Rinehart may block SQM $1bn takeover of Azure Minerals

Australian billionaire Gina Rinehart, who recently thwarted Albemarle’s (NYSE: ALB) attempt to buy Liontown Resources (ASX: LTR), is now said to be evaluating ways to block Chilean lithium giant SQM’s A$1.63 billion ($1bn) bid for Azure Minerals (ASX: AZS).

SQM (NYSE: SQM), the world’s second largest lithium producer, announced late on Thursday that Azure had agreed to its takeover offer.

The proposed deal, in the works since SQM acquired in March a 19.99% stake in Azure for A$20 million, has two layers. 

One involves the Chilean miner consolidating a 100% ownership of Azure for A$3.52 per share, a premium of 44.3% to the stock’s last close of A$2.44 on Friday.

The other is SQM’s off-market takeover bid of A$3.50 per share, in case the scheme of arrangement announced is not accepted.

Azure Minerals, which owns around a 60% stake in the Andover lithium project in Western Australia’s Pilbara region, said its board unanimously supports the agreement. 

“Whilst we firmly believe that Andover has the potential to be a major lithium project, there is significant time, cost and risk associated with developing a project of this scale, particularly in the context of an uncertain broader economic outlook,” managing director Tony Rovira said in a separate statement.

“As such, the board believes that the transaction provides Azure shareholders with a compelling opportunity to de-risk their investment [and] it recommends shareholders to vote in favour of the scheme (…) in the absence of a superior proposal,” he added.

The big question is what influence Rinehart’s Hancock Prospecting, which owns a 19.9% stake in Azure, could exert on SQM’s bid. 

Some Australian media outlets, such as AFR, speculate she will likely have to duel it out with SQM on the market. Others indicate that millionaire prospector Mark Creasy, a major shareholder in Azure with a 13.2% stake, is also assessing a move to block SQM.

According to Tom Parker, columnist at Australian Resources & Investment, a closer look at the conditions for each layer of SQM’s offer shows that no shareholder, other than the Chilean miner, can acquire more than a 19% interest in Azure.

“If this does occur, then a condition-light off-market takeover acts as the safety net, enabling the deal to go through, even if a keen investor is nipping at Azure’s heels,” he said.

Lithium deals craze

SQM has been expanding its portfolio beyond Chile to secure its leading position in the fast-growing battery metals sector. 

As other top lithium producers, SQM sees mergers and acquisitions as a more effective way to expanding capacity than building new greenfield projects. 

A decline in valuations for some lithium producers is making them prime targets for investors trying to find entry points into the clean energy transition and EV supply chain trade. 

SQM may face competition from other interested parties, including China’s Ganfeng Lithium and Albemarle, both of which have expressed interest in Azure in the past.

If successful, SQM’s bid for Azure would mark a second incursion into Australia’s lithium sector in a matter of days. On Monday, the company announced it had grabbed a 30% stake in junior explorer Pirra Lithium  and that it would ultimately increase its stake to 40% by injecting A$3 million ($1.9m) to fund exploration.

SQM also holds a 50/50 interest with Wesfarmers in the Mt. Holland lithium project, which is expected to come online by the second half of 2024 and produce up to 50,000 tonnes a year of lithium hydroxide.

Other recent company moves in Australia include an earn-in deal with Tambourah Metals (ASX: TMB) covering the explorer’s Julimar North project in Western Australia, and smaller farm-ins across the country with companies including Kalamazoo Resources and Dart Mining.