A court in Perth has recommended that Western Australia’s mining ministry not approve an exemption from past minimum exploration-expenditure obligations. The move could slow down the project’s ramp up.
Plans to develop the Mount Holland hard-rock lithium project by Australia-based Kidman Resources (ASX:KDR) and its partner, top lithium producer SQM (NYSE:SQM), may be delayed after a recommendation by a unit of the Western Australian government that regulates mining leases.
Companies holding mining tenements in Western Australia have a responsibility to spend a certain amount on site development in order to maintain their right to their leases. Kidman claimed that since it only found lithium after the period was up, it should be exempt.
But a court in Perth recommended Western Australia’s mining ministry should not approve the exemption from past minimum exploration-expenditure obligations, which could slow down the project’s ramp-up.
“Although this recommendation by the Warden’s Court is not a final decision on the requested exception, which should be made by the Mining Minister of Western Australia, it could generate uncertainty or delay the project,” SQM said in a statement.
“SQM and Kidman are reviewing the decision made by the Warden’s Court, and will define the next steps.”
The Melbourne-based company bought the Mount Holland leaseholdings for $3.5 million in early 2016. Last year, SQM bought a 50-percent stake in the Mount Holland spodumene mine and lithium concentrator for $110 million. The initial production target for the project was set at 40,000 tonnes per year in 2021.
Commenting on the news, Benchmark Mineral Intelligence Senior Analyst Andrew Miller said that after the recommendation from the Department of Mines, SQM’s ramp up in Chile will be even more critical. “[This is] another reminder of supply expansion hurdles,” he said.
Meanwhile, according to Reuters, broker Canaccord Genuity said in a report that a final decision from Mining Minister Bill Johnston would take about four weeks. If the exemption is not granted, the Mount Holland tenements could become liable for forfeiture, which would require a separate process that could take a further 12 months.
“The recommendation is not binding on the Minister, and we consider it improbable that the exemption will not be granted,” said Canaccord, which has a speculative buy rating on the firm.
“Given our view of the likelihood of the exemption being granted, we see any share price volatility as offering attractive risk/reward prospects.”
In May, Kidman Resources signed an offtake deal to supply lithium from its Mount Holland to electric carmaker Tesla (NASDAQ:TSLA), but whether the Australian company’s development plans would remain on track is still to be seen.
“This is going to be a concern to Tesla — they had hopes to lock in supply by signing this off-take with Kidman,” said James Frith, a BNEF analyst in London.
On Thursday, shares of SQM were up 2.45 percent in New York, trading at US$45.60. Meanwhile, Kidman Resources’ shares were halted on Wednesday (September 12) ahead of the recommendation, but the company’s share price was up more than 10 percent at AU$1.26 before trading was suspended.
Don’t forget to follow us @INN_Resource for real-time updates!
Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.