Tianqi Lithium is investigating the sale of equity in its Australian lithium mining and processing assets along with identifying potential strategic investors after building up a heavy debt burden. The company is fast approaching debt repayments to the tune of US$3.5Bn after taking out a loan with China’s CITIC bank. The loan, drawn down on in 2018, was used to fund a 23.77% stake in major Chilean lithium producer SQM valued at U$4.1Bn. It is understood that the company has opened a bidding process for the sale of a stake in its flagship Greenbushes mine and/or Kwinana processing facility. The intentions of such are to boost liquidity and its ability to service debt covenants associated with the CITIC loan and owings to contractors involved in the construction and commissioning of the Kwinana facility.
Once considered the poster child of China’s lithium industry, Tianqi Lithium has faced significant headwinds since 2018, a period which has seen significant expansion and borrowing by the company. Losses in 2019 and Q1 2020, amidst falling lithium prices and budget overruns at the Kwinana plant, have reduced its ability to pay down debts. Low investor appetite to help liquidity concerns has compounded the situation, with a rights issue in December 2019 only yielding RMB2.93Bn (US$424M) out of the RMB7.0Bn (US$990M) target.
As such a significant player in the global lithium industry, the actions of Tianqi Lithium to lessen its debt-load will have significant repercussions, not only for Australian lithium mine supply, but also for Chinese mineral conversion. The Greenbushes operation in Australia, with capacity of over 105ktpy LCE in lithium mineral concentrates, is considered a ‘world-class’ operation, being the largest, lowest cost hard-rock producer globally. Although the accompanying Kwinana plant remains suspended, the 24ktpy capacity lithium hydroxide plant also represents an attractive asset.
With a potential 25% stake in both operations up for grabs, regional investors in the lithium industry, such as Wesfarmers, may express an interest. Alternatively, a major cell or automotive OEM with existing ties to Tianqi could look to purchase the stake as a strategic investment to maintain its supply chain. There is also potential for a Chinese state-owned ‘white knight’ investor, such as China Minmetals, to step in and maintain Chinese ownership of these key strategic assets, though the Australian Foreign Investment Review Board may pay particular attention to such a deal.
For short-term lithium supply, the impact is expected to be negligible. If Tianqi continues to experience low liquidity and is unable to find a buyer, however, investment in future expansions at Kwinana, Greenbushes and the Chinese processing facilities could be limited.
Roskill’s NEW Lithium: Outlook to 2030, 17th Edition report will be published in July 2020, including scenario assessments for the impact of COVID-19 on the lithium supply chain. Click here to download the brochure and sample pages for the report, or to access further information.
Roskill’s Lithium Mining Project Analysis; Technical and Financial Evaluation report reviews the plans of developers evaluating greenfield projects that could contribute to lithium supply in the 2020s. Click here for more details.