Company Overview:  Kidman Resources Limited explores and develops precious and base metals deposits in New South Wales (NSW), Western Australia and Northern Territory. Its other principal activities include development of its Burbanks Gold Project located in Western Australia; acquisition of the Mt Holland asset located in Western Australia, and carrying out all requirements in relation to the acquisition of the Mt Holland Project. It operates in the exploration for base metal and rare earths industry within Australia. The Mt Holland Gold & Lithium project consists of both exploration and resource drilling. The Burbanks Gold Project is situated near Coolgardie, Western Australia. The Browns Reef Project is located close to the township of Lake Cargelligo in central NSW. The Crowl Creek Project is made up of eight exploration licenses located near the township of Condobolin in Central NSW. The Esmeralda Prospect is situated 58 kilometers southeast of the productive Croydon Goldfield in North Queensland.


KDR Details

Lithium stocks have lately seen a price pullback ranging from over 10% to about 25% in the last few days, and this seems to have created some buying opportunity in stocks that pivot on strong fundamentals given the market trend that has been swinging between the bull and bear scenario though more skewed to the former. The latest build-up on lithium supply forecasted to outstrip demand (at the back of Chilean chemicals company SQM settling the terms with the Chilean agency CORFO for a substantial production increase) is still not supported too well and the market position on electric vehicle battery needs still hinges back on lithium. Considering that Kidman has entered into few agreements that are moving on track with regards to the development of a world-class integrated lithium refinery that allows production of lithium hydroxide and lithium carbonate, the scenario proffers a good potential stock with the back drop that the lithium-ion batteries are estimated to account for about 70% of demand uplift.

Divestment of non-core assets: In an attempt to divest non-core assets and focus purely on lithium JV activities at Mt Holland, KDR had entered into an agreement to sell 100% of its Crowl Creek project to Talisman Mining for $250,000. Recently, Talisman commenced its on-ground exploration activities on the Lachlan Copper-Gold Project in New South Wales which comprises of Talisman’s own tenure and tenure under JVs and that relating to the purchase agreement with KDR. Exploration efforts will be focussed on the identification of the copper-gold and base metal mineralisation and it will target sulphide-rich deposits which are associated with major structures. Talisman geologists are currently completing its initial reconnaissance geological mapping and rock chips sampling to verify copper, gold and base metals anomalies which were identified historically. Talisman intends to quickly follow-up this initial reconnaissance work with a systematic shallow auger drilling so that it can collect samples for geochemical analysis. Additional meetings are also in the pipeline with the landholders and few land agreements have been negotiated successfully. It is worth noting that Talisman significantly expanded its landholding in the prospective Lachlan Fold Belt of New South Wales through a farm-in agreement with a private company that is Bacchus Resources Pty Ltd and through a purchase agreement with Kidman Resources Ltd. Under these new agreements, Talisman may earn to an 80% interest in Bacchus’ gold and base metal projects and it is also going to acquire a 100% interest in the Kidman copper-gold projects. Additional updates on approvals and drilling activities are expected in March 2018 quarter.
 

Integrated Project Flow Chart (Source: Company Reports)
 
KDR joined hands with a big player for a total investment of $US110 million: In December last year, KDR and Sociedad Quimica y Minera de Chile (SQM) sealed Definitive Agreements in relation to the establishment of the 50:50 Mt Holland Project with finalisation of the JV in place following the approval of Australian Government’s Foreign Investment Review Board. Kidman transferred a 50% of its interest in the Mt Holland tenements which includes the world-class Earl Grey lithium deposit to an Australian subsidiary of SQM. KDR received its first initial instalment of the purchase price for the transfer of its 50% interest (US$3.5m). Post the release of feasibility study in June 2018 quarter, KDR and JV will receive a further payment (US$25.0m to KDR and US$60.0 m to JV) with the decision to mine being taken. The Mt Holland Project is titled to be the ‘best undeveloped hard-rock lithium project’ in Australia. It is worth noting that Western Australian Government had granted the Integrated Mt Holland Project with the status of “Level 2 Lead Agency Service” and it has been assisting KDR in streamlining the project and its development activities.
 
Expecting an encouraging Drilling Update: KDR’s last drilling results at the Mt Holland Project located in the Forrestania Greenstone Belt which is near Southern Cross in Western Australia, revealed an updated Mineral Resource scenario and the update on ore reserve is expected to be out in mid-2018 which will form the basis of a robust project providing a reliable long-term supply. The group seems to be on track with all the relevant approvals, construction of an on-site lithium concentrator on its way, and work on finalising the optimal location for a refinery with the strong support from WA State Government. Its partnership with SQM, is already working exceptionally well as per its ability to deliver on promises, with the JV being established and funded according to the schedule. At Earl Grey, KDR had indicated the Maiden Combined Mineral Resource of 128Mt at 1.44% Li₂O for 1.84Mt lithium oxide (4.54Mt Lithium Carbonate Equivalent). The 2017 November updates reinforce the extensive program of infill and extensional drilling at its Integrated Lithium Project at Mt Holland, to continue to deliver outstanding results indicating an increase in the project’s Mineral Resource confidence and inventory.


Mt Holland Project and other Li Projects (Source: Company Reports)
 
Additional sale updates: Recently, Barra Resources Limited completed its purchase of 100% of the share capital in Coolgardie Mining Company Pty Ltd (CMC) which is fully owned subsidiary of Kidman Resources. CMC holds the mining license M15/161 which covers the Burbanks gold mine. As per the sale agreement, Barra paid an upfront fee of $121,000 and a royalty of $20 per ounce of gold for the first 55,000 ounces of gold sold from the Burbanks mine has also been indicated.
 

Comparative Analysis (Source: Company Reports)
 
Financial Performance: KDR had reported sales of A$92,636.00 for year ending June 2017 and this was a decrease of 98.8% against prior year. The profit margin was also lower along with a negative working capital. The company had reported losses before extraordinary items at the back of impairment of assets and other liabilities. This indicated that the company needed to gear up to tackle challenges in terms of expansion. Further, cash at bank at 30 September 2017 was only $6.23m and Kidman had then drawn-down USD$6.1m via its converting note with SQM to continue progressing work at Mt Holland by the end of the quarter. Given the recent developments and partnerships to cater to funding crunch, KDR is expected to be delivering improvements in terms of its overall performance at the back of its cracker Li asset.
 
Stock Performance: The stock price has been up 241.67% in last six months (as at January 23, 2018) followed by 9.56% dip in last five days owing to the sector driven headwinds. Meanwhile, Non-Executive Chairman, Mr Peter Laser had retired from KDR Board and Mr Brad Evans had agreed upon to act as an Interim Chairman. While prospects look good with some bit of volatility expected owing to sector driven terms, however, the skew to hard-rock sources such as that coming from KDR seem to benefit the group. This might make up for the near-term shortfall in supply while brine capacity increases over the next few years are yet to fully address the scenario. Amidst this, Mt Holland is expected to provide higher value. We give a “Buy” on the stock at the current price of $1.835


KDR Daily Chart (Source: Thomson Reuters)

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