Martin Donohue finalised the $776 million sale of the company he founded this week, loaded up his ute with the last of the paperwork from his Melbourne office, and headed for the farm.
He arrived a happy man at the end of what he sees as a near 25-year road to redemption after making “stupid mistakes” in his 20s.
A farmer at heart, Donohue has put his early stockbroking shame behind him to make a lot of money out of lithium in a whirlwind couple of years since Kidman Resources discovered a huge deposit in Western Australia.
Kidman Resources founder Martin Donohue down on one of his two farming properties in Victoria. Unknown
Bumps in the road included a Supreme Court case where Marindi Metals claimed it had a binding agreement to acquire the lithium rights for the Kidman assets near Southern Cross and a separate court battle withtwo parties who argued Kidman should forfeit its 13 tenements.
Donohue also chose to steer clear of any involvement with China for reasons he’s ready to explain.
Donohue became Kidman chief executive in October 2014 when the company’s market capitalisation was $8.9 million. It raised $36 million in bits and pieces over the next few years before the $1.90-a-share offer from Wesfarmers in May that valued it at $776 million.
The takeover delivered Donohue almost $10 million but he says that is secondary to the peace of mind that has come with creating a lithium business he expects to flourish for decades despite the recent setbacks in the sector.
“I’m not so fussed about the money, I’m really not. I’m happy. I’m not going to be a guy driving around in a Ferrari because I’ve had a bit of a windfall out of Kidman,” he says.
“I’m driving around in my ute and I’m going to be hanging out at the farm.”
Donohue broke his silence on the Wesfarmers deal and the Kidman journey in an exclusive interview withAFR Weekend, revealing how he applied a farming philosophy to lithium and how badly he wanted to make his four children aged five to 16 proud of him.
He’s also warning of more pain ahead in the lithium sector until companies work out that mining and producing concentrate isn’t enough and they have to get further down the supply chain.
“You have to be integrated, that is something SQM drummed into us. And until that washes through the lithium sector it still has some hard yards in front of it,” he says.
“The impact at the refinery level of the particle size of the concentrate being produced is the biggest challenge facing the sector at the minute. If they resolve it, wonderful. If they don’t, we see further hard times.”
Donohue was adamant from the start that Kidman wanted to be involved in producing either lithium hydroxide or carbonate despite the complexities and upfront costs.
“That goes back to my farming background. It is one thing to own a sheep farm or cattle farm, but if you’re downstream as well and own the abattoir, the vertical integration makes a lot more sense,” he says.
“And I got sick of Australian mining companies just treating WA as a quarry and just shipping off to China and watching China’s economy grow. So there was a bit of a patriotic streak in me thinking ‘well, this is a great time to actually add value domestically’.”
Battery making hub
WA is now on track to have three lithium hydroxide plants, with Wesfarmers and its balance sheet stepping in for Kidman alongside SQM in building one at Kwinana south of Perth.
It will be almost next door to another about to enter production built by China’s Tianqi, and less than 200 kilometres from a third being built by Albemarle in the state’s south-west.
Donohue says having three refineries in close proximity underpinned by very big ore bodies raises the tantalising prospect of big players going even further downstream and turning WA into a battery making hub for electric vehicles.
That isn’t as far fetched as sceptics might think when you consider that it was only 2016 when Kidman started fielding strong interest from local and offshore companies in the lithium rights to what was then its Mt Holland gold project.
The huge discovery
Donohue had bought the ground from receivers for Convergent Minerals with gold in mind but decided Kidman better investigate the lithium potential on the back of the keen interest.
The company was short of cash for any exploration work but in the end it didn’t even need to drill the discovery hole. That had already been done by the previous owners who drilled down through the gold resource to pegmatite and just left behind bags of reverse core chips.
A couple of bright former Newmont geologists working for Kidman - Michael Green and Ben Cerlienco - sent them off for assaying which turned up 1.5 per cent lithium.
Kidman traced the same pegmatite all the way back to the surface about 1.5 kilometres away in what turned out to be a 190-million-tonne, high-grade deposit.
“As we drilled backwards toward the surface, we realised it was one giant pegmatite and that’s when it dawned on us that we’d made a huge discovery,” says Donohue.
All of a sudden the world’s biggest lithium players, including Albemarle and the Chinese, were on to Kidman.
SQM approached Kidman director Brad Evans at the PDAC convention - Canada’s equivalent of Diggers& Dealers In Australia - and said it had seen the discovery and wanted to talk.
“The difference with SQM was rather than wanting to buy it, they said they’d be interested in a partnership,” Donoghue recalls.
“I said ‘what are your thoughts on building a refinery in WA?’ and they said that is exactly what we want to do … and that’s why we chose SQM over the others who approached us.”
Donohue says what most people don’t know is that Kidman had already sounded out engineers Hatch about the possibility of building a lithium refinery as part of an integrated project.
Or, subsequent to the SQM partnership, just how close Kidman was to getting bank funding for its share of developing Mt Holland and the Kwinana hydroxide plant now expected to cost Wesfarmers $700 million.
The confidence of the banks was built on the SQM involvement, strong support from the WA government which paved the way to securing the Kwinana site and the off-take deals with Tesla, Mitsui and LG Chem.
“You’ll note there’s no Chinese off-takers in there. It is something we were really firm on, that we wanted common law countries for off-take because they were bankable,” Donohue says.
“If you take any off-take with Mitsui to a bank, an Australian bank, they say ‘oh yeah we’ve banked Mitsui for 50 years, you have an off-take with them then its a reliable off-take’.
“Whereas they won’t bank the Chinese. I mean they won’t state it publicly, but they won’t.”
Donohue does concede that if China’s Tianqi had not moved first to build a lithium hydroxide plant at Kwinana to process concentrate from the Greenbushes mine it operates in partnership with Albemarle, it would have been much harder to convince anyone to take his processing ambitions seriously.
Donohue still has mixed feelings about handing over his baby to Wesfarmers even though financing would have become more difficult given lithium is in a rough patch and looks forward to seeing it all grown up.
“As much as we’d have loved to have built it and patted ourselves on the back for doing a major project, technically it was difficult, financing was going to be hard and Wesfarmers was knocking on the door,” he says.
“For the shareholders' sake, we decided it was the best thing to do.
“We took it from nothing to this and it has been bought by Wesfarmers and I hope in two or three years from now it is in production and that it is a major project that going to go for 50 to a 100 years.
“I’d like to say ‘I started that way back in the day and passed the baton to Wesfarmers’.”
ASIC ban
The legacy is important to Donohue because of mistakes he made in an earlier life as a stockbroker that saw him banned working as a securities dealer or financial adviser by ASIC for a decade from 2003 after forging his stepmother's signature to cover some trading losses.
“It was a momentary lapse as a young bloke, thinking I’d cut a corner and sign my mum’s forms,” he says.
“I can tell you the hardest thing in life is to get your reputation back. Particularly in this county, it is very hard to get your reputation back. But you learn from your mistakes.”
Early on his road to redemption and in the wake of the global financial crisis when companies were dropping tenements, Donohue privately pegged some ground in central NSW that was prospective for copper.
The journey out took him along Kidman Way named after legendary cattleman Sir Sidney Kidman and hence the name of Kidman Resources.
“So I went and listed it and thought hopefully it will turn into something and go some way to redeeming the stupid mistakes of my 20s,” he says.
Greenhill& Co managing director Richard Phillips, who acted as corporate adviser to Kidman and long-time friend, says Donohue did a fantastic job with the company and deserves full credit.
“He is a really commercial guy and gets to the heart of the issue really quickly,” says Phillips.
“He wasn’t successful by accident. He has a good risk appetite, he went out there on his own, he identified this project, he bought the project, he then did the SQM deal, he worked his way through the Marindi and forfeiture issues, he and I did the work on Tesla early and boarder team including us with LG Chem and Mitsui. He was seriously driving this business.”
Paragon Funds chief investment officer John Deniz is another big fan after taking a substantial position when Kidman shares were trading at 14 cents in 2016 and holding on for the ride while taking profits along the way.
The fund manager says it is a shame Donohue has copped some bad press and negative sniping from peers in the lithium sector.
“I look at the hundreds of these investments that I’ve backed and for me Marty has been right up there and he’s done within his control everything he said he could on the technical front,” Deniz says.
“There are not many guys who have taken a $10 million market cap company to a $776 million takeover.”
Now that the deal is done Donohue intends to spend his time raising sheep and cattle on his two properties in Victoria.
"I've just got a view that protein is a really good space to be in with swine flu and all the rest of it that's going on," he says.
"I'm going to do that for the next year or two. I've got a few investments in mining but I don't think I'm too eager to rush back into the public company realm."
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