Nickel miner IGO has announced a transformational deal to buy 49 per cent of Tianqi Lithium, giving it a minority stake in both the Greenbushes lithium mine and the Kwinana lithium refinery.
The $US1.4 billion ($A$1.9 billion) deal is one of the largest acquisitions in Western Australia this year, surpassed only by the merger of Northern Star Resources and Saracen Mineral Holdings.
IGO will acquire a 24.99 per cent indirect interest in the Greenbushes mine and processing plant, which is the world’s largest and lowest cost producer of lithium (aka spodumene) concentrate.
Tianqi will retain a 26 per cent stake in Greenbushes while US company Albemarle Corporation will retain its 49 per cent holding.
IGO will also have a 49 per cent indirect interest in the Kwinana lithium hydroxide plant, with Tianqi retaining the balance.
Tianqi has invested $US700 million at Kwinana, where it has completed construction of the first production train and started construction of train 2.
IGO said today it would cost about US$30 million to commission train 1 and US$190 million to complete train 2.
The acquisition is to be funded by a $766 million equity raising along with $1.1 billion in new debt facilities and existing cash reserves, IGO said.
IGO said the deal was aligned with its strategy of becoming a major supplier of ‘critical minerals’, with a portfolio of WA assets across lithium, nickel, copper and cobalt.
The deal also creates Lithium HoldCo, a global lithium partnership between IGO and China’s Tianqi, to become the exclusive vehicle for any future lithium related investments outside of China.
“This is a genuinely transformational transaction for IGO and one that delivers on our strategy to become a global leader in the supply of metals critical for enabling a clean energy future,” IGO managing director Peter Bradford said.
“Both Greenbushes and Kwinana are world-class assets with attractive growth profiles that together provide the platform for building a global lithium business.
“We look forward to working with Tianqi to build a leading global lithium business that will play an important role in supporting the global transition to clean energy technologies, while generating substantial value for IGO shareholders for many years to come.”
Tianqi’s founder and chairman Jiang Weiping said he was pleased to welcome IGO as its long-term strategic partner in Lithium HoldCo.
“Following an extensive global search, IGO was the clear choice to become our long-term partner to establish a new global lithium business given our shared vision for a clean energy future and unique combination of complementary skillsets,” he said in a statement.
“This transaction also facilitates a recapitalisation of our balance sheet that will position us strongly for the expected recovery in the lithium sector.
“We are looking forward to working closely with IGO over the coming years to grow a leading global lithium business that will create significant value for our respective shareholders.”
The deal is scheduled for completion in the June 2021 quarter and is subject to various regulatory approvals, including from the Foreign Investment Review Board.
It is also subject to Western Australia’s Office of State Revenue (OSR) granting “reconstruction relief” related to the internal restructure of Lithium HoldCo.
In addition, it is subject to Tianqi’s chairman making available a US$117 million loan to Tianqi to provide funding in the period to completion of the transaction.
IGO and Tianqi plan to finalise a shareholders’ deed for Lithium HoldCo.
Lithium HoldCo’s board will comprise five directors, with two nominees each appointed by IGO and Tianqi and one independent director to be appointed by Tianqi “subject to meeting defined independence criteria”.
IGO has the right to appoint the CFO for Lithium HoldCo as well as nominate one of Lithium HoldCo’s nominees to the Greenbushes JV board.
Conversely, a break fee of US$70 million is payable by Tianqi to IGO if certain conditions precedent are not satisfied.
A lower break fee of US$35 million is payable in a more limited set of circumstances, for example if Tianqi fails to obtain necessary financier consents.
IGO said its capital raising would be priced at $4.60 per share, a 10 per cent discount to its last price.
The retail component of the offer will open on December 15.
The nickel miner is also expecting indicative bids later this month for its 30 per cent stake in the Tropicana joint venture with AngloGold Ashanti.
Business News understands proceeds from the potential sale will be used to pay down some of IGO's debt, which stood at $57.1 million at the end of FY20.
IGO remains in a trading halt, as requested on December 7.