Nickel miner IGO has catapulted itself into being a significant lithium producer with the $1.9bn acquisition of half of the Australian assets of China’s Tianqi, putting its foot on 5 per cent of global supply of the battery-making material.
IGO will pay a hefty fee to acquire half of Tianqi’s Australian assets, for which it will get a 24.99 per cent stake in the rich Greenbushes lithium mine south of Perth – which last year produced 21 per cent of global supply of the commodity – and 49 per cent of a newly-built lithium hydroxide refinery at Kwinana in Perth’s southern suburbs.
And while Greenbushes remained profitable as the lithium market plunged in 2019, booking a $278.9m profit as falling prices pushed local rivals from the market, the lithium hydroxide refinery suffered substantial teething problems as it was being commissioned and is still to produce at a commercial scale, with the ramp up of the facility to its 24,000 tonnes a year nameplate capacity not expected to be completed until the end of 2022.
And IGO will take on significant debt to complete the transaction, with a new $1.1bn loan from its banking syndicate.
It will also launch a $766m equity raising, with the company already understood to have firm orders for the entirety of the $702m institutional component of the raising.
IGO boss Peter Bradford said the “transformational” acquisition would immediately turn the company into a major player in the global lithium market.
“Both Greenbushes and Kwinana are world-class assets with attractive growth profiles that together provide the platform for building a global lithium business,” he said.
“We look forward to working with Tianqi to build a leading global lithium business that will play an important role in supporting the global transition to clean energy technologies, while generating substantial value for IGO shareholders for many years to come.”
Greenbushes is easily the world’s biggest hard rock lithium mine, producing about 21 per cent of total global supply of the commodity in 2019, or 764,000 tonnes of lithium concentrate.
With production of 552,000 tonnes expected in 2020, IGO expects the mine to be profitable in the current year. It has flagged earnings before interest, tax, depreciation and amortisation of about $280m, down from $533m the previous year. IGO chief Peter Bradford. Picture: TRAVIS ANDERSON
Mr Bradford said IGO had struck the deal to buy its share of the mine and refinery at the bottom of the lithium market, and was positioning itself for a strong recovery as global economies bounce back from the coronavirus pandemic and seek a “clean, green” future.
China’s Tianqi Lithium owns 51 per cent of the mine, with lithium major Albemarle controlling the minority stake.
But Tianqi hit debt problems when the lithium price crashed in 2019, and has been struggling to pay down $US3.5bn worth of debt taken to buy a stake in fellow lithium major SQM in 2018.
It put its share of Greenbushes on the block earlier this year and has been fielding interest from across the world.
Production from the mine is expected to lift to 850,000 to 900,000 tonnes in 2021, and eventually to 1.3 million tonnes a year.
About 20 parties were eyeing a stake in Western Australia’s Greenbushes lithium mine before IGO agreed to buy an interest for about $2bn, sources say.
Most wanted all of the 51 per cent stake, owned by China’s Tianqi, whereas IGO is only buying part, which will offer limited operating control.
The jury remains out as to whether it is a good deal for IGO, with some suggesting that the world has an oversupply of lithium, which is used to make batteries.
But Greenbushes is the best hard rock lithium mine in the world, and the deal comes at a time that the soaring share price of electric car company Tesla has pushed up the value of the commodity.
As of Tuesday night, IGO was yet to formally announce the transaction to the market and remained in a trading halt.
IGO will raise about $800m to fund the acquisition through investment banks Macquarie Capital and Citi, sources say.
The company already has about $500m on its balance sheet and is also selling a 30 per cent stake in its Tropicana gold mine in Western Australia through Macquarie Capital.
Grant Samuel launched the sale of a stake in Greenbushes earlier this year, and parties running the ruler over the assets included Rio Tinto, Wesfarmers and Fortescue Metals.
Greenbushes is controlled by Talison Lithium, which is 51 per cent-owned by China’s Tianqi Lithium.
US-based lithium specialist Albemarle owns the remainder.
Expectations were that the Chinese owner would refinance the asset or Albemarle would take up its pre-emptive rights to buy the remaining interest.
Tianqi Lithium has been assessing options as it wrestles with a major debt pile in China, and a sale could help it refinance the mining operation.
Tianqi Lithium’s debt woes follow its acquisition in 2018 of a stake in the Chile-based lithium production and distribution company SQM from Nutrien for about $4.07bn.
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