Kidman Resources Limited

Wesfarmers’ Kidman Deal Closure One Step Forward: Kidman Resources Limited (ASX: KDR) is engaged in the exploration and development of the Mt Holland Lithium Project located near Southern Cross in Western Australia.

The company has released an update on 23 May 2019 and mentioned that Wesfarmers Limited (Wesfarmers) has completed its exclusive period of due diligence in relation to its proposal to acquire 100% of the outstanding shares in Kidman for $1.90 cash per share. With this, Wesfarmers has entered into a SID (Scheme Implementation Deed) with KDR. As per the Deed, a wholly owned subsidiary of Wesfarmers, Wesfarmers Lithium Pty Ltd will acquire 100% of the ordinary shares in KDR. The transaction would be in the form of cash consideration of $1.90 per share via a scheme of arrangement (Scheme). The transaction price of $1.90 per share comes in with a premium of 47.3% to the closing price as on 1 May 2019, before this acquisition proposal by Wesfarmers, and corresponds to a transaction value of ~$776 million. The management of KDR has unanimously recommended to Kidman shareholders to vote in favour of the Scheme (in the absence of a superior proposal) and suggested that the proposed arrangement is in the best interests of Kidman shareholders.

Wesfarmers has entered into a commitment deed with SQM (Sociedad Química y Minera de Chile S.A.) in relation to the Mt Holland lithium project JVA between SQM and KDR.

Transaction Rationale: The global uptake of electric vehicles offers an attractive opportunityfor the companies engaged in the production of lithium being a critical key raw material into the manufacturing of battery grade lithium hydroxide.

With KDR’s 50% ownership in the Mt Holland lithium project comprising a large amount and high-quality lithium deposit and Wesfarmers’ expertise in chemical processing provide a wide opportunity to both the players to leverage the benefits. On completion of the acquisition, the JV will be an integrated producer & supplier of premium, battery-grade lithium hydroxide for the electric vehicle market.

The proposed acquisition offers an opportunity to partner with SQMas the JV partner in the Mt Holland project.

Indicative Timetable and Next Steps For The Proposed Acquisition: After receiving the approval from the court,a scheme booklet will be sent to shareholders of KDR in late July. Meet for the vote on Scheme will be held in August 2019. An indicative timetable for the Scheme is mentioned below:

Indicative Timetable (Source: Company Reports)

Highlights of Quarterly Activities Report for March 2019: KDR has entered into an agreement of US$100 million loan facility with SQM which will strengthen the future capacity of the balance sheet.Public review period for the Environmental Review Document for the Mt Holland Lithium Project has been over. The company has submitted the programs of work for regional exploration drilling to the concerned regulator. The company has commenced the next stage of the debt financing process. KDR has made a consortium of 5 lenders to finance its project. Due diligence for this project financing is in progress.

Financial Performance: The loss for the group after providing for income tax stood at $3,569,167 during the 6-month financial period ended 31 December 2018 as compared to the loss of $9,681,568 for the 12-month period to 30 June 2018. Net assets of Kidman grew by $4,130,019 to $20,284,255 during the 6-month period ended 31 December 2018 as compared to $16,154,237 in 12 months to 30 June 2018.

At the current market price of $1.895 per share, the market capitalization of the stock stands at ~$761.02 million. The stock has risen ~73% on a YTD basis and ~40% in the last one-month.   

Given the scenario, we believe that the acquisition looks appealing and shareholders can vote in favour of the same. 

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