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

Positive sentiments gearing up on KDR’s project: Kidman Resources Ltd (ASX: KDR), a lithium developer, is widely known for exploring and developing precious and base metals deposits in New South Wales, Western Australia, Queensland, and Northern Territory, Australia. The company’s flagship asset is the Mt Holland Gold & Lithium project located near Southern Cross, in the Archaean Forrestania Greenstone belt of Western Australia, which the company is developing under a Joint Venture with SQM. Recently, KDR’s stock recovered as some market experts believe that there is an extraordinary level of demand for the company’s high quality project, which will provide exceptional margins compared to the current spot and contract prices.


Catalysts for Growth (Source: Company Reports)

Update at Joint venture (JV) with Sociedad Quimica y Minera de Chile: During June 2018 quarter, KDR’s 50:50 joint venture (JV) with Sociedad Quimica y Minera de Chile (SQM), namely, Western Australia Lithium Pty Ltd (WAL), inked an exclusive option with the Western Australian Land Authority (Landcorp) with regards to leasing a premier site at Kwinana Strategic Industrial Area. It is noteworthy that three potential sites have been under comprehensive assessment for building the refinery. Meanwhile, the option as signed by the group is for about 24 months, and final lease terms are to be agreed within said time period. This 76 hectare site has infrastructure that includes logistics - rail, road and port; energy - electricity and natural gas. It further has provision for chemical reagents and supplies while highly skilled labor can also be located at proximity. Meanwhile, Definitive Feasibility Study has been planned for refinery, and the outcome is expected to be out in later part of 2018. Further, commissioning of the refinery has been planned for 2021, with an initial annual nameplate capacity of 45,400 tpa of lithium hydroxide or about 37,000 tpa of Lithium Carbonate. KDR can participate in up to 50% of refinery investment and can also market respective share of refined product.


Integrated Project (Source: Company Reports)

Offtake arrangements: KDR in June Quarter has signed a binding agreement with pioneering Electric Vehicle (EV) manufacturer, Tesla to supply lithium hydroxide. The agreement outlines an initial term of three years on a fixed price take or pay basis from the onset of delivery for the first product and the agreement also includes two 3-years’ term extension options. KDR’s agreement with Tesla equates to less than 25% of its portion of initial nameplate refinery production for the first three years. KDR is also in discussions with other globally significant companies that are looking for refined lithium offtake with strong interest in lithium hydroxide. The expressions of interest from these parties have materially exceeded Kidman’s portion of initial refinery nameplate production, which means the demand exceeds supply. KDR is aiming to sign a limited number of offtake agreements to assist in its negotiations with traditional debt financiers. It is envisaged that KDR will commit approximately 75% of the proposed 22,700tpa of lithium hydroxide to offtake agreements while leaving a minority portion of future supply uncontracted.

Strong Demand for lithium hydroxide: Based on the current cathode chemistry that projects supply to the EV market, the demand for lithium hydroxide is very strong relative to lithium carbonate. Therefore, the Kidman/SQM JV has agreed to initially focus solely on producing lithium hydroxide from Mt Holland but to retain the ability to produce lithium carbonate in the future if market fundamentals change. Therefore, the decision to go to hydroxide only was driven by current market fundamentals and projected demand where the current and expected cathode technology requires hydroxide and not carbonate. KDR has also received unsolicited approaches to supply lithium hydroxide at volumes that far exceed its 50% share of production at 45,400tpa. Further, this will result to an improvement in capital expenditure for the refinery and will also capitalise on the fact that spodumene can be converted directly into lithium hydroxide at a cost advantage compared to brines that must convert to lithium carbonate as a first step. Meanwhile, as per the preliminary study that had progressed in parallel for the refinery during the June quarter, it is considered a dual-purpose refinery capable of producing both lithium hydroxide and lithium carbonate at production rates ranging from 30,000tpa of LCE to produce 30,000tpa of lithium carbonate alone up to 40,000tpa of LCE to produce 45,400tpa of lithium hydroxide alone. As a result, both KDR and SQM have agreed to continue with the Feasibility Study for the 45,400tpa lithium hydroxide only scenario with a second refinery study in parallel considering an expanded case to 60,000tpa LCE to produce 68,100tpa of lithium hydroxide alone. The feasibility studies progress is planned with the Mine and Concentrator study and due in 2H CY18. Meanwhile, SQM is selling its stake and irrevocable contributions in Exar to Ganfeng.

Corporate Developments in June 2018 Quarter: In June 2018, Marindi Metals Limited has agreed to pay $650,000 in full and final settlement related to the cost orders arising from its failed litigation against Kidman. This amount was received by KDR in July. During the June 2018 quarter, the company’s listed options (KDRO) expired and 47,419,356 options were exercised at 15c, which resulted in the issue of 47,419,356 new fully paid ordinary shares. There are now 399,560,782 shares on issue and the company received cash proceeds of $7.1 million during the quarter. Moreover, the company is waiting for a recommendation from the Mining Warden for Perth to the Minister for Mines and Petroleum (Western Australia) (Minister) with respect to its applications for exemptions from minimum expenditure obligations for tenements held by KDR subsidiaries which were heard by the Mining Warden in November 2017. The application is related to the period August 2014 to March 2016 (which was the period before Kidman acquired the Mt Holland Project on 7 July 2016) and affects 13 tenements in the Mt Holland Project. The Mining Warden’s recommendation is a necessary procedural step for the granting of expenditure exemptions but the recommendation is not binding on the Minister. The Minister can grant certificates of exemption notwithstanding the Mining Warden’s recommendation. If the Minister grants the applications for exemption, the forfeiture applications made regarding these tenements will not proceed.
Exploration activities at Mt Holland during June 2018 Quarter: Throughout the June quarter, a district-wide soil geochemical sampling programme was ongoing at the Mt Holland Project. The sampling was undertaken with focus primarily on the most structurally prospective ground within the greenstone belt, with lithium, gold and nickel targets tested. The results will then be analysed in a district-scale context after the completion, and any significant anomalism will be prioritised for follow-up drilling later in the year.

Elevated to the S&P/ASX All Australian 200 Index: KDR stock was added to the S&P/ASX All Australian 200 Index as per June 2018 Quarterly Rebalance of the S&P/ASX Indices, effective from June 18, 2018. This is encouraging from an investor perspective as it broadens the potential shareholder base to investors who target ASX index-related criteria.

Key Personnel Changes: KDR has appointed Frederick Kotzee as Chief Financial Officer (CFO), who joined KDR on 13 August 2018. Further, KDR has appointed Thomas Wilcox as the General Counsel and Company Secretary, with effect from 22 August 2018.

Decent Forecast on Industry Demand: As per Bloomberg New Energy Finance forecasts, the global EV sales is expected to grow from 1m in 2017 to 64m in 2040. EV penetration is rapidly driving demand for refined battery-grade lithium. Further, lithium demand is expected to grow at a 14% CAGR through 2025. The EV-driven lithium demand is forecast to grow at a 21% CAGR over the period. Moreover, demand growth is expected to outpace supply growth by 2025 and the market may be 154m tonnes short of lithium carbonate.


Lithium Demand Growth (Source: Company Reports)

Stock Recommendation: Meanwhile, KDR stock has fallen 44.6% in three months as on August 14, 2018 with softness in commodity prices and volatile outlook for the sector. On the other hand, KDR is looking forward to delivering the feasibility studies on the mine and concentrator and the refinery, which are expected in the second half of CY2018. Based on the foregoing, we give a “Buy” recommendation on the stock at the current price of $ 1.185, up 0.424% on August 15, 2018.


KDR Daily Chart (Source: Thomson Reuters)

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