Mineral Resources to sell Azure lithium stake, removing a hurdle to takeover bid

Mineral Resources Ltd. intends to sell its stake in Azure Minerals Ltd., a move that could clear the way for Sociedad Química y Minera de Chile SA and Hancock Prospecting Pty Ltd.'s joint takeover bid of the West Australia lithium explorer.

Mineral Resources Ltd. Managing Director Chris Ellison. Source: Mineral Resources Ltd.

Chris Ellison, Mineral Resources' managing director, said late last year that he wanted to own up to 20% of Azure's Andover lithium project. The comment came a week after Mineral Resources increased its stake in Azure to 13.56%, leading analysts to question if Ellison aimed to block the A$1.7 billion takeover bid.

"We do have an investment in Azure of circa A$250 million. During the quarter Hancock and SQM launched a bid, and we intend to sell into that this half," Mineral Resources CFO Mark Wilson said during a Jan. 25 analyst call for fiscal second-quarter earnings.

Both Ellison and Hancock Executive Chairman Gina Rinehart, Australia's richest person, have taken strategic positions in a number of key early-stage lithium projects in Western Australia that could reshape the next generation of production from the world's biggest lithium-producing jurisdiction.

Keeping the powder dry

Mineral Resources "selling into the Rinehart-SQM deal is an acknowledgement that they haven't won this fight and there's others to be had, so they'll keep their powder dry" for future deals, Paul Howard, senior mining analyst at Canaccord Genuity, told S&P Global Commodity Insights.

Having done several deals with gold explorers for their lithium prospectivity since mid-2022, Ellison is looking for more in the Goldfields region in Australia, where there is "high geological potential for large high-grade deposits that will be discovered," Ellison said on the earnings call.

"If you've got prospective lithium ground out there and you're a junior, we're well and truly open to joint ventures or farm-ins, or to take a piece of the company. Who else would you want on your share register?" Ellison said.

Mineral Resources has three current hard-rock lithium processing plants, with plans to build another within two years, Ellison said.

"Mineral Resources' business model has historically been to gain control of the asset and then partner with groups of their choosing," Michael Scantlebury, resources analyst at financial services firm Euroz Hartleys, told Commodity Insights.

"With SQM and Hancock on the Azure register and [their] joint bid, it appeared hard for Mineral Resources to gain control. Perhaps Mineral Resources could look to redeploy its Azure capital into other lithium equities they have stakes in, or expand its lithium land bank portfolio further."

Hancock Executive Chairman Gina Rinehart. Source: Hancock Prospecting

Other significant lithium stakes

Both Howard and Argonaut metals and mining research analyst George Ross suspect Ellison let Azure go because Mineral Resources has built up a 17.28% stake in Wildcat Resources Ltd., whose Tabba Tabba project is just 100 kilometers from Mineral Resources' Wodgina project.

With significant stakes already in Western Australian lithium hopefuls Wildcat and Develop Global Ltd., "plus their own assets, they've got their fingers in a lot of pies already," Ross said of Mineral Resources.

Analysts said Mineral Resources may still end up working with Andover as a mining services contractor, as it has for Rinehart's iron ore producer Roy Hill Holdings Pty. Ltd.

"There's ways of them crystalizing value from having the [services] contracts rather than actually fully owning the asset outright," Howard said of Mineral Resources.

Higher production

In its fiscal second-quarter earnings report, Mineral Resources said it boosted quarterly spodumene production by 38% year over year to 83,000 dry metric tons on an attributable basis from Western Australia's Mount Marion mine, a 50/50 venture with Ganfeng Lithium Group Co. Ltd.

Wodgina produced 55,000 dry metric tons of spodumene concentrate in the quarter, up 51% from a year earlier. Lithium battery chemical production from Wodgina jumped 120% over the same period to 6,798 metric tons.

Mineral Resources' newly acquired Bald Hill mine produced 26,000 dry metric tons of spodumene concentrate for the quarter.

Hancock Prospecting did not respond to a request for comment. Azure and Mineral Resources declined to comment on whether any services contracts for Andover have been agreed upon or discussed with Azure's joint-bid partners.