The increase in cash takeover activity is a sign that corporates are taking advantage of sceptical short-term priced equity markets and bidding for long duration strategic assets. This reduces the available supply of equities while it can also simultaneously trigger violent short squeezes in the targeted sectors. Australia has also seen increased cash takeover activity with Origin Energy, OZ Minerals, United Malt Group, Mincor, and Albemarle’s $5.5b cash bid for Liontown Resources. The bid triggered a lithium sector-wide short squeeze of biblical proportions. This is the first major corporate activity in the lithium space in recent years, with most other deals involving strategic stakes.
The quality of the counterparty is key in Albemarle’s bid for Liontown Resources, a major global lithium producer with high-quality assets. However, LTR’s Board has rejected the proposal, stating that the bid is opportunistic and does not reflect the positive near-term market outlook, synergies, and de-risking of Kathleen Valley in recent months. The rejection is in line with the author’s research, which indicates that Albemarle’s bid is opportunistic, with a highly risked LTR valuation at $2.81/sh.
Acquiring LTR would deliver Albemarle a near-producing source of spodumene concentrate supply in an Inflation Reduction Act-friendly jurisdiction to feed its downstream expansion plans at Kemerton. There is also a clear chance of competing bids for LTR, which delivers any acquirer a clean, large, long-life bolt-on project currently in development with production from mid-2024. The author advises holding onto LTR and adding to AKE, PLS, and MIN in the lithium producer space. Chalice Mining is also a high conviction buy as it confirmed a +50% increase to the Gonneville Resource and a formal strategic partnering process, which broadened the scope to include potential mining/operating partners. Today’s developments reinforce Gonneville’s status as a Tier-1, globally significant deposit, which should attract the attention of major resource companies.
