As many lithium market watchers are aware this year hasn’t been too remarkable for the lithium sector. However, there have been some notable events, including the early-year acquisition of Australian lithium producer Talison Lithium by Chengdu Tianqi Industry Group (Tianqi). Beating out Rockwood Holdings (NYSE:ROC) for Talison, Tianqi came out on top, ensuring that a state-owned Chinese firm controlled just about one-third of the world’s lithium supply. Now, it seems that a different story is playing out with a new deal forged between Rockwood and Tianqi.
Through the deal, Rockwood will hold a 49 percent stake in Talison while Tianqi holds the remaining 51 percent. Furthermore, Rockwood will be contributing $196 million in equity and a two-year secured loan of as much as $670 million with 8 percent interest — which comes down to a profitable bottom line for the company. For Tianqi, the JV nets the company a three-year call option to acquire from 20 to 30 percent of Rockwood Lithium GmbH, the company’s European lithium unit. Moreover, Tianqi will contribute $204 million in equity into the partnership.
Contributions made into the JV will be funneled into paying off existing debt and equity holders including Tianqi Group HK Co, and Leader Investment. According to the press release, Rockwood will be funding its investment with cash on hand.
Writing for MineWeb, Kip Keen has chalked today’s announcement up to a case of “I-scratch-your-back-you-scratch-mine,” stating that it seems both companies were brought closer during their head-to-head for Talison Lithium. On the other side of that coin, Chris Berry, founder of House Mountain Partners, told Lithium Investing News in an email that he sees the situation as more like “Tianqi bit off a little more than they could chew and so this JV allows them to ease the burden of financing the Talison acquisition.”
Seifi Ghasemi, chairman and CEO of Rockwood, told investors in a company statement that “not only does this [venture] complement our core lithium business, but it also meets with all of our prior stated financial and strategic objectives for allocation of capital in a disciplined manner to enhance economic value for shareholders.”
Chris Berry also views the JV as good news for Rockwood as it cements its position as the top producer of lithium compounds globally. “Rockwood will now have ownership of high quality assets in North America, Chile, and Australia, so the geographical diversification of the assets, coupled with their extremely high quality will only further cement their dominance,” he said, adding “The strategic significance of this deal for Rockwood can’t be understated. Rockwood can now also get additional access to the Chinese market, which Talison supplies the majority of its lithium to.”
Another way this deal is beneficial to Rockwood is through its stake in Talison, which spells increased cash flow for the New Jersey-based company. Berry sees Talison’s expanded capacity accounting for approximately two-thirds of global demand. Rockwood will now be entitled to 49 percent of of this as capacity ramps up.
When Lithium Investing News last looked at this story, the question was what would happen to Rockwood after it was outbid. Well, it seems as 2013 comes to a close, investors and market watchers now have their answer: Rockwood got its share of Talison in the end.
Securities Disclosure: I, Vivien Diniz, hold no investment interest in any of the companies mentioned in this article.