Lithium sector salivates as Azure bid set to unlock flood gates on $1.6b in investor cash

Azure Minerals (ASX: AZS) has got the big premium takeover it deserved for making the emerging world-class Andover lithium discovery near Roebourne in Western Australia’s Pilbara region.

But the question is whether iron ore billionaire Gina Rinehart can kibosh the $1.63 billion payday for Azure shareholders from Chile’s SQM like she did to Albemarle’s $6.6 billion bid for Liontown (ASX: LTR).

Rinehart killed off the Albemarle bid by assembling a blocking 19.9% stake in Liontown, making the task of the bid by scheme of arrangement, requiring 75% approval from voting shareholders, all too hard.

SQM has framed its offer with Rinehart’s Liontown antics in mind. The offer is $3.52 a share by scheme of arrangement, or $3.50 by an off-market takeover offer if the scheme looks set to fail because “somebody” acquires a blocking stake of more than 19%.

As it is, Rinehart’s broker was said to be soaking up big lines of Azure stock in yesterday’s market at or close to the SQM takeover bid price, with an apparent order to get to 19.9%.

Ironically, the heavy trade in Azure – 100.7 million shares or 24% of its fully paid ordinary shares were traded – was due in part to what happened to Liontown’s share price when Albemarle walked away from the $3 a share offer. It is now a $1.71 stock.

Think of it as a stampede effect because of Rinehart’s Liontown intervention.

But the way the SQM bid(s) is structured means the offer will play out differently. If the $3.50 takeover bid comes into play, SQM will buy what it can without conditions.

It could be that Rinehart likes the thought of partnering up with SQM at Andover through a 19.9% Azure stake. What is more certain is the Azure board unanimously recommends the SQM approach in the absence of a superior proposal.

One of its biggest shareholders with 11%, the Delphi Group, has said it supports the offer in the absence of a superior offer.

Mark Creasy – he has a 40% interest in Andover – has 13% of Azure through his Yandal and is said to be non-committal although his wife Annie Guo sits on the Azure board (unanimous on SQM bid in the absence of a superior offer) as a Yandal representative.

SQM starts out with close to 20% under its belt.

Bid lifts entire sector

On the assumption that SQM wins the day at Azure, or Gina Rinehart for that matter, there will be $1.63 billion in lithium-soaked currency looking for the next best thing in the sector.

It’s why there was a lift in Thursday’s market for just about all of the lithium explorers on the ASX in response to the SQM tilt.

Value creation with the drill bit is extreme when the early indications are that a company is on to something special. Azure’s value ran from $100m in mid-February to $1.63 billion at SQM’s bid price bid – it values 100% of Andover at $2.7 billion – proves the point.

It is remarkable stuff given Azure is yet to report a maiden lithium resource for Andover (there is an existing none-too-shabby nickel resource).

But there is a compliant “exploration target” of 100-200Mt at 1-1.5% lithium for Andover, something SQM clearly thinks is on the mark.

As exploration projects move into the something “special’’ status, the sort of merger and acquisition fever in the sector that has led to Albemarle’s Liontown bid, and now SQM’s bid for Azure, takes hold.

Clearly the big lithium players like Albemarle and SQM – and Gina Rinehart – don’t share the concerns over the current weakness in lithium prices that has taken the shine off the broader lithium sector of late.

They are out to secure the Tier-1 deposits needed to meet the 10x increase in demand from 2020 levels by 2030 that no less than Rio Tinto has been forecasting.

Patriot Battery Metals (PMT), mentioned here last week, is not (yet) the subject of M & A action but the Tier-1 scale of its still emerging Corvette discovery in Canada has already carried it to a $C1.4 billion market cap.

Albemarle is on the register with a 4.9% stake and there is talk that Pilbara Minerals (PLS) and Rinehart could also be on the register. It’s one to watch as the scramble to secure Tier 1 lithium deposits – remembering they are rare things – continues to heat up.

Wildcat Resources (ASX: WC8)

Back in Western Australia, it is Wildcat Resources’ (ASX:WC8) Tabba Tabba project in the Pilbara that is being rated as the next project to build world class credentials that in time will see the company drawn into the lithium M & A vortex.

There has already been some serious valuation creation for Wildcat since it acquired Tabba Tabba earlier this year. After a 3.3% share price lift in response to the Azure bid news, its market cap has climbed past $1 billion (fully diluted) .

It was a $24 million company in March.

Wildcat recently reported the best drill hole results to date at Tabba Tabba, including 85m at 1.5% lithium from 133m, which included 9m at 3%).

Euroz increased its price target from 62c to 96c in response to the drill results, saying the company continued to tick a lot of boxes for early-stage exploration - mineable true width intercepts getting better at depth, Tabba Tabba’s easy 80km distance from Port Hedland, and its existing mining lease.

The mining lease status is a clue to Tabba Tabba’s historical status as a tantalum project. It was only ever subject to cursory lithium exploration in the past because of the high-grade nature of the tantalum.

Wildcat has changed that focus in a hurry. Watching on with interest is the vendor to Wildcat, the tantalum products group Global Advanced Metals (GAM) which, in turn, is controlled by global mining private equity group Resource Capital Funds (RCF).

Students of history will remember that GAM acquired four tantalum-lithium projects from the collapsed Sons of Gwalia in 2007. Think of them as the fab four – Greenbushes, Wodgina, Pilgangoora and Tabba Tabba.

All are now very much lithium-tantalum projects. Unlike the first three which were passed on, GAM has kept exposure to Tabba Tabba by taking stock in Wildcat in return for vending the project.

It holds 17.93% (15% fully diluted) of the company and can get to 20% on Wildcat confirming at least a 10Mt resource grading 1% lithium – something that will be surpassed in a big way before long. This time around, GAM/RFC are onboard to capture the unfolding upside.

Whether that unfolding upside gets amped up into an Azure-style takeover play for Wildcat remains to be seen. But GAM is at the table.

Mineral Resources’ (ASX;MIN) Wodgina and Pilbara’s Pilgangoora operations are in the same neck of the woods. So, when there is speculation about Wildcat and Tabba Tabba, those two will feature.

Calidus (ASX: CAI)

Pilbara gold producer Calidus put some much-needed pep into its share price during the week.

What was a 13c stock last Friday – it was 40c in January - got to 16c in Thursday’s market before going into a trading halt pending a request for more information from the ASX on one of the two announcements driving the renewed interest in the stock.

The announcement in question was the declaration of a 111,000-ounce gold resource grading a very handy 4.1g/t at the historic Bulletin mine in the Bamboo Creek goldfield to the northwest of Calidus’ newish Warrawoona mine near Marble Bar.

Bulletin is part of the 60:40 profit split Calidus has with Haoma Mining on gold from Bamboo Creek. More to the point is that Bulletin shapes up as a source of high-grade feed for Warrawoona to improve its overall economics.

Bulletin is but one of the high-grade feed sources Calidus has been stitching together in the region, with Warrawoona (1.4g/t reserves) as the central processing hub.

Calidus estimates that the maiden Bulletin resource could deliver 60,000-70,000 ounces at an AISC of $A1,300-$A1,600 an ounce. Although it was last mined by Haoma in 2004, it also is very much an exploration story as it is completely open at depth, with possible extensions to the east.

Some have drawn parallels with the Never Never discovery at Dalgaranga in the Murchison that has turned around the fortunes of Spartan (ASX: SPR).

The second announcement has some familiarity to it due to the name and commodity involved – SQM and lithium.

Ahead of getting seriously busy at Azure, SQM secured a deal to acquire a 40% interest in Pirra Lithium, a lithium joint venture across the Pilbara between Calidus and Haoma. SQM is injecting $3 million into lithium exploration by Pirra while Calidus maintains a 40% interest by committing to inject $2 million, with Haoma reducing to 20%.

Among other lithium ground positions, Pirra controls 8km of the Tabba Tabba shear, with its Tabba Tabba South ground along strike from Wildcat’s discovery. Interesting stuff given SQM’s involvement.

But pushing higher grade ore through Warrawoona from satellite orebodies in a $A3000/oz gold market has got to be a good thing too.