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FAQ – Frequently Asked Questions

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THE KIDMAN-SQM JV

Why is SQM the best fit for Kidman?

SQM is a Chilean headquartered, global integrated producer and distributor of specialty chemicals, with lithium being a core business function for the past 22 years, along with potassium-related fertilisers and other industrial chemicals.

Its products are based on the development of high-quality natural resources and know-how and proprietary technology that allows the company to be a leader in efficient production, supported by a commercial network that reaches more than 110 product customers around the world.

In 2016, revenue from its operations totalled $US1.9 billion. SQM is listed on the NYSE and has a market capitalisation of about $US13.63B today.

SQM holds a current global market share of 27% in relation to its lithium chemicals business, reflecting its ability to innovate with new markets and products. SQM produces lithium carbonate and lithium hydroxide (industrial and battery grades) in Chile and has a development under way in Argentina.

SQM has proven lithium expertise and financial strength, and Kidman strongly identifies with SQM’s values – excellence, integrity, safety, teamwork and innovation.

When will the JV become effective?

Completion of the sale and establishment of the Mt Holland Joint Venture are subject to conditions precedent typical for this kind of transaction, being principally Foreign Investment Review Board and other regulatory approvals and third party consents.

Until completion of the transaction, Kidman will have access to a $US21.5 million credit facility provided by SQM to enable work relating to the Mt Holland Project to be progressed.

On Completion and transfer of the interest in the Mt Holland Project:

  • Kidman will receive an initial payment of $US5 million;
  • the Mt Holland Joint Venture will be established; and
  • SQM will sole fund joint venture expenditure of $US20 million through to completion of all feasibility studies.

Upon a Decision to Mine being made:

  • Kidman will receive $US25 million being the balance of the purchase price; and
  • SQM will contribute into the joint venture the balance of its $US80 million funding commitment.

Did Kidman consider developing the Mt Holland mine and refinery on its own?

Yes. Kidman has and continues to assess all options to maximise returns for shareholders.

Development of the Mt Holland Project requires significant capital expenditure. The equity or debt required to be raised to enable Kidman to mine the resource on its own would have significantly diluted shareholders’ exposure to the Mt Holland Project. The JV with SQM allows Kidman to maintain a half-share in a world-class integrated lithium project.

How can Kidman ensure SQM does not slow the Mt Holland development schedule?

The interests of the JV partners in developing the resource are aligned. SQM described the project as the best undeveloped hard-rock lithium project in Australia and has announced its commitment to expediting the development of the project. The Definitive Agreements contain milestones which various matters are to occur together with deadlock resolution provisions.

Kidman only delineated a maiden resource for Earl Grey in December 2016. Work has already commenced on developing the project and establishing a working group to oversee development of the Earl Grey mine and concentrator, and to advance feasibility studies into the lithium refinery.

How much money is SQM investing in the Mt Holland project?

SQM is required to invest $US110 million under the Definitive Agreements; $US30 million is to be paid directly to Kidman, and another $US80 million is to be contributed to the JV for the Mt Holland lithium project development.  After the initial $US80 million commitment the capital costs of the JV will be split along Mt Holland project equity positions, i.e. 50-50.

Will Kidman have to tap the equity or debt markets to meet its share of future capital cost?

The capital cost of the mine-concentrator and refinery components of the Mt Holland project remain subject to feasibility studies. A benefit of the JV arrangements is that the initial financial impost of the mine-concentrator development is intended to be covered by the initial SQM contribution. Further contribution, both from SQM and Kidman is likely to be required to complete the mine-concentrator development, and for the refinery. Based on the quality of the project and with SQM’s support as a JV partner, Kidman is confident it will be able to consider all funding options – equity, debt, offtake – if and when it needs to consider securing additional capital.

What stake in Kidman will SQM receive as part of the JV?

None.  SQM receives a 50% interest in the Mount Holland Project.

What are the terms of the SQM convertible loan facility?

Pending completion of the establishment of the JV, SQM Australia has committed to grant Kidman up to $US21.5 million in credit through a converting note (7% interest per annum, convertible at $0.678 at Kidman’s election in the event conditions precedent to completion are not satisfied and otherwise repayable from future SQM capital contributions). the proceeds of the converting note may be used by Kidman to continue the development of the Mt. Holland project.

An aggregate of $US6 million is scheduled to be drawn down on or around 12 September 2017 and it is anticipated that there will be a draw-down of up to a further $US15.5 million by 31 October 2017.

Will SQM be offered a Kidman boardroom seat?

No – the Definitive Documents do not provide SQM with any right to request board seats.  The parties are expected to work collaboratively together to progress the JV.

Who will run the JV?

Kidman and SQM will establish a JV Committee, comprising an equal number of representatives from both partners. The JV will then appoint a JV manager, chief executive and an executive team to develop the Mt Holland Project.

Why did Kidman strike a JV deal with SQM, rather than wait for the Mt Holland feasibility studies to be completed?

Industry interest in Earl Grey has been strong since Kidman announced the maiden resource in December 2016 Kidman have held conversations with a number of potential JV partners including SQM. Kidman’s size has meant that it has only been able to test a small portion of the exploration potential within the Mt Holland project area. Now, with SQM’s backing and support, we can further assess the full potential of the Earl Grey deposit, as well as undertaking a more extensive regional exploration program following our joint venture and farm-in agreement with Western Areas Limited. Kidman will also benefit from SQM’s significant metallurgical expertise which will be applied to determine the optimal refining process.


WHO IS SQM

Who is SQM?

Sociedad Quimica y Minera de Chile, of SQM (NYSE: SQM) is a Chilean-headquartered, global integrated producer and distributor of specialty chemicals, with lithium being a core business function for the past 22 years, along with potassium-related fertilisers and other industrial chemicals.

Its products are based on the development of high-quality natural resources and know-how and proprietary technology that allows the company to be a leader in efficient production, supported by a commercial network that reaches more than 110 product customers around the world.

In 2016, revenue from its operations totalled $US1.9 billion. SQM is listed on the NYSE and has a market capitalisation of about $US9.5 billion.

SQM holds a current global market share of 27% in relation to its lithium chemicals business, reflecting its ability to innovate with new markets and products. SQM produces lithium carbonate and lithium hydroxide (industrial and battery grades) in Chile and has a development under way in Argentina.

For further information on SQM’s global portfolio of projects please visit www.sqm.com

Does SQM have operations in Australia?

No. The JV with Kidman marks SQM’s first move into Australia.

For how long had Kidman been talking with SQM prior to the July JV announcement?

Kidman and SQM had been in discussions for several months about an ideal development plan for Mt Holland prior to the July JV announcement. The discussions included SQM’s chairman and senior management visiting Mt Holland and introducing themselves to the West Australian Government.

Did Kidman run a broad international selection process to find a Mt Holland partner?

Kidman had discussions with a number of lithium industry participants about the most appropriate development structure for Mt Holland.


MT HOLLAND – A WORLD-CLASS INTEGRATED LITHIUM PROJECT

What is Mt Holland

The Mt Holland Project is based on Kidman’s 100% ownership of tenements near Southern Cross, Western Australia, that include the historic Mt Holland gold field. Drilling by Kidman has discovered the world-class Earl Grey lithium deposit.

How big is the Earl Grey deposit?

In anticipation of the commencement of the joint venture, Kidman is in the process of mobilising four drill rigs to further test and potentially upgrade the Earl Grey Mineral Resource. Kidman has already delineated a 128Mt resource grading 1.44% Li2O for 1.84 million tonnes of lithium oxide (see Kidman ASX Announcement 14 December 2016) from limited drilling of what is a 1km wide, 1.5km long mineralised zone. With SQM’s support, Kidman aims to test a series of targets to evaluate the true size of the Earl Grey deposit and to assist SQM in developing the most suitable metallurgical process flowsheet and the best refining process.

Why does Kidman want to develop a refinery, rather than just producing 6% Li2O concentrate?

Kidman is currently undertaking a feasibility study in relation to the entire project, including the refinery option. Other industry players including SQM have highlighted the high-margin nature of refinery developments, and the ability to better protect shareholder interests during the inevitable commodity price cycle movements.

Will Mt Holland’s development be too late to cash in on the lithium boom?

Kidman and SQM are targeting first Li2O concentrate production within 24 months, and feasibility work on a mine and refinery has already begun. Demand for lithium-ion batteries, driven by a universally accepted sharp rise in electronic vehicles and battery storage, is expected to be strong for years to come. Global demand for lithium carbonate equivalent is expected to more than double to 500,000tpa by 2025.

Who are Kidman’s ASX competitors?

Kidman is the only ASX-listed stock with a spodumene deposit in Australia and plans for a downstream processing, value-adding refinery.


MT HOLLAND – MINING

What is the likely scale of the mine-concentrator part of the Mt Holland project?

Feasibility studies into the most efficient development of the Earl Grey deposit remain under way. It is likely the start-up will involve processing of 1.5-2 million tonnes annually of spodumene ore, to produce 220,000 to 300,000tpa of 6% Li2O concentrate.

Does Kidman still want to use Poseidon Nickel’s Lake Johnston processing plant?

No. Kidman’s option to finalise the Lake Johnstone ore processing deal had to be exercised by August 31, 2017. Kidman decided to let the option lapse.

Does Mt Holland qualify for Special Project Status? And if so, what are the benefits?

Kidman has submitted an application to the WA Department of Jobs, Tourism, Science and Innovation for the Mt Holland project to be recognised as a “Project of State Significance”. If successful, this status will provide the Joint Venture with a lead agency contact within the WA Government to help coordinate Mt Holland project approvals.

What is the expected production capacity of the Mt Holland mine?

The production schedule remains subject to feasibility studies. But it is likely the mine will produce 270-350 ktpa of spodumene concentrate of approximately 6% Li2O with the aim and capability of supplying concentrate to a refinery plant in an efficient and cost-effective manner.

How much cash will Kidman need to invest in the mine development?

Kidman’s cash requirement with regards to the mine-concentrator development of Mt Holland remains subject to feasibility studies. SQM is providing the initial contributions of up to $US80m on the mine-concentrator development. Kidman is confident it will have a full set of funding options to source its share of the remaining capital cost requirements.

When will the Mt Holland mine-and-concentrator produce first 6% Li2O concentrate?

A production timetable remains subject to JV feasibility work. Kidman and SQM are both committed to developing the mine and concentrator as quickly as possible, and are targeting first Li2O concentrate production within 24 months.

Will the Earl Grey mine produce 6% Li2O concentrate only for the Mt Holland refinery, or will the JV sell 6% Li2O concentrate to third parties also?

Until the refinery is operational, the Mt Holland parties will sell 6% Li2O concentrate into the third-party lithium market on a 50-50 basis. When the JV parties proceed with the refinery plant after the feasibility work, each JV participant will have the product from the mine refined at the refinery.


MT HOLLAND – REFINERY

Will Kidman take up its option to participate 50-50 in the refinery?

Kidman will make this decision once the feasibility studies are complete.  At this stage, Kidman has every intention to take up its option of a 50% stake in the refinery project. The refinery will give Kidman and its shareholders exposure to a high-margin operation over the long term.

What is the expected production capacity of the Mt Holland lithium refinery?

It is intended that the base case for the feasibility studies will be a refinery capable of producing 44,000tpa lithium hydroxide, or 37,800tpa lithium carbonate, or a combination of both. SQM has proprietary designs on a refinery that can produce a mix of both hydroxide and carbonate.

What type of refinery – hydroxide or carbonate – will the JV pursue?

The make-up of the proposed Mt Holland refinery remains subject to feasibility studies.

What is the likely cost of the Mt Holland lithium refinery?

The cost of a refinery will depend on the outcome of feasibility studies. Other industry players who have built lithium refineries of the quality and scale that the JV is contemplating have invested between $US300 million and $US500 million.

What stake will Kidman have in the refinery?

Under the terms of the JV, Kidman will have the right for a stake of up to 50% in the refinery, based on its contribution to the refinery’s capital cost. Kidman intends to participate 50-50 in the refinery development.

When will the refinery begin operations?

The timetable for the refinery remains subject to feasibility studies. Kidman and SQM are both committed to developing the refinery as soon as possible.

Where will the refinery be based?

The location for the refinery remains subject to feasibility studies. The parties are assessing three potential locations for the refinery – Kemerton near Bunbury, Mungari near Kalgoorlie-Boulder and Kwinana, near Perth. Discussions are under way with relevant authorities and stakeholders, and this will feed into the refinery feasibility work.

Who will market the refinery’s output?

The terms of the JV give Kidman the right to market 50% of the refinery output.