Lithium prospects get a charge from giant $1.6bn MinRes deal

The $1.6 billion deal for a 50 per cent stake in Mineral ­Resources’ Wodgina project underscores a shift in the lithium industry.

Mineral Resources chief executive Chris Ellison. Picture: Colin Murty.

A landmark $US1.15 billion ($1.6bn) deal covering Mineral ­Resources’ Wodgina lithium project has underscored the global power shift taking place in the lithium industry.

US lithium heavyweight Albemarle has agreed to acquire a 50 per cent stake in Wodgina from the Chris Ellison-led MinRes, crystallising one of the best deals to come out of the resources sector in the past decade and cementing Western Australia’s place as a new lithium powerhouse.

The deal saw shares in MinRes soar by $3.31, or 26.6 per cent, to $15.76, and inspired big increases in the share prices of other WA lithium producers such as Pilbara Minerals, Galaxy Resources, ­Tawana Resources, Altura Mining and Neometals.

The news also overshadowed both the confirmation that MinRes’s 2019 earnings would fall well short of analyst expectations and an overwhelming rejection of the company’s remuneration report for a third straight year.

The Albemarle deal comes less than 2½ years after MinRes purchased Wodgina from Global ­Advanced Metals. The terms of that transaction have never been revealed but industry speculation has long estimated the price was in the tens of millions of dollars.

Albemarle’s willingness to ­invest in the Pilbara comes as it slows investment in expanding its production in South America, which has historically been the world’s major source of lithium.

The lithium from WA’s hard rock mines has a cost advantage over the lithium from South America’s brine fields when it comes to the production of lithium hydroxide, the preferred ­material for use in the rapidly growing battery market.

The new 50-50 joint venture between Albemarle and MinRes plans to invest in the construction of a lithium hydroxide plant in the Pilbara, which would process spodumene concentrate from Wodgina into more valuable ­hydroxide material for the battery industry. Such a facility would probably cost about $800 million.

Mr Ellison said the new partners planned to move quickly on the ­hydroxide plant, but noted that they would need greater certainty around the royalty regime for the state’s lithium industry.

“We’ve got to work through with the government and we’ve got to get a landing on what the royalties look like for spodumene,” Mr Ellison said.

“That’s living in a grey zone at the moment, so it’s important we get that sorted out and we need to get the right status around the project so we get the right protections for the amount of money we’re going to invest.”

Amid the excitement around the deal, MinRes also announced it expected to generate earnings before interest, taxation, deprec­iation and amortisation this year of between $280m and $320m. That’s down from $507m last ­financial year and well below the $500m consensus estimate among analysts.

Mr Ellison attributed the gap to the end of the sale of direct shipping ore from Wodgina, weak iron ore prices and lower output from its iron ore operations.

Yesterday’s annual meeting of MinRes saw the company receive a third consecutive strike against its remuneration report, with a 63.6 per cent vote against.

An angry Mr Ellison slammed the proxy advisers and investors who voted against the report as “wrong” and “dumb”, noting that the same investors who voted against the report continued to vote to keep the company’s management and board.

“If they don’t want the responsibility of managing the portfolio, get off our register,” he said.

MinRes chairman Peter Wade said he was proud of the company’s record of performance and shareholder returns.

“Have a look at what’s just happened,” he said. “We’ve now organised a sale of 50 per cent of a business, $1.6bn coming into the company. I think he (Mr Ellison) is worth every bloody penny.”