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. Lithium is a key ingredient in rechargeable batteries that power electric cars and this sets a good platform for KDR. The expectation of rise in demand for vehicles like Tesla Inc’s Model X and General Motors Co’s Chevy Bolt has lifted lithium carbonate prices more than two times above early 2015 levels. Though lithium-ion batteries have been used in consumer electronics for decades, their growing use in electric vehicles has increased the price of lithium that is delivered to China over the past four years. In terms of comparative stock performance with peers including Galaxy Resources and Altura Mining, Kidman has surged quite well in last one year given its resilient project dynamics. Initially, when the Group entered into a deal over Mt Holland tenement, the company hoped the deal would make it a major gold producer but when pegmatite was found on the acreage, it has become a lithium prospect and Kidman's partners in the project include major global players like electric vehicle manufacturer Tesla and one of the world's biggest lithium producer, Sociedad Quimica Y Minera (SQM) of Chile. It has been expected that Australia will supply 62 per cent of the world's lithium in 2018 on the back of three new mines, including Tawana's Bald Hills, coming into production. Since the start of 2018, lithium stocks came under pressure owing to demand supply scenario but the trends in the past few days reveal better prospects. The changing demand dynamics are once again expected to play in favour of Australia's hard rock lithium miners.


Major Lithium Hard-Rock Projects (Source: Company Reports)

Company-wide Updates – Recently, Marindi Metals Limited confirmed that it has agreed with Kidman Resources Ltd for a full and final settlement in relation to costs for the amount of $650,000 payable within 7 days from the 25th June 2018. Meanwhile, CFO of the  Company, Charles McGill decided to resign from the Company and Jason Eveleigh will take on the role of acting CFO. KDR expects that its partnership with SQM, which is the world’s leading lithium producer that accounts for more than 20 per cent of lithium supply globally, will help it grow well in lithium space. The achievement of few milestones reflected the commitment of both Kidman and Sociedad Quimica y Minera de Chile (SQM) to rapidly progress activity within the Joint Venture (JV).


Lithium Cost Curve (Source: Company Reports)

Supply of Lithium for Tesla cars - KDR will supply lithium for Tesla Inc’s electric car batteries, as demand for clean tech cars is surging in the market. This deal came after Kidman chose a site to develop a lithium processing plant in Kwinana, Western Australia, with its joint venture partner Sociedad Quimica y Minera de Chile (SQM). 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. Lithium hydroxide gives much better energy density and that leads to the much better range, and power and range are the major drivers of electric vehicles.


Trend of Lithium Hydroxide and Carbonate Pricing (Source: Company Reports)

Scope and Outlook - The Group’s objective is to address the EV thematic as an integrated ASX-listed 1^st quartile producer of refined battery-grade lithium and it will achieve this by delivering Mt Holland Lithium Project safely, on time and on budget. It is seeking offtake agreements with selected blue-chip counterparties and is leveraging SQM expertise in development, construction and in operations of Project. It is enhancing relationships with global EV and battery industry leaders. It is maintaining capital discipline and safeguarding balance sheet and has been nurturing the relationship with SQM. It maintains nimble, entrepreneurial and innovative culture while recognising and increasing the scope of business.


Catalysts for Growth (Source: Company Reports)
 

During the last couple of years, lithium has become the hottest sector in the market, especially in Australia as it has grown its market share of raw lithium production from about 13 per cent in 2000 to 50 per cent in 2017. The Cost position has been underpinned by scale and quality of the Mt Holland Lithium Deposit with 7.03mt of contained lithium having 50+ years of the life of mine and 91 per cent of the resource as measured or indicated. The Group received a request to convert 47.4 million KDRO options. Proceeds from conversion amounted to $7.1 million, which will be added to Kidman’s cash balance which was $3.4 million as at 31 March 2018.

Trend of Lithium Demand (Source: Company Reports)

Stock Performance - The Group recently issued 47,419,356 fully paid ordinary shares at an issue price of $0.15 (15 cents) per share for the purpose of conversion of listed KDRO options. 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. Experts have forecasted that EV sales will grow globally from 1 million in 2017 to 64 million in 2040 and demand will grow at a 21 per cent CAGR over the period. Further, it is expected that demand growth will outpace supply growth by 2025 and market will fall short of 154 million tonnes of lithium carbonate in 2025 and Kidman will address the EV market by producing refined battery-grade lithium. Its Integrated Refinery Model allows Kidman to bypass the Chinese conversion market. Its Mt Holland Lithium Project will be a fully integrated mine, concentrator and refinery soon. The agreement with Tesla will enhance Kidman's post-refinery-commissioning cash flow profile. It has preserved the right to market 50 per cent of its Project output.

The Company has experienced share price gains of multiple-folds in last five years. ROE as at June 2017 was (49.7 per cent) and as at December 2017, it was (17.9 per cent). Debt to Equity was 0.52 as at June 2017 as compared to 0.45 in December 2017. KDR’s return on invested capital has also improved to (17.8 per cent) in December 2017 from (42 per cent) in June 2017. Since the start of the year, the stock price has been declining and was down by 16.75 per cent in last one month but was up by 662.22 per cent in 5 years as at 10 July 2018. We recommend to “Buy” the stock at the current market price of $1.71 (marginally above than the average of 52-week high and low price) by looking at the Group’s potential for significant resource growth, spectacular demand for lithium and partnership with Tesla which will help Kidman to endorse its strategy to become an integrated supplier of battery-grade refined lithium.


KDR Daily Chart (Source: Thomson Reuters)

 
Disclaimer
 
The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.