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Why Mineral Resources Limited just sold its lithium mine stake for $1.58 billion

This morning Charlotte USA-based lithium producer and distributor Albermale Corporation announced that it has signed an ‘exclusivity agreement’ to acquire a 50% stake in Mineral Resources Limited’s (ASX: MIN) Wodinga lithium mine for A$1.58 billion.

The proposed joint venture would see “Albermale manage the marketing and sales of lithium hydroxide produced by the JV via Albemarle’s long term agreement strategy.”

This looks good news for Mineral Resources that has been seeking funding to help develop a lithium mine that reportedly has a 30-year operating life and potential leverage to the rising demand for lithium as a core ingredient in the batteries required to power electric vehicles.

The first stage of any mine once constructed under the terms of the joint venture is expected to produce “at least 50ktpa of battery grade lithium hydroxide. The second stage is expected to convert the remaining volume of spodumene concentrate to battery grade lithium hydroxide (subject to prevailing lithium market conditions at the time supporting this development), at which point the plant is expected to be producing at least 100Ktpa of lithium hydroxide”.

In total over FY 2018 the WA-based Wodinga mine sold 3.5 million tonnes of lithium direct ship ore, and sold 382,000 tonnes of lithium spodumene from its Mount Marion mine.

For the financial year ending June 30, 2018 Mineral Resources made a net profit of $272 million on revenue of $1,707 million and paid total dividends of 65 cents per share on diluted earnings per share of $1.45.

Selling for $12.45 the stock trades on just 8.5x trailing earnings with a trailing dividend yield of 5.2%. That looks cheap on conventional metrics and Mineral Resources looks a serious lithium player to watch, alongside the likes of Orocobre Limited (ASX: ORE) and Galaxy Resources Ltd (ASX: GXY).

There are also more than 50 other listed lithium related businesses on the ASX, but these are more in the speculative space and any investor who believes in a coming bull run for lithium prices would be well served looking to the already profitable leaders in the sector.

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Motley Fool contributor Yulia Mosaleva has no position in any of the stocks mentioned. 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.

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