One of the worst performers on the market on Monday has been the Kidman Resources Ltd (ASX: KDR) share price.
In early trade the lithium miner’s shares plunged as much as 21% to 99.5 cents after returning from their trading halt.
At the time of writing they have recovered a fair portion of this decline but are still down 13.5% to $1.09.
Why are Kidman Resources’ shares being crushed?
Kidman Resources’ shares were placed in a trading halt while it prepared an update on the recommendation from the Perth mining warden to the WA minister for Mines and Petroleum in relation to its applications for exemption from minimum expenditure obligations for tenements held by its subsidiaries at the Mt Holland Project.
According to the release, late on Wednesday of last week Kidman received notification that the warden has recommended the minister refuse the applications.
However, the warden’s recommendation is not binding and the minister has the discretion to grant certificates of exemption.
Kidman’s management has advised that both it and joint venture partner Sociedad Quimica y Minera de Chile believe there are compelling reasons why the minister should exercise his power to grant certificates of exemption and clear the way for the joint venture to continue to progress the Mt Holland Project. It is preparing detailed submissions to the minister outlining the reasons why the certificates of exemption should be granted.
What happens if the minister doesn’t grant certificates?
If the minister follows the warden’s recommendation not to grant the exemptions, the forfeiture applications regarding the relevant tenements will then proceed to a contested hearing before the warden.
If this becomes the next step in this process then delays to the Mt Holland Project will almost certainly be incurred, with the worst-case scenario being the loss of the tenements.
Should you buy the dip?
Given the economic benefit that its Mt Holland Project has provided the state, I would be very surprised if Kidman was forced to forfeit the tenements. But stranger things have happened.
In light of this, I would suggest investors stay clear of its shares until the minister has made a decision. Until then, lithium miners such as Galaxy Resources Limited (ASX: GXY) and Pilbara Minerals Ltd (ASX: PLS) may be better options. Though, they too are high risk investments.
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Motley Fool contributor James Mickleboro owns shares of Galaxy Resources Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.