Lithium

MinRes, Hancock build possible 'Scuttling Stakes' in Azure

Mon 06 Nov 23, 4:03pm (AEDT)
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Key Points

  • In October Azure entered agreed to be acquired by SQM at $3.52 in deal worth $1.63 billion
  • Hancock Prospecting has built an 18.9% stake, and MinRes a 12.3% stake in Azure
  • Investors must decide whether Hancock and MinRes intend to start a bidding war or block SQM

Lithium prices continue to slump across various commodities exchanges, but particularly in the heart of global lithium demand, China. By Friday's close, spodumene concentrate 6% prices were trading at US$2,070 per tonne, down roughly one-third from their peak set in late-2022.

spodumene concentrate
Spodumene concentrate prices have fallen from over US$6,000/t to US$2070/t

Yet, it feels like every other day, an ASX-listed lithium company finds itself the subject of a new takeover bid, or we're informed another cashed up industry heavyweight is jostling for position on the register of a junior lithium miner.

The latest object of affection is WA-based Azure Minerals (ASX: AZS). Azure's 60%-owned Andover Lithium Project, located just outside of Karratha, is working towards a maiden Mineral Resource Estimate in Q1 2024. The other 40% is owned by WA Mining legend-cum-royalty Mark Creasy.

Despite the relatively foetal stages of development at the project, Chile's Sociedad Química y Minera (NYSE: SQM) lobbed a $900 million takeover for the company on August 25. It then upped the bid to in a $3.52 ($1.6 billion) in late-October after Azure's directors labelled the initial gambit insufficient.

As appears to be the case in 2023, this lithium takeover is far from an open and shut case. Investors' memories are likely still fresh (or scarred by) Gina Rinehart's Hancock Prospecting recent scuttling of Ablermarle's long-standing bid for Liontown Resources (ASX: LTR). Hancock emerged with a strategic blocking stake of 19.9% of the company.

Liontown's shares have plunged following the development, now trading at nearly half of Albermarle's $3 per share bid price.

Not satisfied with the chaos caused at Liontown, two weeks ago Hancock Prospecting announced it was also active on Azure's register, accumulating an 18.9% stake in the company. But wait, there's more!

On Friday, Azure released another substantial shareholder notice showing local lithium heavyweight Mineral Resources (ASX: MIN) had taken a 12.3% stake. With over 30% of the company now locked up in possible blocking stakes at major competitors, SQM's bid for Azure might also be in jeopardy.

Bidding war or scuttling stake?

Aussie investors are learning there's a fine line between a 'bidding war' and a 'scuttling stake' as far as takeovers are concerned. The former has always been seen as a substantial positive, potentially triggering a competitive tit-for-tat in competing takeover bids which could potentially deliver a massive windfall for shareholders.

The latter, which is a relatively newer but increasingly common occurrence in the local lithium scene, is a massive risk. This is shaping up to be the case for Azure. Whilst it has signed a binding scheme of arrangement with SQM to be acquired at $3.50 a share, SQM has the right to pull the bid if any other shareholder acquires greater than a 19.9% stake.

So, in light of Hancock's 18.9% and MinRes's 12.3% holdings, there's a clear threat SQM could walk away. If Liontown's share price plunge post Albermarle's departure is anything to go by, existing Azure shareholders should be nervous.

Basically, if you're holding Azure right now, or you're thinking of buying, you need to ask yourself: Is this the start of a bidding war, or are Hancock and MinRes looking simply building scuttling stakes?

Azure's register shuffle so far:

  • March: SQM accumulated 19.9% skate for $20 million (includes off-take rights to 25% of future Andover production), labelled insufficient by Azure board

  • August: SQM launches $900 million takeover bid at $2.52

  • October 26: Azure enters binding scheme of arrangement to be acquired by SQM at $3.52 in deal worth $1.63 billion

  • October 27: Substantial shareholder notice shows Hancock Prospecting has accumulated 18.9% stake worth approximately $255 million

  • November 3: Substantial shareholder notice shows MinRes has accumulated 12.3% stake worth approximately $210 million

 

Written By

Carl Capolingua

Content Editor

Carl has over 30-years investing experience and has helped investors navigate several bull and bear markets over this time. He is a well respected markets commentator who specialises in how the global macro impacts Australian and US equities. Carl has a passion for technical analysis and has taught his unique brand of price-action trend following to thousands of Aussie investors.

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