Iron ore billionaire’s lithium raid leaves investors guessing

The big picture is clear. Rinehart, arguably the most formidable figure in Australian mining, is making her biggest bet on lithium at a time when forecasts point to surging long-term demand for materials tied to the energy transition — and to a declining outlook for the steelmaking commodities that built her family’s fortune.

Other Western Australian tycoons are following a similarly green path, most notably Fortescue Metals Group Ltd. founder Andrew Forrest, who has embraced hydrogen.

But what Rinehart’s gambit means in practice is less clear, even with Albemarle expected to conclude its due diligence on Liontown within days — the last major step before a binding offer can be signed. It’s left shareholders on all sides with more questions than answers.

“Investors seem keen to know Rinehart’s plan,” Seth Goldstein, an equity strategist at Morningstar Research Services LLC, said. “So far, there has been nothing except buying shares, any alternative proposal for value creation has not yet been presented.”

Liontown, coveted for its promising Kathleen Valley lithium project, announced in early September that it would support an improved offer from Albemarle, after a months-long pursuit. Rinehart’s privately-held Hancock Prospecting Pty., which had already been buying stock, followed days later with the announcement that it had built up a share of just over 7%, raising that progressively to perilously close to a blocking minority.

On Friday, it took its holding even further to 16.7%, though the price has again not crossed A$3 per share — the bid on the table from Albemarle.

Hancock said it was now Liontown’s largest shareholder and welcomed “the opportunity to participate in the Kathleen Valley project as a shareholder, and have an influence on the company’s overall future direction”, sticking to the vague language on helping to manage “operational ramp-up risks” of past statements.

It did hint at further increases to 19.9%, just shy of the threshold that would normally trigger a mandatory takeover, yet provided no blueprint and said it did not plan to push for a board seat for now.

Fly in the ointment

Even so, every purchase further complicates Albemarle’s chances of winning a shareholder vote which would require 75% approval — and the chances of getting to the vote at all.

Pedro Palandrani, director of research at ETF issuer Global X, which holds Liontown’s shares via its $2.5 billion Global X Lithium & Battery Tech ETF, is among the investors who mostly see a “significant inconvenience for Albemarle”. A problem, given “spodumene in Australia is critical for Albemarle’s ambitions to expand their lithium hydroxide capacity.”

What is certain is a battle among industry heavyweights.

Rinehart, the combative only child of one of Australia’s iron ore pioneers, has described inheriting a “bankrupt estate and the chairmanship of a company in serious difficulties.” She built up massive iron ore mines in Western Australia that export about 60 million tons of the steelmaking material a year, and has since expanded her portfolio into copper, gold and coal, along with cattle, dairy and property.

She is not, however, known for her green credentials. A vocal skeptic, she criticized school curriculums in a 2021 speech for teaching the science of human-induced climate change.

Still, with a net worth of $18.9 billion, she is a powerful opponent, and one with a track record in mining success, even if lithium operates at a different scale. Howard Klein, a partner at RK Equity who himself holds Albemarle stock, said he saw collaboration as an option, given Albemarle already operates with partners elsewhere.

“Albemarle, which doesn’t have much direct mining expertise, could benefit from a strong Australian partner like Rinehart,” he said.

There’s also the option that Albemarle chooses to throw in the towel. Rinehart is a potentially troublesome minority shareholder, and not the only fly in the ointment for the US giant, with lithium prices plunging on China’s sputtering recovery and disappointing short-term demand, after a buying frenzy that sent global prices soaring through last year. Liontown shares closed on Friday at A$2.99 — uncomfortably close to Albemarle “best and final” offer.

“The risk the deal could be blocked is rising, yet the Liontown share price is still trading very close to the proposed Albermarle offer,” said Carrick Ryan, a portfolio manager at Westbeck Capital Management who holds lithium miners but not Liontown.

“While we don’t know if Hancock are going to bid, the deal is looking increasingly more expensive as the sector valuations fall.”

(By Sybilla Gross and Annie Lee, with assistance from Georgina McKay and Jason Scott)