Tesla, SQM, Tianqi, & Kidman Resources: Analyzing The Latest Deals

May, 17 2018

In the past 24 hours, two major worldwide events happened within the Lithium World. Tesla’s offtake deal with Kidman Resources and Tianqi’s investment stake in SQM. We break down what this means for followers and investors in the space.  

Tianqi & SQM.  

What was the deal?  

Tianqi, one of the major worldwide Lithium companies, purchased Nutrien’s stake in SQM. Nutrien was forced by regulators to sell their stake. The stake was purchased at a premium of $65 dollars (USD) per share whereas the stock is currently trading at ~$55 (USD) per share.  The total purchase comes out to $4 Billion (USD).

What are the implications?  

SQM Shareholders:

  • If you are a SQM shareholder, you should likely be very pleased about this purchase. Tianqi is signaling to the marketplace that SQM share’s are at least worth $65 (USD) or likely more than that.
  • Tianqi stated that they were excited about this deal for their shareholders due to SQM’s “long term stable financial returns and steady dividends.”  This is another boost for the SQM shareholders. Surprisingly, the stock sold off today and was down 5%.

Lithium Market:  

  • Tianqi purchasing a stake in SQM signals that the health and boom in the Lithium market is still robust.  Why else would one Lithium company invest in another if not to take further control of the marketplace and further take advantage of record pricing in the market?  
  • The purchase shows that our theme in 2018, of consolidation, is here to stay.  In late 2017, we predicted that this would be the great year of consolidation in the Lithium market. Boy, were we right.  
  • Consolidation:  Who’s up next? Look for ALB and FMC activity to heat up.  ALB is looking to make an acquisition – they have stated this publicly.  FMC’s spinoff is a prime candidate for acquisition before it is spun off or after the spin off is completed.  It could also be the purchaser once they are spun out.
  • If you’re looking to source Lithium for your company, one would think that SQM and Tianqi have jumped to the top of preferred partners to work with following this deal.  
  • Many in the industry are quoting Corfo that had stated that the combined two partners together will control 70% of the market. This number seems aggressively high to us especially considering all the new producers of Altura, Tawana, Pilbara, AMG, and others entering the market this year.  

Tesla & Kidman Resources

What was the deal?  

Tesla has entered into a deal with Kidman Resources for 5,000 tonnes of Lithium Hydroxide per year for 3 years.  

What are the implications?  

  • The clear winner of this deal is Kidman Resources.  To have Tesla in your back pocket is a major boon to the company, to its shareholders and to SQM (it has a JV with Kidman Resources.  What a day for SQM!).
  • Strategic thinking:  It’s clear that management of Kidman Resources is talented and forward thinking.  The transaction with Tesla represents 25% of their total supply. Given Tesla’s current and future financial condition, which is risky, it would be unwise for the company to put all their eggs in this one basket.  Rather, the company we believe is using Tesla as a marketing strategy and as leverage for their conversations with other off take partners.
  • As noted by Kidman Resources, they are in further “discussions with other strategic, globally significant parties also seeking refined lithium offtake. To date, expressions of interest from these parties have materially exceeded Kidman’s portion of initial refinery nameplate production.” Wow. This once again shows the demand to secure Lithium in the current environment.

Final Thoughts:  

These two deals we believe show that the current environment is ripe for further deals and further consolidation.  The deals may have also re-ignited the lithium stocks which could go on another run over the next several weeks. Time will tell!  

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