Lithium Revolution: Rinehart, SQM Unite in $1.7B Bid

In recent news, Azure Minerals (ASX: AZS) initiated a bid with two parties–Hancock Prospecting and Sociedad Química y Minera de Chile S.A. (SQM).

Why does this joint takeover bid matter so much? Well, it marks a significant chapter in the lithium industry and promises a strong growth curve in the coming months. The $1.7 billion bid, set at $3.70 per share, reveals a fully-diluted equity value for Azure Minerals (ASX: AZS).

This suggests a promising future for the exploration company. This development comes as SQM (AXS: SQX) and Hancock pool their resources to acquire Azure Minerals (ASX: AZS). The maiden mineral resource for the Andover lithium discovery is expected to be released in the upcoming June quarter.

Where the Current Market Stands

The best way to understand why this deal is a hallmark move is to first understand the current market dynamics. Azure Minerals' (ASX: AZS) journey gained traction earlier in 2023 when SQM (AXS: SQX) initially secured a stake in the company. This stake was close to 20% in the company, which was a big deal.

The subsequent lithium discovery in June 2023 elevated Azure Minerals' (ASX: AZS) standing in the industry. This further set an exploration target at Andover between 100-240 Mt at 1-1.5% Li2O. This places the company in a strategic position, with the potential to hold one of the largest Tier-1 lithium resources globally.

Now that you know where the market stands, let’s see how the players are going to be affected by this deal.

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The Deal in Focus

The joint bid by SQM and Hancock comes after SQM's (ASX: SQX) initial offer of $3.52 per share, with a fallback offer of $3.50, in October. Gina Rinehart, the driving force behind Hancock Prospecting, swiftly acquired an 18.3% stake in Azure Minerals (ASX: AZS).

Without a doubt, this disrupted the trajectory of SQM's (ASX: SQX) acquisition plans. Now, with both entities combining forces, Azure Minerals (ASX: AZS) has entered into a binding TID. If you are new to this, it means the company is in a Transaction Implementation Deed with the joint bidders.

Pros

Here are the advantages of the deal for all the parties involved:

1. Significant Uplift in Value

Azure Minerals' (ASX: AZS) Managing Director, Tony Rovira, highlights the substantial increase in value from the original SQM transaction despite market volatility and recent lithium price fluctuations.

2. Expertise and Financial Strength

The collaboration between Hancock and SQM (ASX: SQX) brings substantial financial strength to the project. It also delivers the expertise to oversee the development of Andover.

3. Unanimous Board Support

The Azure Minerals board has unanimously recommended that shareholders support the transaction. This points toward a positive outcome for both shareholders and stakeholders in the Andover project.

Cons

There are some cons to this deal as well to be aware of. Some of these include:

1. Market Volatility and Lithium Prices

Elevated market volatility presents a challenge. Furthermore, there has been a recent deterioration in lithium prices. However, the deal structure aims to mitigate these concerns by offering a backup takeover offer of $3.65 per share.

2. SQM's Initial Offer

SQM's initial offer of $3.52 per share faced resistance from Hancock. This is sure to lead to a more complex and competitive bidding environment.

What to Expect

The scheme proposal, offering a significant 63.9% bump to the 10-day VWAP of $2.26 a share, sets the stage for a shareholder meeting in March 2024. Two major shareholders, Creasy Group and Delphi Group, have expressed their intent to support the transaction, contingent on no superior proposal emerging.

The next step is to approach the Foreign Investment Review Board (FIRB) in Australia for approval. Following this, a shareholder meeting is expected in mid-March, with the scheme implementation soon after if successful.

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Summing Up

The Rinehart-SQM-Hancock collaboration represents a pivotal moment in Azure Minerals' (ASX: AZS) trajectory and the broader lithium market. As the industry eagerly awaits the maiden mineral resource estimate for Andover, the joint bid underscores the potential for a substantial lithium resource.

With unanimous board support and major shareholder backing, the deal is poised to reshape the future of all the parties involved.