Barry FitzGerald: The lithium junior catching some billionaire eyes right now
‘Garimpeiro’ columnist Barry FitzGerald has covered the resources industry for +35 years.
Garimpeiro’s Perth spooks tell him that a couple of billionaires have taken a shine to Delta Lithium (ASX:DLI) which until a week ago was known as Red Dirt Metals.
The word was that Chris Ellison’s Mineral Resources (ASX:MIN) and Gina Rinehart’s Hancock Prospecting have been snapping up Delta shares recently.
Garimpeiro is not sure about buying by Ms Rinehart but channel checks suggests the MinRes speculation is on the money, even if there is no substantial shareholder notice yet, and the fact that there may never be one.
What is known for sure is that Delta has been a strong performer in the last month, putting on some 25% to the 44.5c it was trading at mid-week.
But that was really just a recovery from the pounding the whole lithium sector took in March in response to the sharp fall in lithium prices.
So the recent buying by MinRes, and possibly by Ms Rinehart, has been taking advantage of Delta’s lower share price in March/April, with the expectation that the lithium market would stabilise as it looks to be doing now.
MinRes in particular knows a thing or two about the lithium market. It has an ambition to be a top five lithium producer alongside its mining services and iron ore operations. It is already well on the way in lithium.
It is a 50% partner with Albemarle of the US in the Wodgina mine in the Pilbara, and also partners Albemarle – the lithium giant that lobbed a rejected $5.5 billion bid for Liontown (ASX:LTR) – with a 15% interest in the Kemerton hydroxide refinery near Bunbury.
In addition, MinRes has a 50% share in the Mt Marion lithium mine with China’s Ganfeng near Kalgoorlie.
Mt Marion, 40km southwest of Kalgoorlie, is where production is being doubled to 900,000tpa of spodumene, and Kalgoorlie is where MinRes has expressed an interest in building a hydroxide refinery.
The big ambition for Mt Marion was behind MinRes’s 11th hour intervention in the $136 million bid for the regionally close Essential Metals (ASX:ESS) which owns the Pioneer Dome project. The bidders – the IGO and Tianqi lithium joint venture – thought they were home and hosed with the 50c a share offer.
But MinRes acquired a 19.5% stake in opposition just days ahead of a shareholder meeting called by Essential to approve the bid.
As a result, the bid was voted down at the meeting. MinRes has not followed up with a bid of its own but its action did demonstrate that one of our biggest lithium players considers Essential has strategic appeal.
That little bit of history goes to why MinRes has been buying Delta – it is placing its foot on potential future supply sources to ensure a bigger and multi-decade future in the lithium space.
Like Essential, Delta is one of the few ASX-listed juniors with a JORC-compliant resource under its belt at its Mt Ida lithium project, about 100km northwest of Menzies.
At 12.7Mt grading 1.2% lithium, it is bigger than Essential’s 11.2Mt grading 1.16% lithium at Pioneer Dome, 130km south of Kalgoorlie.
Delta has the bigger market cap of the two at $198m, mainly because Mt Ida is more advanced, and because Delta also owns the exciting but early stage Yinnetharra pegmatite field inland from Carnarvon.
As mentioned by Garimpeiro on February 11 when Delta/Red was trading at 47.5c, the company is one of the last “independent’’ smaller lithium players left with a real project on its hand, and an exciting exploration project to boot.
Given the activity amongst the lithium majors to secure future additional supply sources as pointed out earlier, Delta could sit back and wait for offers of takeovers/strategic alliances and so on.
But under its bustling executive chairman David Flanagan, the plan is force a re-rating of the stock by getting Mt Ida into production by the end of the year, as well as confirming the upside potential of Yinnetharra.
“We will start out with a relatively small operation with a hired mining fleet and crushing plant. We will be taking the top ore body off to produce a direct shipping ore product (1-1.2% lithium) as a precursor to building a concentrate plant (6% lithium),’’ Flanagan told Garimpeiro in February.
Delta raised $55m late last to get things happening. MinRes has obviously been watching.
Will its buying lead to nothing more than a friendly portfolio position, or will it become something bigger like at Essential? Or maybe a bid?
We’ll have to wait and see. But at least the lithium juniors are being recognised by the industry leaders of having strategic importance in the great lithium ramp-up to meet the demands of the battery revolution.