Company Overview: Kidman Resources Limited explores and develops precious and base metals deposits in New South Wales (NSW), Western Australia and Northern Territory. Its other principal activities include development of its Burbanks Gold Project located in Western Australia; acquisition of the Mt Holland asset located in Western Australia, and carrying out all requirements in relation to the acquisition of the Mt Holland Project. It operates in the exploration for base metal and rare earths industry within Australia. The Mt Holland Gold & Lithium project consists of both exploration and resource drilling. The Burbanks Gold Project is situated near Coolgardie, Western Australia. The Browns Reef Project is located close to the township of Lake Cargelligo in central NSW. The Crowl Creek Project is made up of eight exploration licenses located near the township of Condobolin in Central NSW. The Esmeralda Prospect is situated 58 kilometers southeast of the productive Croydon Goldfield in North Queensland.


KDR Details

Kidman Resources Limited explores and develops precious and base metals deposits in New South Wales (NSW), Western Australia and Northern Territory. Its other principal activities include the development of its Burbanks Gold Project located in Western Australia; acquisition of the Mt Holland asset located in Western Australia and carrying out all requirements in relation to the acquisition of the Mt Holland Project. KDR has lately joined hands with SQM. It is the world’s leading lithium producer that accounts for more than 20% of lithium supply globally. The achievement of few milestones reflected the commitment of both Kidman and Sociedad Quimica y Minera de Chile (SQM) to rapidly progress activity within the Joint Venture (JV). This includes the establishment of the JV Management Committee. Reflecting the 50:50 nature of the JV, the respective Management Committee is co-chaired by the CEO of Kidman and CEO of SQM.


Rising Lithium Demand (Source: Company Reports)

Striving for good returns to shareholders: Kidman’s objective is to address the EV thematic as an integrated ASX-listed 1^st quartile producer of refined battery-grade lithium. Kidman will achieve this objective by delivering Mt Holland Lithium Project safely, on time and within the budget, by seeking offtake agreements with selected blue-chip counterparties. It complies with independence by Preserving the right to market its 50% of Project output and by maintaining independence from the Chinese conversion market. It is developing strategic relationships through its arrangement with SQM and by enhancing relationships with global EV and battery industry leaders. It has a priority to deliver shareholders return by delivering the commitments to the market and customers, by maintaining capital discipline and safeguarding balance sheet and by maintaining remuneration policy that aligns management's experience with investors’ experience. By following such a clear strategy, Kidman expects to deliver a compelling return to shareholders.


Catalyst for Future Growth (Source: Company Reports)

Key target achievement through various aspects: It is expected that KDR will be the 1^st quartile producer of lithium hydroxide. This target banks on its key assets and is expected to be driven by features of Mt Holland Lithium Deposit and Kwinana site and other aspects that include Average C1 spodumene concentrate cash cost of ~US$205/t, Low strip ratio (1.9 after pre-strip) and high Li₂O content, and by Brownfield mine site of 400km from Perth with electricity, water, rail and road infrastructure. The Cost position has been underpinned by scale and quality of the Mt Holland Lithium Deposit with 7.03mt of contained lithium having 50+ years of life of mine and 91 per cent of the resource as measured or indicated. It is the 3^rd largest hard rock lithium deposit globally. The Group received a request to convert 47.4 million KDRO options. Proceeds from conversion amounted to $7.1 million, which will be added to Kidman’s cash balance which was $3.4 million as at 31 March 2018. Subject to this application, Kidman expects to have total fully paid ordinary shares on issue of approximately 398.5 million shares.

Quarterly (March 2018) Activities highlight emergence of Earl Grey as a quality asset: The Group reported an increase of 54 per cent in the combined Mineral Resource Estimate (MRE) of the Earl Grey Lithium Deposit (Earl Grey) that was announced during the quarter and which confirmed Earl Grey’s position as one of the world’s most significant hard rock lithium deposits. Based on the mine and concentrator scoping study released on 3 October 2017, Earl Grey is expected to be in the first quartile of the global hard rock cost curve. In addition to the drilling activity related to the MRE, drilling in other areas within Earl Grey has intersected spodumene bearing pegmatite. The Earl Grey resource has been estimated to sit at 189Mt of 1.50% Li₂O. Based on this activity, Kidman has estimated an Exploration Target for Earl Grey of an additional 20-40 million tonnes at 1.3-1.5% Li₂O. This has bestowed good geological confidence in the Earl Grey deposit in terms of grade continuity.
 

Analysis of Soil Geochemical Results (Source: Company Reports)

During the quarter, Kidman continued an exploration campaign for lithium-bearing pegmatites under the Western Areas Farm-in Agreement and expects to meet its Stage 1 expenditure requirements. The drilling programme has highlighted several areas for follow-up exploration work and has helped to refine the district-scale fractionation trend model of the Mt Holland pegmatite field. Kidman on 9 January 2018 entered into an agreement to sell 100% of its Crowl Creek Project to Talisman Mining for $250,000. While Kidman continues to focus on JV activities, it will also continue the process of divesting non-core assets. As at 23 April 2018, Kidman received notices of exercise for 29.2 million of 47.5 million options, equating to cash proceeds to Kidman of $4.4 million upon conversion on 30 April 2018.  It is likely that overall proceeds from the exercise of the KDRO options will exceed $6.0 million at conversion. The Group reported a cash outflow of ($1,860 000) for the March Quarter.


Estimated Cash outflow for the next Quarter (Source: Company Reports)

Prospective Refinery Site Location: The Group announced that Western Australia Lithium (WAL), its 50:50 joint venture with Sociedad Quimica y Minera de Chile (SQM), has entered into an exclusive option with Western Australian Land Authority (Landcorp) to lease a premier site in the Kwinana Strategic Industrial Area in Western Australia. WAL is advancing the Definitive Feasibility Study for the refinery, which is expected to be released to the market in late 2018. WAL is currently planning to commission the refinery in 2021, with an initial annual nameplate capacity of approximately 44,000 tonnes of lithium hydroxide or 37,000 tonnes of lithium carbonate. Kidman maintains the right to participate in up to 50 per cent of the refinery investment and market its portion of the refined product. The Western Australia Government, both at a department and ministerial level, have been highly supportive of the Mt Holland Project from the beginning, and for the Premier shares vision of making Western Australia an investment destination for the downstream processing of lithium.


Refinery Site Location (Source: Company Reports)

Stock Performance: While the market has seen a bit of turbulence lately with regards to the lithium prices; however, lithium demand is still expected to grow at a 14% CAGR through to 2025 at the back of Electric Vehicle demand. At company level, putting its foot on the Kwinana site is a major step in Kidman’s kitty to delivering on its strategy while being an ASX listed integrated manufacturer of battery-grade refined lithium. The benefits of the Kwinana site vastly outweigh those of the other sites it considered. The Group has also issued 47,419,356 fully paid ordinary shares at an issue price of $0.15 (15 cents) per share for the purpose of conversion of listed KDRO options. Kidman also experienced a high level of interest from various parties seeking lithium hydroxide offtake during the March Quarter. The group has appointed Charles McGill as its Chief Financial Officer (CFO) and Jason Eveleigh has moved to a strategic and newly created position as Group General Manager, Corporate. One of its Director Brad Evans having a direct interest in the Company acquired 12,819 shares. ROE as at December 2016 was (55.3 per cent) and as at December 2017, it was (17.9 per cent). Percentage of Debt to Total Capital Employed is nil as at December 2017 as compared to 24 per cent in December 2016. KDR’s return on invested capital has also improved to (17.8%). The share price has been increasing in the past few months. We recommend to “Buy” this stock at the current market price of $2.16.
 

KDR Daily Chart (Source: Thomson Reuters)

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