Consensus community valuation
19-Dec-2023: Azure-Enters-Joint-Bid-TID-with-SQM-and-Hancock(Gina-Rinehart).PDF
Unexpected! Gina and SQM have today launched a bid for lithium company Azure Minerals (AZS) for $3.70/share in cash, and it looks like it's going to go through even with MinRes' (Chris Ellison's) blocking stake of 13.6%.
The MoM (Money of Mine) podcast lads are officially on holidays now, yet they managed to send out the following email to all of their "Hooteroo Herald" subscribers this arvo (and I'm one of those). They call out here that the structure of this deal provides a playbook for how to achieve a change of control transaction when you're dealing with one of those pesky 10%+ "blocking stakes". I don't hold AZS shares, but I do hold MIN (MinRes) shares, and I did find this very interesting.
Gina Joins SQM in AZS Bid without MinRes
There's a twist in the most interesting deal of 2023 so here's our quick thoughts on what it means for Azure holders, Gina, Chris, SQM, Liontown, Albemarle, etc...
If you've been living under a rock today, Gina and SQM have jointly put forward a recommended bid for AZS at $3.70/share. And yes, we are technically on break until Jan 15th but we are deal junkies so here you are ????
Key takeaways
- The new bid appears to us to be explicitly designed to carve out Ellison's MinRes and prevent him from troublemaking the deal on the table now
- We predict the deal to become effective in its current form despite retained blocking stake of MinRes
- Dual-transaction structure now provides a clear playbook to achieve a change-of-control amid heightened deal-blocking environment (eyes on LTR now)
Gina & SQM - What about MinRes?
It is extremely interesting that the recut deal still utilises the 'dual transaction' structure despite Gina (the LTR deal-blocker) being a member of the bidding consortium now.
To us, this appears intentionally designed to prevent Chris Ellison's MinRes from having the ability to become a troublemaker in Gina's new plans. To spell it out further, check out this condition of the scheme (noting MinRes sit at 13.56% currently).
This throws into question the degree of "cooperation" between Ellison and Rinehart. Some market participants (including us) had previously thought the two billionaires were relatively aligned in their WA Lithium ambitions. I guess it's RIP #ChrisGina. It will be fascinating to learn what Ellison's "plan" he can't reveal yet turns out to be.
MinRes likely bought shares up to $4/sh. Given this, any consortium including MinRes would be prohibited from lobbing a bid lower than $4 within a 4 month period of those shares being purchased.
The Game Theory on Ellison & MinRes' Next Move?
Given the combined 38% SQM / Hancock stake can not vote in the scheme, Ellison's 13.56% is effectively ~22% of the voteable base. Schemes have a 75% vote hurdle - factoring in expected voting turnout, Ellison's current stake could block the scheme from being implemented. With the nifty dual-transaction structure, that triggers the takeover offer at a marginally lower $3.65/sh.
Should Ellison choose to block the scheme, his options are to:
- hold out as a minority shareholder in an entity controlled by Hancock/SQM ;
- eventually fold-in as a minority to Hancock/SQM bid (with potential deal value uplift); or
- Bid himself outright at a higher price
Lets first look at the possibility of Scenario #1. Gina/SQM could seek to delist AZS from ASX. Ellison would have no Board representation and hence no control. We think this would not be palatable.
Lets also put a line through Scenario #3 since a) MinRes is already facing analyst heat for balance sheet health and b) Gina/SQM have a matching right.
Scenario #2 is possible but there isn't a tremendous amount of upside for Chris here. He may get some slight uplift but he risks antagonising Gina in the process (lets agree that he still needs her more than she needs him).
This leaves us predicting that Ellison ultimately accepts the current scheme offer from Gina/SQM rather than agitating. MinRes' average buying price is reported to be $3.66/sh. We think taking the $3.70/sh on the table is an acceptable outcome to a billionaire. "I made a profit!"
Hence we predict the deal gets done in its current structure. We encourage the Money Miners to review the 2014 Aquilla Resources takeover as further support of our prediction here.
Other than owning the equity of the mining project, Ellison can extract value from WA's hard rock lithium projects in two ways:
- Mining services contract; and
- Offtake / marketing rights
Lets watch-this-space for any MinRes involvement in either of the above as time unfolds.
Winners and Losers
Creasy
The experienced mining figure withheld from providing support in the first incarnation of the SQM deal to come to shareholders. As a result, he's edged out a higher price and his 12.84% ownership of AZS will bring in ~$220 million before tax. Lets still remember that he will still own 40% of Andover too. Winner.
Delphi Group
Provided voting intention to support the prior bid and have recommitted here. Their 10.15% of AZS will convert to ~$ 170 million before tax. That should offset some of the howlers the group have made in recent years - perhaps there is method to the madness after all! Winner.
The Bankers and Lawyers
We think creative deal structuring has been a key catalyst to "force" a 100% change-of-control outcome. Without it, we suspect Gina may have blocked SQM's bid but not acquired the company 100% until equity valuations were more depressed. Winners.
Liontown
LTR is up 11.2% today. The dual-transaction structure now serves as a playbook for a strategic to get a change-of-control outcome (provided they are happy to partner with Gina). Is Albemarle still interested? Pilbara? Wesfarmers? Lets watch if anything eventuates here. Winner.
Andover
We view Gina's long-term equity interest in Andover as a big plus for maximising the probability and timeliness of Andover's development. Gina has both a warchest of money and a track-record of seeking political influence. That should come in handy. Winner.
Gina and SQM
We don't believe it to be appropriate to evaluate this yet. Time will tell if the price paid was appropriate or not. A lot depends on the long-term lithium market dynamics. We don't have a crystal ball. TBA.
Ellison / MinRes
Implications of this announcement suggest an undesirable outcome for Ellison unless he can leverage his minority interest into a mining services contract or offtake agreement. Further shadows cast on "the plan to be revealed" as foreshadowed by Ellison. Loser... for now.
--- ends ---
Source: email this arvo from Money of Mine
GR voting power: 18.3%
Noted Recently GR; Holding LTR
Large selldown after metallurgy results were released. A few points
- Appears HLS/DMS was not a success and need to use floation
- Iron content head grade over 1%. Need something below that
- Recovery using floation is over 80% for 5.6% Li2O and Fe of 2%
Azure to look at further removal of Fe using Magnetic separation. And there was mention of Ore sorting -orange flag?? etc.
Results bit disappointing. But still early days..
Today some drill results also were announced. No trading halt and the intersects were good but not as amazing as the first discovery announcement
Area 3 looks promising, Area 2 however is small.
The results and metallurgy further prove that there are still challenges faced in increasing the supply of Lithium, even for large significant discoveries such as Andover.
Have also noticed in IQ Pro, a past director that retired 2 years ago and a few other large holders has sold about a few weeks ago. If only I picked that up last week!
Given the recent price action and events, I took the opp to exit on the price spike but will still keep watch.
Maybe stick to Base metals, or even better, Gold!
[not held]
Share purchase plan closed oversubscribed. My application got scaled back.
Lithium hype still alive and well no matter how much everyone hates that here.
[held]
I did not want to do another post on Lithium but could not help myself.
AZS doubled the share purchase plan and still closed oversubscribed as predicted. Non underwritten which makes it better as we don't have any sharks lurking in the register. Unfortunately I did not pay enough attention and only saw the note on Friday morning.
Not sure if I get any as I made the payment on Friday noon. If so, may use the funds for something else.
Lithium hype still alive at Azure. Either Azure has further to run or this raise is a signal we are at the top of the market.
Still have to admit an amazing run for a company not making any money.
[held]
Actually hate it when that happens. Been only a couple of months
Held
Azure Minerals released another drill result today sending shares up 22% from around 2.15 to 2.65
Should never be mean with my Strawman buy orders
Andover lithium seems to be getting bigger and bigger although it is happening at depth
Could see some serious economies of scale once they start mining. So I'm not surprised it went up this much today
Although for some of us here we are thinking that this is incredibly overvalued at a market cap of around 800m considering some around here have such a big bear case for commodities such as lithium espeically when no revenue is being generated yet!
Still thinking if I should take some off the table..
But there is still lots of drilling left. 100000m drilling campaign with 13,765m diamond done and 16,369m of RC done.
[held]
While I still have access, here is a map from Capital IQ Pro of neighbours if you are interested in nearology. Personally I try to avoid nearology plays but still keep them on a watchlist. Companies listed - ANX, SBR, MLS, RDN
As I understand, RDN acquired some tenements from Welcome Exploration Pty Ltd (Purple) so included them on the map
Red one in the centre is Azure's Andover tenements.
[held]
Cannacord price target $2.25 which also turns out to be the hidden line in my previous straw. A snippet of the report below
But after the latest results I think that could be downgraded. Scroll down for reasons why
The reason why the valuation modelling is mismatched with the latest drill result can be seen by the following diagram in the report:
The diagram assumes more spod in AP011 on the right continues up to near the surface but the latest result does not show it.
See my red circle below:
I think this is why it was sold off on Friday as everyone may be focusing on AND212. I think Cannacord may have to readjust their model On the flipside it does confirm there is something at depth. And there are still more targets untested.
In conclusion, a bit of risk for anyone that followed the Cannacord model.
[held]
Some broker upgrades including one from Bell Potter of 2.00.
Don't think we'll get a pullback in the near term. Price is still having a run.
Who said miining exploration was boring? I'm glad I pivoted back into mining exploration but wonder how long the lithium hype will last?
Also an interesting read on the Andover Lithium at Azure
[held]
After filtering out the hundreds of HC posts on AZS, I found a few posts that contained some estimates on the resource size extrapolated from the handful of drill results.
I can't go into the calculations as it appears one poster is using some software to get the numbers and is understandably not sharing the full working. But it looks like most agree the Andover lithium currrently stands at around 35-40mt for AP0011 and AP0012 for a strike length of around 800m and currently falling short of the 100mt estimate by Euroz. On the other hand the pictures of AA, BB and esp CC below look encouraging and there are results pending for 2 other zones AP0009 and AP0014
Diagram from ASX announcement 20 June 2023
Section AA
Section BB
Section CC
Also they haven't drilled from the top of AP0011 as they are possibly still waiting on heritage approval. So instead they are starting from the top of the outcrop where AP0012 is and directing the drill to where AP0011 is located.
A zoomed out view showing the Andover Nickel project (bottom left) and the peg outcrops and important infrastructure links including railway.
Project location which gives a better sense of surrounding town centres/ infrastructure (SP Capital IQ Pro). Explains why the share price is currently where it is other than the Lithium potential. So it's not just the rail but the fact that it is close to Karratha/Dampier. So prime real estate from a mining point of view should this be economic.
[held]