JPMorgan Upgrade KDR. Price Target 3.20

Kidman Resources Ltd. Overweight
KDR.AX, KDR AU
KDR signs first hydroxide offtake with Tesla ▲
Price: A$2.22
Price Target: A$3.20
Previous: A$2.80
. Morgan estimates.
Company Data
Shares O/S (mn) 398
Market Cap (A$ mn) 882.66
Market Cap ($ mn) 663.41
Price (A$) 2.22
Date Of Price 17-May-18

Price Target (A$) 3.20
Price Target End Date 31-Dec-18

KDR has announced that it has signed a binding lithium hydroxide offtake
agreement with US-based Tesla Motors*, one of the world’s leading EV
manufacturers. The 3-year fixed price contract has take-or-pay conditions
and two 3-year options to extend the offtake agreement. We believe this
contract will cover around 5ktpa of lithium hydroxide, less than 25% of
KDR's attributable production, at a fixed price close to the current contract
price of around US$15,000/t. This announcement is a strong endorsement
for the Mt. Holland mine and refinery project and highlights the strategic
value of ex-China supply of battery-grade lithium products. The next
catalysts for KDR will be i) further offtake announcements through the
course of this year, ii) completion of the mine and refinery feasibility
studies in the second half and iii) a final investment decision by the end of
the year. We upgrade our PT by 15% to A$3.20. Retain Overweight.
 Tesla deal first of multiple offtakes: We believe this Tesla offtake
agreement will account for around 5ktpa of KDR’s 22ktpa of lithium
hydroxide production, meaning KDR still has 75% of annual volumes
available for offtake. Our assumed US$15,000/t fixed price would
deliver strong outcomes for both parties; Tesla locks in a portion of its
raw material costs while KDR has security of revenue and cash margins
when looking to secure funding for its share of capex (JPMe A$500m).
 KDR has funding flexibility: We feel the nature of this deal improves
KDR’s proposition to debt financiers: a low-risk, high-margin integrated
lithium business based in Australia, in joint venture with a global major
in SQM. We assume A$350m debt & A$150m equity (at A$2.20/sh) to
fund Mt. Holland, but offtake prepayments/equity stakes are also options.
 A$3.20 price target (from A$2.80) Phase I de-risked: Our PT is set at
1x NPV, +15% due to i) a fixed price in the first 3 years and ii) less
dilution from an equity raising. Downside risks: poor study outcomes.