Australia says OK to Chinese takeover of Talison

Australian regulatory authorities have cleared the way for Chinese conglomerate Chengdu Tianqi Industry Group to proceed with its proposed takeover of Talison Lithium (TLH-T), a company that has produced lithium from its Greenbushes operation in Western Australia for more than 25 years.

The Chinese group with interests in battery making and lithium production trumped an earlier takeover bid for the pure-play lithium producer by New Jersey-based chemical maker Rockwood Holdings (ROC-N). Rockwood later said it was not interested in revising its bid higher.

Windfield Holdings Group, a subsidiary of Chengdu Tianqi Industry Group, has offered $7.15 per share to acquire all of the shares it does not already own in the Perth-based lithium producer in a deal worth about $803 million. The offer was 10% higher than Rockwood’s bid of $6.50 per share or $724 million.

Jonathan Lee of Byron Capital Markets in New York pointed out that Chengdu Tianqi is considering funding its offer through the China Development Bank, a state-owned Chinese bank. He also said that the two companies already have close ties.

“Tianqi is a lithium-chemical converter company that purchases lithium concentrate from Talison and converts/upgrades lithium concentrate to lithium chemicals for downstream products,” Lee wrote in a research note. “Tianqi currently buys essentially all of its lithium concentrate from Talison and Tianqi is the sole marketer of Talison’s operations going forward.”

In the three months ended Sept. 30 Talison reported net profit of A$4.7 million ($4.9 million), a 190% year-on-year increase. Revenues totaled A$28.5 million, a 10% jump over the same quarter last year. Operating costs in the quarter were also maintained at A$416.6 million, with operating cost per tonne of lithium concentrate falling to A$202.

Greenbushes has proven and probable reserves of 61.5 million tonnes grading 2.8% lithium oxide.

Dave Kaiser of Canaccord Wealth Management wrote in a note to clients that Tianqi is the world’s largest hard rock lithium converter and makes a variety of raw materials for the battery industry. The conglomerate owns Sichuan Tianqi Lithium.

At presstime, Talison was trading at $6.89 per share within a 52-week range of $2.75-$7.25. The company has about 111 million shares outstanding.