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

Kidman Resources Limited explores and develops precious and base metals deposits in New South Wales (NSW), Western Australia and Northern Territory. Kidman’s Mt Holland Lithium deposit is the 3^rd largest hard rock lithium deposit globally. Kidman’s objective is to address the EV thematic as an integrated ASX-listed 1st quartile producer of refined battery-grade lithium. Kidman, with the joint venture partner SQM has been working on the Tier-1 globally significant Mt Holland Lithium Deposit in Western Australia; and in March 2018, a combined Mineral Resource Estimate confirmed Earl Grey’s position as one of the world’s most significant hard rock lithium deposits. A substantial progress has been made in the exploration of lithium-bearing pegmatites in the Mt Holland Project in WA. Historically, Kidman Resources has set about consolidating over thirty databases into one consistent and structured dataset that can be interrogated for the purpose of thoroughly testing Mt Holland Project, a highly prospective region of the Forrestania Greenstone Belt.


Shareholding Pattern (Source: Company Reports)

Further, the Earl Grey Resource will set a strong foundation for operations at Mt Holland, with the team still setting its sights on further discoveries and product-supply extension within the Mt Holland district of which Kidman Resources and its JV partner hold the most prospective ground. Petroleum Minister Bill Johnston also announced the State Budget which included provisional funding of $5.5 million to the Minerals Research Institute of Western Australia (MRIWA), to support development and manufacturing of technology metals and renewable energy sources.


Trend of Lithium Demand (Source: Company Reports)

An offtake agreement with Tesla - KDR entered into a binding agreement with Tesla, Inc. (Tesla) to supply lithium hydroxide (Agreement) and it was followed with the announcement which was made on 4th May 2018 that Western Australia Lithium (WAL), its 50:50 joint venture with Sociedad Quimica y Minera de Chile (SQM), had entered into an exclusive option to lease a premier site in the Kwinana Strategic Industrial Area in Western Australia. The initial term of the Agreement is three years on a fixed-price take-or-pay basis from the delivery of first product and contains two 3-year term options. This agreement equates to less than 25 per cent of Kidman’s portion of initial nameplate production (44,000 tonnes a year) for the first three years from the refinery. It is expected that Tesla will buy about 5000 tonnes a year of lithium hydroxide from Kidman. This agreement will enhance Kidman's post-refinery-commissioning cash flow profile.


JV Funding Structure (Source: Company Reports)

Other Key Updates- The Group made few management changes like Charles McGill, its Chief Financial Officer resigned from the Company and his resignation was effective immediately. In the meantime, the Company commenced an executive search for a replacement for Mr McGill and Jason Eveleigh, Kidman’s current General Manager Finance and Commercial, will take on the role of acting CFO. The Company recently issued 1,000,000 fully paid ordinary shares at an issue price of $0.4275 (42.75 cents) per share for the purpose of conversion of unlisted options. Further, as per the June 2018 quarter rebalance of S&P/ASX indices, KDR has been added to S&P/ASX All Australian 200 Index, effective from June 18, 2018.


Percentage of Deposits of all Hard Rock Lithium Projects (Source: Company Reports)

Highlights of Quarterly (March 2018) Activities - Based on the mine and concentrator scoping study released on 3 October 2017, Earl Grey has been expected to be in the first quartile of the global hard rock cost curve. The Earl Grey resource has been estimated to sit at 189Mt of 1.50 per cent Li2O. During the quarter, Kidman continued an exploration campaign for lithium-bearing pegmatites under the Western Areas Farm-in Agreement and expects to meet its Stage 1 expenditure requirements. Kidman on 9 January 2018 entered into an agreement to sell 100 per cent of its Crowl Creek Project to Talisman Mining for $250,000.The Group reported a cash outflow of ($1,860 000) for the March Quarter. The Group reported an increase of 54 per cent in the combined Mineral Resource Estimate (MRE) of the Earl Grey Lithium Deposit (Earl Grey) that was announced during the quarter and which confirmed Earl Grey’s position as one of the world’s most significant hard rock lithium deposits.


Refinery Site Location (Source: Company Reports)

Positive Outlook - KDR is in discussions with other strategic, globally significant parties and is seeking refined lithium offtake. WAL is advancing the Definitive Feasibility Study for the refinery, which is expected to be released to the market in late 2018. As of now, expressions of interest from these parties have materially exceeded Kidman’s portion of initial refinery nameplate production. The Company is targeting to enter into a limited number of offtake agreements while leaving a minority portion of future supply uncontracted. Kidman has estimated an Exploration Target for Earl Grey of an additional 20-40 million tonnes at 1.3-1.5 per cent Li2O or 7.03 million tonnes of Lithium Carbonate Equivalent (LCE) which is a high confidence estimate with 91 per cent classified as measured and indicated.


Catalyst for Future Growth (Source: Company Reports)

It continues with the process of divesting non-core assets. It is expected that KDR will be the 1st quartile producer of lithium hydroxide. WAL is set to build lithium refinery in Kwinana, potentially creating 400 WA jobs and the construction of the refinery, which is expected to start in mid-2019. It is expected that the refinery will produce about 40,000 tonnes per annum of lithium carbonate and/or lithium hydroxide from the mineral processed at the proposed mine and concentrator at Mt Holland, south-east of Southern Cross.

Stock Performance - Kidman has a priority to deliver shareholders return by delivering the commitments to the market and customers, by maintaining capital discipline and safeguarding balance sheet and by maintaining remuneration policy that aligns management's experience with investors’ experience. The Western Australia Government, both at a department and ministerial level, has been highly supportive of the Mt Holland Project from the beginning, and for the Premier shares vision of making Western Australia an investment destination for the downstream processing of lithium. It has an exclusive option to lease a premier site in Kwinana WA to build a refinery and produce battery-grade refined lithium. The Resource Definition and Exploration drill program in 2017-18 significantly increased both the grade and tonnage of the Earl Grey Lithium Deposit, and considerably de-risked the Resource inventory. The Current Ratio improved from 0.42 in June 2017 to 0.81 in December 2017 and ROIC moved from (42 per cent) in June 2017 to (17.8 per cent) in December 2017. The stock price is declining since past three months. On the other hand, it is expected that lithium demand will grow at a 14 per cent CAGR through 2025.There is also a discussion going across the market that China is targeting 25% of domestic car production to be electric by 2025, and this can turn the lithium landscape given the recent weakness. We recommend to “Buy” this stock at the current market price of $1.89 given the 14% fall witnessed in last one month after one-year rise of 226%, and it is expected that the group’s partnerships will help Kidman to endorse its strategy to become an integrated supplier of battery-grade refined lithium.
 

KDR Daily Chart (Source: Thomson Reuters)

 
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