US-listed Albemarle Corporation has signed an exclusivity agreement with Mineral Resources to create a 50/50 joint venture (JV) to own and operate the Wodgina lithium operation and co-develop integrated lithium hydroxide (LiOH) facilities onsite at Wodgina.


Under the structure of the deal, Albemarle will pay Mineral Resources US$1.15bn for a 50% interest in the joint venture via a cash payment equivalent to $8.50 per Mineral Resources share, or two thirds of the current share price. Mineral Resources will retain the remaining 50% of the JV.


The JV will look to commence construction on a 50,000tpa LiOH plant as soon as the necessary licences and approvals are in place. The second stage of the downstream project is subject to market conditions, but would add another 50,000tpa of LiOH capacity and fully consume all of Wodgina’s concentrate output.


Ord Minnett had valued Wodgina at $2.3bn – US$1.64bn or US$820m for 50% – but this included only 50,000 tonnes (t) of the newly targeted 100,000tpa of LiOH downstream capacity. Including the additional 50,000t lifts our discounted cash flow valuation to $3.2bn (US$2.3bn, or US$1.15bn for 50%), in line with the agreed price.


This is a clean and fair deal, in our view, and both parties plan to have binding definitive documents by 14 December. By partnering with a global lithium leader, Mineral Resources has galvanised the value of the downstream option and cemented Wodgina as a tier-1 strategic asset. Not only does this transaction deliver a cash windfall for Mineral Resources, but also it confirms the strategic value of upstream lithium assets that can be developed into long-term non-China supply sources of battery-grade lithium.


We maintain our Accumulate recommendation and recently raised our target price to $21.00 from $18.00.

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