They say timing in the market is everything - and I tend to agree wholeheartedly with this notion I also would suggest that both market psychology and investor psychology play a HUGE role in determining the shorter and midterm pricing outcome. Then you can throw in the heap all the usual characteristics in fundamental items like liquidity , available finance , project economics , peer analysis , environmental , confidence , as well as fear and greed.
And no mistake do this in t is certainly ALL of these which are captured by the overreaching umbrella of ' Psychology '
It's also definitely interesting to watch all this unfold in slow motion after hitting the rewind button on your investing recorder's. So when when we actually do this in hindsight , we can quickly see the winners and looser's from past deals and who might be the recipients of what the ' new ' deals might look like.
So there has been much talk over the weekend regarding quality , volumes , and perhaps ownership with the latter of the of the three being framed more in a negative context in so far as it may relate to AJM .
However , I am more of the opinion that ' Change ' whether its change for necessity , change for good or bad , or simply change for the sake of change ( which this is NOT....but could be ....
) .....is still CHANGE with should amount to significant positive posturing and momentum for the Industry.
And so where we have this sort of potential change , we will have significant speculation which will no doubt result in shorter term positive pricing momentum for the Lithium Industry overall. notwithstanding and /or taking away ALL the increased liquidity which is being pumped into the system and markets ( which is a significant positive in it's own right ) , the mere fact that Australia will be seen in the context of this external volatility caused by COVID-19 as more of a ' security ' , safe haven and /or even ' Nirvana ' or sorts in regards to the supply of critical minerals. And you only have to see what is emerging in South America and to a lessor extent Canada to see how this all is playing out right under our noses and in front of us.
But lets just stick here to the analysis of the past deals and how they have perhaps set up Albermarle for the ' Windfall ' which they will most likely be gifted and which will also give the American's exactly what they have been recently lobbying for all along. At the same time , whatever the outcome , this mere process and surrounding uncertainty and speculation will almost certainly guarantee the ' lifting all boats ' in the beleaguered Australian Lithium space.
So to kick off the analysis we can first go back to one of the ' headlines ' which started it all off back in 2014 / 2015 . Before we do though we should take a further step back to around December 7th 2012 ( We'll call it Lithium's Pearl Harbor Attack ) when will go back a step to when Tanqui receives agreement from Talison to acquire 100% interest in Windfield Holdings Pthy Ltd who in turn hold 100% equity in the Talison Lithium Pty Ltd who hold 100% of the Greenbushes Lithium mine for C$848 million or A$815 million....... and to grant to Tianqi an option to purchase up to
30% of the equity interests in Rockwood’s wholly-owned indirect subsidiary, Rockwood Lithium GmbH (“Rockwood Lithium Europe”
.
" Rockwood Creates a partnership with Tianqi, China’s leading lithium company "
And lets not forget that
Rockwood Holdings, Inc. The company was at the time also the second largest global producer of products and services for metal processing, servicing the aerospace, general and European luxury automotive industries.
But before we look at the actual specific details of what was then the initial deal . we should probably look at where on the SP timelines these deals actually occurred and were reflected , and where primarily they went down , and who stands to benefit the most out of how these deals went down........ and where we happen to find ourselves in the current world of COVID-19 in respect to the ' strategic minerals ' rhetoric and where we are now.
So what the charts would suggest is that Tianqi whilst not particularly great at ' picking the bottom ' clearly look as though they were posturing themselves to overtake Abermarle in terms of ' World Dominance ' in Lithium EV end products. So IMO , the whole mutual JV and so called ' Partnership ' looks increasing more like a ' Marriage of Convenience ' so the other one doesn't actually get the leg up in this new and emerging industry.
For me it gets particularly more interesting when you delve into the nitty-gritty of the ' Loan Component ' re-distribution of the ' control ' aspect via the re-payment terms. This set-up can be evidenced from examination of the original terms as follows :-
Acquisition of Interest in Talison
Rockwood and Tianqi Group HK entered into an Acquisition Agreement, dated as of November 29, 2013 (the “Acquisition Agreement” pursuant to which Rockwood will purchase an interest in Windfield, the parent of Talison (the “Acquisition” through a United Kingdom incorporated company, RT Lithium Ltd (“RTLi”. RTLi was formed for the purpose of holding interests in Windfield, which holds 100% of the equity interests in Talison. Pursuant to the Acquisition Agreement, to effect Rockwood’s indirect investment in Talison, Rockwood will contribute through RTLi $196 million in cash to Windfield as equity (including $72 million which will be contributed in connection with the repayment by offset of the Subscription Loan described below) and will loan $670 million to Windfield (the amount of the loan is subject to adjustment based upon the net cash and cash equivalents held at Talison upon completion of the Acquisition). Rockwood expects to fund its $866 million (subject to adjustment) investment with cash on hand. Upon completion of the Acquisition, Windfield will be owned 51% by Tianqi, or one of its wholly-owned subsidiaries, and 49% by Rockwood through RTLi.
The Acquisition Agreement, which is governed by the law of Western Australia, contains certain representations and warranties and provides that the closing of the Acquisition is subject to certain closing conditions, including, but not limited to, approval of Australia’s Foreign Investment Review Board, shareholder approval of repurchases of certain shares held by Tianqi and the minority shareholder and required competition filings in Germany.
Rockwood expects the Acquisition to close in the first quarter of 2014, subject to receipt of the regulatory approvals described above.
Rockwood and Windfield have entered into a Loan Agreement, dated as of November 29, 2013 (the “Rockwood Term Loan Agreement”
When drawn, the Rockwood Term Loan will (i) be in a principal amount of approximately $670 million (subject to adjustment based upon the net cash and cash equivalents held at Talison upon completion of the Acquisition), (ii) have a maturity date two years from the date of first draw down of the loan, and (iii) bear interest, payable annually, at an interest rate of 8% per annum (which rate shall increase to 13% per annum on any amounts that Windfield fails to pay on the applicable due date), provided that the interest payable on the first anniversary of the draw down will be added to the principal amount rather than paid in cash unless Windfield elects to pay such accrued interest on such date in cash.
Pursuant to the terms of the Rockwood Term Loan Agreement, the borrowings will be repaid with any excess cash available at Windfield, subject to reasonable reserves for working capital, on a quarterly basis, with no minimum amount repayable each quarter. Windfield may prepay the loan, with no penalty, at any time. If Windfield enters into a permitted refinancing of the Rockwood Term Loan, it must apply all the proceeds of such refinancing first to repay the Rockwood Term Loan. Pursuant to the Shareholders Agreement described below, if any borrowings remain outstanding on the second anniversary of the draw down, each of Tianqi and Rockwood are required to pay Windfield a sufficient amount in immediately available funds to repay 51% and 49%, respectively (or if the shareholding percentages have changed prior to the second anniversary of the draw down, the applicable pro rata share), of the outstanding balance.
At the time of the draw down, Rockwood will receive, pursuant to a security agreement, a pledge by Windfield of all of its shares in Talison.
Repayment of Rockwood Term Loan and Future Distributions.
So long as any amounts remain outstanding on the Rockwood Term Loan, Windfield must not declare or pay any dividends or other distributions on any equity. Following the repayment in full of the Rockwood Term Loan, subject to restrictions of applicable law or any external financing arrangements from time to time, and subject to appropriate reserves for working capital, Windfield must distribute any excess cash and cash equivalents of itself and each of its subsidiaries, on at least an annual basis, to each of Rockwood and Tianqi, pro rata in accordance with each of their relative interests.
The Shareholders Agreement allows for Windfield and Talison to raise up to $250 million in debt to provide Windfield with money to repay part of the Rockwood Term Loan. As described above, if any borrowings remain outstanding on the second anniversary of the draw down, each of Tianqi and Rockwood are required to pay Windfield a sufficient amount in immediately available funds to repay 51% and 49%, respectively, of the outstanding balance. Pursuant to the Shareholders Agreement, unless Tianqi and Rockwood agree otherwise, such amounts will be contributed as equity.
And it gets even more interesting from here ......where
given Tianqi's current impending fall from grace under what seems to be insurmountable debts.....:-
Lithium Concentrate Distribution Agreements.
Pursuant to the Shareholders Agreement, each of Rockwood and Tianqi agree to enter into technical grade lithium concentrate distribution agreements with Talison Lithium Australia Pty Ltd (“Talison Australia”
, a subsidiary of Talison, upon completion of the Acquisition. The technical grade lithium concentrate distribution agreements will provide that for a period of the longer of (a) the term of the Shareholders Agreement and (b) twenty years, Tianqi will have an exclusive distribution right for technical grade lithium concentrate produced by Talison Australia in China (including Hong Kong and Taiwan)
and Rockwood ( Now Albermarle ) will have an exclusive distribution right for technical grade lithium concentrate produced by Talison Australia on a worldwide basis excluding China.
So then amazingly and as per reflected in the SP charts Albermarle concludes its acquisition of Rockwood Holdings in a $6.2 billion deal announced on July 12th 2015 months ONLY 3 months since Rockwood concluded it's own deal with Windfield . Interesting that following this deal that Albermarle shareholders come out of it with around a 70% stake in the combined company , while Rockfwood shareholders end up owning the remaining stake of 30% ....
So from there , the ' greed ' led aspirations of Tianqi after pocketing some initial Industry profits following the Global Lithium crunch Mach1 then goes after a stake in SQM because it can't ' crack ' into the America's Lithium Market and thinks it's again picked the ' bottom ' in the cycle. And it really needs to conclude this deal to maintain its ' Global ' relevance considering the new and emerging global capacity coming on line around the world. ( ie Japan etc.. )
So effectively , and in very simple terms we have Albermarle who has more or less obtained their 49% stake in Greenbushes( allowing for the repayment of Rockwoods original share of the $670 million loan ) for the original $196 million whereas Tianqi obtains their corresponding 51% stake at approximately $277.3 million . Of course this all depends on how you treat the loan ' after ' the 2 years and who can obtain the lowest interest ' replacement ' finance ( advantage Albermarle ) , and of course Tianqi would have sold more of the end product into the ' China ' market and crystalizing their sales into profits verses perhaps what went to the rest of the Worlds distributions. Bottom line is that Albermarle's strategy appears to be far more conservative and with a much larger Market Capitalization are now well placed to make the final and decisive blow to their adversary.
Even in 2016 , you can see that Tianqi seemingly desperately endeavors to exercise it's options
CHARLOTTE, N.C., Nov. 30, 2016 /PRNewswire/ -- Albemarle Corporation (NYSE: ALB), a premier specialty chemicals company, announced today that Tianqi Lithium Corporation (Tianqi) has given notice of its decision to exercise an option to acquire a 20% indirect ownership interest in Rockwood Lithium GmbH (GmbH) and its subsidiaries. GmbH is a wholly-owned German subsidiary of Albemarle that manages a portfolio of downstream products, including organolithiums such as butyllithium, which are manufactured at its facility in Langelsheim, Germany. Exercise of the option by Tianqi does not include any material interest in Albemarle's lithium-based battery and energy storage business, its lithium reserves and operations in South America, the U.S., or Australia, or its pending lithium hydroxide and carbonate asset acquisition in China, all of which are owned outside of the German entity. Albemarle will continue to own a controlling interest in GmbH and will manage the business and operations of GmbH following Tianqi's financial investment.
The option was granted pursuant to an agreement entered into in 2013 when the predecessor to Albemarle's lithium business, Rockwood, acquired a 49% ownership interest in Windfield Holdings Pty Ltd. from Tianqi. Windfield Holdings Pty Ltd. owns and operates the Talison lithium ore mine in Greenbushes, Western Australia.
Tianqi's financial investment is subject to conditions precedent, including execution of a partnership agreement to be negotiated by the parties, payment by Tianqi of the exercise price, and receipt of regulatory clearances and other approvals. Pending satisfaction of the conditions precedent, the investment is expected to close in the first half of 2017.
So I guess in the end we should ALL be more concerned on how this stake in the largest and most profitable Lithium mine in the world is playing out and how the ' valuation ' process will play an even more significant role in the pricing of other producing Lithium Assets. And in my opinion at least in the near term , this looks overall positive for the Industry and AJM .
Perhaps there will be some special considerations and / or discretion or flexibility applied by our Government with respects to Foreign Investment control in this instance.....as a trade off to pressing ahead with calculated vigor in fast-tracking our Downstream contributions to this Industry . And many Countries are already doing this such as Japan who is looking to re-route it's EV components industry away from China. Who knows , if Australia plays it's Car's right....... we may even see an EV assembly production facility of some sorts right here in Australia. And this is what an Albermarle deal might just propagate .
In any case and whatever happens , my 5 cent target is well with reach from today's actions , and will continue to reassess my position in light of some of these ideas in the nearer term at least. .....
(20min delay)
