Key insights
- Australia's Mineral Resources (MinRes) has sold a 30% stake in its lithium business to South Korea's POSCO for $765 million. This deal aims to reduce MinRes' debt and strengthens its balance sheet, while POSCO secures a stable supply of lithium. The transaction validates MinRes' lithium assets and provides a premium valuation. Although primarily an Australian and South Korean event, it signals continued strategic investment in critical minerals amidst fluctuating commodity prices, which could have broader implications for the electric vehicle supply chain and related equity markets.
MELBOURNE (Reuters) -Australia’s Mineral Resources said on Wednesday it would sell a 30% stake in part of its lithium business to South Korea’s POSCO for $765 million to reduce debt, sending its shares to a more than one-year high.
MinRes shares gained as much as 10.8% to hit their highest since October 11 last year, then pared gains to end the session up 9.2%, making the miner the top performer on the S&P/ASX 200 index which ended slightly lower.
MinRes is seeking to repair its balance sheet following heavy capital spending on its Onslow Iron haul road project and a collapse in lithium prices that hit earnings. The diversified miner has also been beset by corporate governance concerns surrounding its founder and CEO, Chris Ellison.
For POSCO, which already has a joint venture lithium hydroxide project in South Korea with Australian lithium miner Pilbara Minerals, the deal marks its first foray into Australian lithium mines, at a time when lithium prices remain low.
The deal will create an incorporated joint venture that will hold MinRes’ existing 50% ownership in the Wodgina and Mt Marion lithium mines, giving POSCO an indirect 15% interest in each of the projects, MinRes said.
MinRes will remain the mines’ operator under its existing agreements with the respective partners.
The deal validates the quality of MinRes’s lithium assets, locks in a premium valuation, strengthens the balance sheet, and secures a downstream Korean link, all while preserving high-margin services income, said RBC Capital Markets analyst Kaan Peker in a note.
POSCO CEO In Hwa Chan said his company viewed energy materials as a core growth driver alongside its steel business and was committed to securing a stable, cost-competitive supply of the raw materials.
POSCO shares rose as much as 6.6%, set for their biggest daily jump since early July.
LITHIUM PRICE FALL HITS HARD
In August, prices of hard rock spodumene, the lithium-bearing mineral, rebounded to about $880 per metric ton from a fall to four-year lows near $610 in mid-June, but remain well short of 2022 peaks above $6,000.
The price crash pushed Australian miners to mothball operations and, more recently, to consider disposing of assets to rebuild their balance sheets.
Reuters reported in August that MinRes had tried to sell stakes in Mt Marion and Wodgina this year, but the process lost steam after prospective buyers from India and Japan balked at the suggested price tag of more than $2 billion.
MinRes said proceeds from the POSCO deal would be used to repay external debt, fortify the balance sheet, and position the company for future growth.
Under the deal, POSCO will receive spodumene concentrate in proportion to its 30% interest in the joint venture.
Wodgina, one of the world’s largest hard-rock lithium deposits, is operated in partnership with Albemarle. China’s Ganfeng Lithium is the partner for Mt Marion.
($1 = 1.5389 Australian dollars)
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