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 Ltd (ASX: KDR), is an explorer and developer of precious and base metals deposits in New South Wales, Western Australia, Queensland, and Northern Territory, Australia; and its flagship asset is the Mt Holland Gold & Lithium project, which is gaining a lot of attention lately. Constructive comments coming in from the company’s JV partner and mining giant, Sociedad Química y Minera (SQM), and its narrative focus on joint venture with Kidman, seem to be channeling some positive sentiments back into the stock post the lithium sector downfall of the recent past. Interest from investment grade parties along with big name, Tesla; winning the litigation battle against Marindi Metals; and progress on exploration activities at Mt Holland are seemingly unfolding a favorable story for the lithium player.

SQM Potasio selling entire stake to Ganfeng along with irrevocable contributions in Minera Exar: Kidman’s 50:50 joint venture partner at the Mt Holland lithium project, Sociedad Quimica y Minera de Chile S.A (SQM) along with its subsidiary SQM Potasio S.A. has signed a contract with Minera Exar, Lithium Americas and GFL International Co. Ltd. (Ganfeng). Primarily, SQM Potasio is selling entire stake and irrevocable participation in Minera Exar (owner of Caucharí-Olaroz lithium project in Argentina) to Ganfeng. Further, as per the contract, Exar will prepay the total amount of the loans received from SQM Potasio and Exar will pay SQM for the services it provided to Exar during the development of the Project. Under the contract, SQM and SQM Potasio will be entitled to an amount of about US $87.5 mn; and deferred amount of US $50 mn will also be paid to SQM Potasio. Subject to certain conditions, the closure of the agreement is expected during fourth quarter of the year. This will also be subject to compliance having targets in relation to certain product sales from the Project. With this, SQM projects for strong growth in the lithium market, and is aiming to take advantage of the opportunity for the development of the projects on a large scale. As a result, SQM has planned to expand in Chile, where the company expects to almost quadruple the capacity in the coming years. SQM will also focus on the efforts in Australia, where the company expects significant production potential due to the size of the existing resources. In a way, the joint venture between SQM and Kidman Resources is expected to consolidate the three complementary lithium production plants worldwide, that include the Salar de Atacama in Chile, the Salar de Caucharí in Argentina, and the Mount Holland Spodumene deposit in Australia. Sociedad Quimica y Minera de Chile (SQM), has signed an exclusive option with the Western Australian Land Authority (Landcorp) to lease a premier site in the Kwinana Strategic Industrial Area; and the JV (Western Australia Lithium Pty Ltd, WAL) is continuing to advance with the Definitive Feasibility Study for the refinery, which is expected to be released to the market in late 2018. Commissioning of the refinery is planned for 2021, with an initial annual nameplate capacity of 45,400tpa of lithium hydroxide or ~37,000t pa of Lithium Carbonate. KDR maintains the right to participate in up to 50% of the refinery investment and market its portion of refined product.


Mt Holland Refinery Location (Source: Company Reports)

Performance in the June quarter 2018: KDR’s cash balance has risen on the back of the conversion of KDR options and currently stands at $10.0 million. As at 30 June 2018, the number of fully-paid KDR shares on issue is 399,560,792. Meanwhile, during the quarter, KDR’s JV had incurred the expenditure of US$14.6 million in progressing the project and the upcoming feasibility studies. As per the Joint Venture Agreement with SQM, SQM will pay US$80 million directly into the JV, WAL (of which US$60 million is outstanding and will become payable on the decision to mine, which is expected in the second half of 2018), and a payment of US$30 million will be made directly to KDR (of which US$25 million is outstanding and will be due on the decision to mine).

Offtake Agreements: During the June Quarter 2018, KDR had signed a binding agreement with pioneering Electric Vehicle (EV) manufacturer, Tesla to supply lithium hydroxide. As per the agreement, the initial term is of three years, which is based on a fixed-price take-or-pay basis from the delivery of first product and the agreement also included the two 3-year term extension options. KDR’s agreement with Tesla equates to less than 25% of the Company’s portion of initial nameplate refinery production for the first three years. Moreover, KDR is also in discussions with other strategic, globally-significant companies for seeking refined lithium offtake, particularly having strong interest in lithium hydroxide. The expressions of interest from these parties have significantly exceeded Kidman’s portion of initial refinery nameplate production, which reflects the demand exceeds supply. KDR is targeting to enter into 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.

Key Personnel Changes: KDR has appointed Frederick Kotzee as Chief Financial Officer (CFO), who joint KDR on 13 August 2018. Further, KDR has appointed Thomas Wilcox as the General Counsel and Company Secretary, effective from 22^nd August 2018. Meanwhile, Ms Melanie Leydin and Mr Justin Mouchacca have resigned as joint Company Secretaries effective from 22^nd August 2018.

Robust growth in the global lithium market over the period 2018-2023: The global lithium market is projected to grow at a CAGR of 14% during the period, 2018 to 2023. Asia-Pacific region is expected to lead this growth in the market, due to its rapid rise in the production of electrical vehicles and consumer electronics. Battery segment is projected to be the fastest growing by application. China is dominating the global lithium market on the back of the country’s massive output of goods manufactured with lithium, that comprises of the batteries, glass, grease, air conditioning equipment, synthetic rubber etc. China is projected to register the world’s strongest yearly rise in lithium demand, due to an approximately threefold expansion in the country’s rechargeable battery segment. Moreover, as per Bloomberg New Energy Finance forecasts, the global EV sales is expected to grow from 1m in 2017 to 64m in 2040. The EV-driven lithium demand is forecasted to grow at a 21% CAGR over the period. Additionally, Deutsche Bank expects the demand growth to outpace supply growth by 2025 and the market would be 154m tonnes short of lithium carbonate in 2025. Meanwhile, Mt Holland Lithium Project of KDR will be a fully integrated mine, concentrator and refinery, to address the EV market by producing refined battery-grade lithium. This integrated model will allow KDR to bypass the Chinese conversion market. The refinery has been planned to be located in the Kwinana Strategic Industrial Area in Western Australia with initial refinery nameplate of ~44,000 tonnes per annum of battery-grade lithium hydroxide. The Definitive Feasibility Study of the project is expected by end of calendar year.


Lithium Hydroxide and Carbonate Pricing (Source: Company Reports)

Addition to the S&P/ASX All Australian 200 Index: As per June 2018 Quarterly Rebalance of the S&P/ASX Indices, KDR stock is added to the S&P/ASX All Australian 200 Index, which was effective from June 18, 2018. This will give boost to the investor’s sentiments as it broadens the potential shareholder base to investors who target ASX index-related criteria.


Catalysts for future (Source: Company Reports)

Stock Performance and Analysis: The company’s stock climbed up 5.58% on September 11, 2018 and there was a further rise of 11.5% on September 12, 2018 at the back of lithium sector again coming under spotlight. The company’s stock has a support at a level of $0.95 and has the first resistance at a level of $1.58. Meanwhile, KDR has fallen 44.9% in three months as on September 11, 2018 and the levels indicate an opportunity now. The company has an immediate support at a level of $0.95 and has the first resistance at a level of $1.58. KDR is expected to deliver strong project feasibilities and improved margins compared to current spot and contract prices. Based on the foregoing, we give a “Buy” recommendation on the stock at the current price of $ 1.265.
 

KDR Daily Chart (Source: Thomson Reuters)

 
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