Albemarle Corporation (ALB - Free Report) has inked an exclusivity agreement with Mineral Resources Limited related to the potential formation of a 50/50 joint venture (JV). The proposed JV will enable them to own and operate the Wodgina hard rock lithium mine and develop an integrated lithium hydroxide operation at the resource site.
Per the deal terms, Albemarle will manage the sales and marketing of lithium hydroxide produced by the JV through long-term agreement. The purchase price for the company’s 50% interest in the JV will be $1.15 billion. The company expects to fund it with available cash along with new credit facilities. It expects the transaction to be accretive to earnings.
Wodgina, located in Western Australia, has a world-class hard rock lithium deposit with a projected mine life of more than 30 years. The JV will combine Albemarle's world-class lithium production and marketing expertise with Mineral Resources’ leading mining capabilities as well as regional presence.
Albemarle stated that the deal is consistent with corporate strategy of pursuing M&A opportunities, which can accelerate and de-risk its strategy of organic growth.
Key Provisions & Commercial Terms of the Deal
Albemarle will acquire a 50% interest in all mineral rights within the Wodgina tenements. However, it excludes the spodumene concentration plant, iron ore (which will be retained by Mineral Resources exclusively) and tantalum (which is held by a third party), all fixed infrastructure and utility assets as well as the mobile mining equipment.
Albemarle and Mineral Resources will jointly manage the JV via a company, which will be owned in equal shares by the parties. Following the construction and ramp up of the spodumene concentration plant, the JV is projected to produce roughly 750,000 tpa of 6% spodumene concentrate from Wodgina. This is expected to be used as feedstock to the future lithium hydroxide plant, which will be jointly funded, designed, built and operated by the parties in stages at Wodgina. The lithium hydroxide plant will utilize Albemarle's core design.
The exclusivity period of the deal is till Dec 14, 2018 (or at a later date as mutually agreed by the companies) for the parties by which they are required to agree upon and execute the binding definitive documents.
Notably, the above-mentioned terms have been commercially agreed upon by the parties and deal is binding in respect to the exclusivity period. However, the parties will only become legally bound to enter into the proposed JV upon execution of definitive documents along with the approval by the boards.
Albemarle’s shares have gained around 1.9% in the past three months, against the roughly 16.3% decline of the industry.
Zacks Rank & Stocks to Consider
Albemarle currently carries a Zacks Rank #3 (Hold).
A few better-ranked stocks in the basic materials space include CF Industries Holdings, Inc. (CF - Free Report) , Methanex Corporation (MEOH - Free Report) and The Mosaic Company (MOS - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
CF Industries has an expected long-term earnings growth rate of 6%. The company’s shares have rallied 21.7% in the past year.
Methanex has an expected long-term earnings growth rate of 15%. Its shares have gained 8.5% in a year’s time.
Mosaic has an expected long-term earnings growth rate of 7%. The company’s shares have surged 48.4% in the past year.
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