Chris Ellison has lifted the lid on Mineral Resources’ plans to aggressively expand its foothold in WA’s lithium industry
He says SQM will struggle to complete a takeover of Andover owner Azure Minerals, with a number of large players clogging the share register
And carmakers will be best placed to build downstream capacity with a lack of government support hurting the economics of building lithium hydroxide plants in WA
Chris Ellison denied there were any links between his lithium, iron ore and mining services giant Minerals Resources (ASX:MIN) and Gina Rinehart’s Hancock Prospecting as he lifted the lid on an aggressive plan to grip hold of the best emerging resources in WA’s dominant lithium scene.
After a recent buying spree Hancock holds 18.9% of the 60% of the Andover discovery in Western Australia’s Pilbara, with MinRes sitting at 13.6%. That has made Chilean giant SQM’s hopes of acquiring the explorer, in Ellison’s words, ‘dead in the water’.
A host of major players hold significant stakes, with SQM sitting at a touch under 20%. Billionaire prospector Mark Creasy owns the other 40% of Andover and 13.2% of Azure, while German investor Wilhelm Zours and his Delphi Group holds more than 10% as well.
“If you have a look on the share register, you’ll find it’s probably about half a dozen different organisations that actually own almost all of Azure now and I’m not sure if any of those are willing sellers,” Ellison said in a media conference after the miner’s AGM in Perth today.
“A couple of them are, I would imagine, but there’s probably three or four in there that are buyers.
“It’s highly likely I would think from where I’m sitting (the SQM bid) looks like it’s dead in the water.”
Hancock is also a big shareholder in Delta Lithium (ASXLI), owner of the Mt Ida project — a company where MinRes holds the top stake with Ellison installing himself over David Flanagan as chairman in a move he said was down to his concerns over its plan to mine DSO product at its Mt Ida deposit.
MinRes’ plunge into Azure saw it buy shares in the one-time micro cap, now trading at over $4, well above the $3.52 per share offered by SQM in a scheme bid pricing the whole company at $1.63 billion.
The Chilean lithium bull, the world’s second biggest producer, had thought a secondary off-market takeover off of $3.50 a share was going to be enough to avoid a repeat of Liontown Resources’ (ASX:LTR) botched $6.6 billion takeover by Albemarle, which was scuppered after Rinehart paid $1.3 billion for a blocking stake.
Ellison says MinRes’ motivation buying into Azure was because he loved the orebody, saying he was comfortable having a small stake in a mine that could pump out lithium for electric vehicles for decades.
And he’d be happy to hold a minority stake — and probably the mining services contract — if a deal could be sorted out around the project’s eventual ownership.
“We’re not acting in concert with Hancock or anyone, we’re on our own on this, we always are,” he said.
“What do I want to do? I like Azure, I like the deposit and I like what they’ve got in the ground.
“Our expectation is that it’s going to keep growing and that it’s going to be a Tier-1 orebody. So I mean, I’d be very happy to end up with 12-15% of the orebody.
“We don’t look at it from a stock price point of view, we look at what we think we can extract in value out of it over, you know, 20-30 years.”
Buyers could also obtain a major stake in the mine through Creasy’s 40% share, currently valued at well over $1b.
But Ellison said that would come down to timing and price, saying there were no indications Creasy, who made his fortune with investments in the Bronzewing, Jundee and Nova mines in WA’s Goldfields, was keen to sell up.
Junior gambit
It’s not MinRes’ only gambit on junior lithium players.
In fact, it’s easier to list the spodumene resources in which Ellison plays no role — Pilbara Minerals’ (ASXLS) Pilgangoora mine, the Greenbushes mine held by the triumvirate of IGO-Tianqi-Albemarle, Allkem’s (ASX:AKE) Mt Cattlin mine, SQM and Wesfarmers’ (ASX:WES) Mt Holland and the aforementioned Liontown Resources’ Kathleen Valley.
But we’ll list those for you anyway. MinRes operates the 50-50 Mt Marion JV with Ganfeng and Wodgina JV with Albemarle and took the keys to the Bald Hill Lithium Mine on November 1. Those make it, on MinRes’ reckoning, the second largest purveyor of spodumene concentrate in the world’s largest lithium supply market behind Albemarle.
It also has a near 10% share in Global Lithium Resources (ASX:GL1), which has over 50Mt in resources at its Marble Bar and Manna projects, close to 20% of the pre-resource Wildcat Resources (ASX:WC8) (owner of the hot Tabba Tabba discovery), those stakes in Azure and Delta, a stake in Bill Beament’s Develop (ASXVP) and a host of deals to secure lithium rights on ground held by gold miners such as a staged $60 million commodity rights deal signed with Norseman gold mine owner Pantoro (ASXNR) last week.
On top of that Ellison confirmed to shareholders the company was interested in diversifying into South American brine operations.
That is, once it’s completed a major investment splurge including pre-stripping at the Mt Marion and Wodgina mines, the development of a third processing train at Wodgina, a potential doubling of Bald Hill’s capacity to 300,000tpa and, most significantly, the construction of the 35Mtpa Onslow Iron project in the Pilbara.
Ellison’s lithium strategy is, the way he puts it, simple. He wants to control the rock.
“What I intend to do down in the Goldfields, we’ve got Bald Hill operating now but I intend to have a third mill down there within the next couple of years,” he said.
“And I’d like to think that we could toll treat a lot of that dirt and we’d probably be looking at trying to do something very similar up in the Pilbara.”
Control the rock
That has factored into studies on a downstream or midstream processing expansion, where a study originally due in September has been delayed trying to factor in what support the company would get from the WA and Federal Government to head downstream into salt or lithium hydroxide production.
At the moment he said converting spodumene concentrate, which grades 6% lithium or lower, into a higher value product that can be placed in a battery only delivered single digit returns on capital.
Without more aggressive support from Canberra, Ellison said it would not be viable to go downstream onshore.
“Part of the hold-up on that is trying to understand what the government can and will make available. But I mean, it’s all but there to a point where we know it’s not affordable to do it in WA and I’ve been really passionate about wanting to do that because it’s right in our own backyard,” he said.
“It’s WA dirt, it’s the probably the most ethical product on the planet because of our environmental standards, our human rights, all of those things that we have in WA we are the most socially acceptable region I know of in the world for mining.
“So we’ve got all the ingredients and to have a plant sitting here for the next 40 or 50 years would be ideal but from a capital spend point of view getting a built is too much.”
He said the company could get 30% plus rates of return in other areas like iron ore and gas. Ellison sees the carmakers like Volkswagen and Mercedes having to come to the table to do deals to convert MinRes’ product with hydroxide plants built from their own balance sheets.
MinRes pulled out of a deal earlier this year that would have seen it spend around $1 billion to claim half-stakes in two of Albemarle’s refineries in China.
Ellison yesterday reiterated his call that operating in China was too expensive for foreign companies, saying MinRes was getting better margins toll treating at under-utilised plants over there than owning its own downstream.
DLI Price at posting:
47.0¢ Sentiment: Buy Disclosure: Held
LI), owner of the Mt Ida project — a company where MinRes holds the top stake with Ellison installing himself over David Flanagan as chairman in a move he said was down to his concerns over its plan to mine DSO product at its Mt Ida deposit.
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