
MELBOURNE, Sept 4 (Reuters Breakingviews) – On the surface, offering a near-100% premium for an as yet unproductive lithium miner may seem over the top. Dig down a bit, though, and U.S.-based Albemarle’s (ALB.N) A$6.6 billion($4.3 billion) sweetened all-cash offer on Monday for Australian rival Liontown Resources has financial merit, as well as offering each side a handy hedge.
Liontown’s mines in Western Australia are set to go operational next year and by 2026 could yield almost A$1.3 billion in EBITDA. On that basis, the 20% bump the top producer of a key metal for electric-vehicle batteries added to its March offer values its target’s enterprise at five times that earnings metric, using estimates compiled by Visible Alpha. That’s below where Albemarle trades today.
A plan by Chile’s government to nationalise lithium resources adds more reason for the deal. While Albemarle said the country’s plan would have “no material impact” on its business, it’s smart to diversify. Liontown, meanwhile, is dealing with rising costs, with the expense of building its flagship Kathleen Valley project doubling within two years to A$895 million. Putting the two miners together would help alleviate some potential headaches. (By Antony Currie)
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