Ann: Kidman and SQM to form Mt Holland JV, page-217

Quite a few negative comments here, but what do you think they could have done better given they are seeking to enter the lithium market as a greenfields hard rock play where the window of opportunity for enterring that market is around 3 years from now (with an 18 month mine development plan).  That is after 2020, lithium supply to meet demand from there is likely to come from existing brownfields players and any new greenfield project been in production by 2020  - that is beyond 2020 it would be more difficult for new greenfields projects to come onstream IMO and as been stated in other threads not all potential lithium projects now will be in production so some will miss out (and this deal means it won't be KDR missing the entrance party btw).   To be fair to KDR they are an upstart in effect, and Australian mines are in there to produce 6% concentrate product.  So that is what KDR has sold for, get the development capital to fund its share of the concentrate, keep its rights to gold, and KDR moves to production and KDR can start making some profit.

Now, the 2nd part of the equation is that SQM are likely to be the entity that refines the concentrate to lithium carbonate and/or hydroxide, and that is generally expected given Australian concentrate sales are generally to China where product is refined to carbonate or hydroxide (that is what current lithium concentrate producers do in Australia, albeit Greenbushes is starting to branch out and do some further processing itself).  I suspect that SQM will nonetheless do the refining in Australia, and to that end I note even Greenbushes is now  building such units in WA for its mine (after so so so many years of selling all its concentrate to China but now will do some processing in Oz where profits will be quite large but still sell the bulk of its concentrate to China).

Now returning to KDR IMO the buy in payment (but did they have another taker that could meet the lithium devlopment market entrance cycle) could have been larger but it will be a producing mine now for an upstart entity - they also have the option to participate in the refining to carbonate and hydroxide but the costs are quite high to participate there when building that type of facilities so probably the best KDR could do. I also suspect KDR will use the project as the entrant to the market and then for any its other potential lithium mines  not covered by the deal in future develop those in a vertical integration concept given they gain experience there and attain profit from Mt Holland so are not at the whim of the banks in future developments.  SQM brings to the JV significant experience and capital, and market intelligence that should benefit KDR shareholders (maybe not today as market hasn't liked the announcement but in future when the market wakes up and understands just what KDR has done and the long term benefits its association with SQM brings has brought to  KDR when it can go alone for any future development) it may have in mind.

Put the deal to market penetration strategy for greenfields entity. For the record I would suspect if other greenfields based lithium explorer plays, who don't operate existing mines and who intend been new entrants into the market,  find something they will either sell the project outright or enter something similar to what KDR has done. Others holding those stocks should understand that KDR has probably done a good deal here, albeit the buy in price could have been slightly higher (but that assumes other takers and/or KDR had access to fund the mine on its own in the bargaining framework and that is a big if).

All IMO