Shares in Australian nickel-gold miner IGO Ltd (ASX: IGO) came to a trading halt on Monday following several reports that the company was in advanced talks to acquire part of Tianqi Lithium’s 51% stake in Greenbushes, the world’s biggest hard-rock lithium mine.
IGO is planning to raise about $800 million to fund the A$2 billion-purchase ($1.5bn) of up to a 25% stake in the Western Australia lithium mine, located about 250 km from Perth, AFR reported.
The deal would provide the mine’s beleaguered Chinese owner with much-needed cash to make loan repayments that were due at the end of November. The company has until December 28 to repay or refinance its $1.9 billion-debt.
Prices for lithium carbonate have dropped by more than 70% since 2018, when Tianqi acquired about a quarter of Chilean miner SQM for $4.1 billion. The move was part of an aggressive global expansion aimed at securing leadership in the lithium market.
The plan succeeded in putting China in a dominant position just as sales of electric vehicles (EVs) took off, but it now threatens to send Tianqi under.
A potential collapse of the miner, which counts battery makers LG Chem and Northvolt AG among its customers, would rock a lithium sector that has already seen Australia’s Altura Mining go into administration this year.
Major players have also adjusted plans. Chile’s Chemical and Mining Society (SQM), the world’s second-largest producer of the metal, has pushed back a key expansion at its Atacama salt flat operations from the end of 2020 to late 2021.
US-based Albemarle (NYSE: ALB), the world’s top producer of the battery metal, postponed last year a project to add about 125,000 tonnes of processing capacity. It also revised a deal to buy into Australia’s Mineral Resources’ (ASX: MIN) Wodgina lithium mine and said it would delay building 75,000 tonnes of processing capacity at Kemerton, also in Australia.
Albemarle holds a 49% stake in Talison Lithium, a partnership with Tianqi, which is the operator of Greenbushes mine. Because of this, the company is believed to have some form of pre-emptive rights over the project and has expressed interest in adding to its stake in the past.
Analysts think it is highly unlikely China would allow a strategic asset like Greenbushes to fall into foreign hands.
“Greenbushes is a large, low-cost asset and has contributed to China’s lithium supply security,” Alice Yu, from S&P Global Market Intelligence, said in a research note.
It was not known Monday whether IGO’s imminent acquisition affects Tianqi’s $770 million lithium hydroxide plant at Kwinana. The facility was mothballed shortly after commissioning earlier this year in light of weak prices and demand for the commodity.
Perth-based IGO has made clear its strategy of pursuing growth in so-called future-facing commodities linked to the battery and EV revolution. As part of that plan, it acquired Sirius Resources in 2015 back when the company was known as Independence Group.
Key for IGO’s play would be to consider options for its 30% non-operating stake in the Tropicana gold mine, which is “under review” (code for “up for sale”) and could be worth up to A$1.5 billion ($1.1bn).
Unfortunately for IGO, the asset review is in its preliminary stages and it cannot be used to fund its move on Greenbushes.
IGO won’t be trading shares until Wednesday, December 9, “pending an announcement regarding a potential acquisition,” it said.
Tianqi’s (SHE: 002466) shares closed up almost 5% on Monday.