed its view that ­acquiring Kidman “provides an attractive opportunity to invest in and develop a large-scale, long-life and high-grade” lithium project, it said its expected capital cost for Mt Holland had increased after it developed its own plan for the project.

A pre-feasibility study completed by Kidman and SQM late last year estimated that Mt Holland would cost $US737m ($1.07 billion) to build. But Wesfarmers said that after adjustments in the scope of the project and increased spending to improve the efficiency of the processing plant, it expected its share of the capital costs to come in at a $700m. That suggests a total capital cost for the whole project of $1.4bn. Wesfarmers chief executive Rob Scott said there had been significant progress towards the ­acquisition.

“This is an important milestone in advancing a transaction that provides Wesfarmers with an attractive investment and delivers Kidman shareholders with a compelling premium and certain cash return,” Mr Scott said.

The company also announced it had entered a commitment deed with SQM, setting out tweaks to the joint-venture agreement for if and when it completes the Kidman acquisition. As part of the agreement, SQM has agreed not to enter into any discussions with any party proposing an alternative offer for Kidman. The progress makes it increasingly unlikely that a third party will enter with a rival bid for Kidman.

SQM, one of the world’s biggest lithium producers, yesterday reported weaker earnings for the March quarter, blaming the fall in part on lower margins in its lithium division, and warned of further price falls ahead as new supply entered the market.

The company’s average lithium price in the most recent quarter was $US14,600 a tonne, but it said it expects that to fall by up to a quarter even as demand continues to grow.

“We believe that the new supply entering the market this year will continue to have an impact on pricing, and that our average price could decrease during the second half of this year to an average of $US11,000-$US12,000 per metric tonne,” the company said.

SQM chief executive Ricardo Ramos, however, was more positive about the looming entry of Wesfarmers into Mt Holland.

“We believe their experience and capabilities related to chemical processing, and their significant local infrastructure in Australia will be an important asset,” Mr Ramos said.