I like to post this report by PARAGON FUNDS again for new investors to read and see its potential while institutions are buying and building their positions in KDR.
The MH JV now places Kidman as one of only two integrated spodumene-refinery projects based in WA. The other being the 51%/49% JV between Tianqi (US$9.5b market cap) and Albemarle (US$12.8b market cap), who own and operate the Greenbushes spodumene mine in WA, and currently are building a local refinery in Kwinana WA. Every other competitor ship their ~6% lithium concentrates from WA to China to be converted in Chinese refineries into lithium carbonate or lithium hydroxide – logistically sub-optimal and at a higher cost.
The integrated model offers materially higher NPV’s than traditional spodumene-only concentrate operations. This is evidenced by the materially higher multiples the integrated players trade on - Tianqi & Ganfeng trade on >25x 1yr fwd EBITDA / Albemarle ~16x 1yr fwd EBITDA vs spodumene-only peers ~6x 1yr fwd EBITDA.
The MH JV spodumene-refinery integrated project boasts NPVs ranging from $2b to $4b on a 100% basis (range subject to our macro and operating assumptions), or $1b to $2b for Kidman’s 50% share. This implies that Kidman is currently trading at 10-20% its MH JV integrated NPV. Our experience in these high-quality resource development investments suggests that Kidman should re-rate to at least 50% of its MH JV NPV in the short-term - upon reaching its funding and construction commencement milestone - hence offering strong asymmetric risk-reward to the upside.
