Liontown Resources shares: which acquisition target could be next?

Liontown Resources (ASX: LTR) shares have rocketed by 146% year-to-date to $3.03, buoyed by a buyout offer from lithium titan Albemarle, alongside a potential bidding war being started by Australia's wealthiest woman, Gina Rinehart.

Liontown Resources buyout

Albemarle is currently inspecting Liontown’s books after offering an improved bid of $3 per share, valuing the company at $6.6 billion. The titan has been trying to acquire Liontown for nearly a year, offering bids of $2.35 a share in March, and another of $2.20 in October 2022 — which were both rejected as too low.

The US$21.9 billion company — which already owns 4.3% of LTR — has noted that ‘at this stage, we’re just focused on completing the transaction.’ This due diligence process is expected to take around four weeks after the two companies agreed terms of non-disclosure, with Liontown advising that it ‘will be on an exclusive basis, subject to customary fiduciary exceptions.’

However, Rinehart has thrown a spanner in the works, and having poured circa $500 million into LTR shares, has gained a 7.72% stake in the lithium miner through holding company Hancock.

In a statement, Hancock noted that ‘this shareholding provides Hancock with a strategic stake in Liontown, giving Liontown the opportunity to leverage Hancock’s expertise where it is of value to support the project’s development and subsequent operations.’ And Rinehart made clear that ‘in the future, Hancock may also seek a position on Liontown’s board.’

This is all good news for Liontown investors — particularly those who bought shares at the 2018 IPO at $0.03 per share. But it’s worth noting that Chairman Tim Goyder still owns a 15% stake in the company, with a further 20% reportedly held by close associates.

ASX merger activity

Liontown isn’t the only company seeing merger and acquisition activity in 2023 — Mineral Resources, Norwest and Alita, BHP and Oz Minerals, Glencore and Teck, Newmont and Newcrest, Allkem and Livent — in a high inflation environment, the cost synergies that come with mergers are hard to ignore.

Inevitably, there’s now fervent speculation on who may be next.

With Oz Minerals now a cog in the BHP machine, there is really only one large pure-play ASX copper stock to snap up — $2.9 billion Sandfire Resources. The copper supply gap has been well reported, and while the company may be large by some standards, it’s a minnow compared to the likes of companies including Rio Tinto or BHP.

In recent full-year results, Managing Director and CEO Brendan Harris enthused that the ASX copper company is at a ‘particularly exciting juncture as it continues to transform into a global mining company and copper producer of significance.’

In particular, the MD highlighted ‘one of our greatest achievements of FY2023, being the safe and successful completion of the Motheo Copper Mine, on time and on budget. First copper concentrate was produced in May 2023 and the ramp-up to its initial design capacity of 3.2Mtpa is well underway.’

Having won approval to extend its mining licence at the asset, the company now plans to increase installed capacity to 5.2Mtpa, seeing copper production at Motheo increase to more than 50kt in FY2025.

While the Spanish Matsa mine — acquired for US1.87 billion in February 2022 — is also not yet at full potential, Sandfire has also been linked as a potential bidder for the privately owned Khoemacau copper mine in Botswana, which is only circa 40 miles from Motheo.

This is where Sandfire itself may become a target — because it’s still carrying US$430 million of net debt from acquiring Matsa in 2021 — making any potential bid for the US$2 billion Khoemacau mine financially difficult. It would likely require an equity raising given the struggle that comes with borrowing funds in a higher rate environment.

But as the company made an $82.7 million statutory loss in the last financial year, hit by the winding down of DeGrussa, it may find that combining forces with a major would be the best way to make a bid for Khoemacau and unlock further investor value.

Conversely, Harris has previously told analysts that ‘the bar should be set very high for anything that we look to do that would be considered inorganic...to allocate capital outside of the business. It doesn’t mean we shouldn’t look; it doesn’t mean those opportunities aren’t there, but you can expect that we are very focused on unlocking the value that exists within our existing portfolio.’

However, as the largest pure-play ASX copper stock on the market and given the clear synergies that would come with acquiring Khoemacau, Sandfire could itself well become the next acquisition target.

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