Rinehart buys 18% stake in Azure Minerals to block SQM takeover

Gina Rinehart is muscling her way into a second lithium deal. (Image courtesy of Roy Hill Holdings.)

Australia’s richest woman Gina Rinehart’s Hancock Prospecting said on Friday it had acquired 18% of Azure Minerals (ASX: AZS) in a strategic move aimed at deranging Chilean lithium giant SQM’s (NYSE: SQM) A$1.63 billion ($1bn) bid for the junior.

The stake, just short of the 20% level that would require a mandatory takeover offer, may be enough to challenge the current bid.

“(Whether) this suggests Hancock just wants to partner or is gearing up for more, remains to be seen,” Canaccord’s Paul Howard told Reuters. “SQM may have expected this, hence it included the takeover in the deal as a fallback.”

It comes less than two weeks after Rinehart thwarted Albemarle’s (NYSE: ALB) attempt to buy Liontown Resources (ASX: LTR) by gradually building a 19.9% blocking stake in the Western Australia-based miner. 

Shares in Azure, which is developing the Andover lithium and nickel-copper-cobalt project in the Pilbara, are trading more than 15 times higher than they were at the end of 2022. They jumped as much as 44% on Friday to A$3.52, their highest price since June 2008, to close at A$3.50.

The stock’s valuation has been boosted by news in June of “exceptional” drilling results at Andover, which Hancock referred to on Friday as “encouraging”. The iron ore miner, however, noted more work was required to estimate a mineral resource and evaluate its potential. 

“Consistent with early stage projects that are pre-resource, while Andover shows good prospects, it has a long path and significant risks to navigate before its ultimate potential is known,” Hancock stated. 

Azure announced on Thursday it had signed a binding implementation transaction with SQM. The two-layered takeover deal encompasses a scheme of arrangement priced at A$3.52 a share, but if that fails the Chilean lithium giant will launch a conditional off-market takeover bid at A$3.50.

Under the terms of its main offer structure, SQM can withdraw its offer if a single shareholder secures more than 19% of the target miner. 

Rinehart’s move into the lithium sector shows that she is aware of the changing market for iron ore, her main source of wealth. 

While China’s demand slows down,  the commodity is still profitable — Hancock’s Roy Hill Holdings reported earlier on Friday A$3.3 billion in operating cash flow for the year ending in June, most of which went to dividends.

Flurry of lithium deals

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 expand 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. 

Rinehart buys 18% in Azure Minerals to block SQM takeover
Azure owns the majority of the Andover lithium and nickel-copper-cobalt project in Western Australia. (Image courtesy of Azure Minerals.)

If successful, SQM’s bid for Azure would mark the miner’s 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.