Tianqi Lithium is selling a 25 per cent stake in Australia’s largest lithium mine, in a $1.4bn transaction that will help the heavily indebted Chinese national champion avoid a looming default while retaining control of its most prized asset.
The lithium producer, based in southwestern Sichuan province, is facing a deadline of December 28 to restructure a $1.9bn loan with creditors led by China Citic Bank. The loan was used to fund Tianqi Lithium’s 2018 purchase of a 23 per cent stake in Sociedad Química y Minera, a Chilean rival, for $4bn.
But lithium prices have since fallen 70 per cent because of a global supply glut, pushing the company to the brink of bankruptcy.
Tianqi Lithium and IGO Limited, the Australian gold and nickel miner, said the latter would take a minority stake in a vehicle holding the Chinese company’s 51 per cent stake in Greenbushes, a massive open-pit operation in Western Australia, as well as a lithium processing plant.
Albermarle, the US lithium producer, has a 49 per cent stake in Greenbushes as well as the right to acquire Tianqi Lithium’s shares if they are put on the market, but not if an indirect stake is sold via a holding vehicle.
Greenbushes is the world’s largest and lowest-cost producer of spodumene concentrate, a lithium-rich mineral, with a capacity of 1.2m tonnes per annum, according to research by RBC.
China hawks in the Trump administration have raised concerns about Beijing’s de facto control over global supplies of lithium and other commodities through companies such as Tianqi Lithium, a private sector group listed on the Shenzhen stock exchange.
“The formation of a [joint venture] with Tianqi appears to negate Albemarle’s right of first refusal,” said Alexander Hislop, analyst at RBC Capital Markets.
The acquisition by IGO marks a change in strategy for the group, which recently said it would shift its focus to commodities used in the production on electric vehicles. The Perth-based company has put its 30 per cent stake in the Tropicana gold mine in Western Australia up for sale in a transaction that could be worth more than A$1bn ($741m).
IGO said on Wednesday it intended to fund the Tianqi transaction through a A$1.1bn debt facility, an equity raising of up to A$766m and its cash reserves.
The deal is subject to approval by Australia’s Foreign Investment Review Board.
Relations between Beijing and Canberra are at an all-time low, with diplomatic rifts over issues including an investigation into the origins of the coronavirus pandemic and the detention of Australian nationals in China on vaguely defined national security charges.
China’s embassy in Canberra issued a 14-point memo last month blaming Australia for the deterioration in relations. But the investment board is still expected to approve the deal as it gives an Australian company partial ownership of the country’s most important lithium mine.