Liontown Resources (ASX: LTR) (OTCPK: LINRF) has just rejected a $2.50 (that's in Australian dollars, AUD) a share offer from Albemarle (NYSE: ALB). What's annoying Albemalre is that Liontown didn't even show the offer, let alone consult with, shareholders before rejecting it. This is also, according to the bid rejection, the third offer that has been made although the first one to go majorly public. “The two previous approaches from Albemarle were at $2.35 a share earlier in March, and $2.20 in October.” so the story goes.
The immediate question is whether another and higher bid is likely to be forthcoming. Ity'sd said that Liontown is looking for - that is would agree to accept and recommend to shareholders - a $3 a share offer. That's a significant premium to the current $2,55 a share market price - which is itself obviously above the bid of $2.50. So the market is indicating that the current offer is unlikely to work but isn't sure that the higher amount is going to get offered.
Liontown Resources share price from ASX
The rejection of the bid is here. It's pretty much boilerplate - you're not offering enough money is the usual complaint in all such bid rejections. The details are that Liontown's Kathleen Valley Project is very large, very close to production and therefore revenue and so on. As we say, boilerplate.
The one issue that is of greater interest is the claim that Albemarle is making use of the recent weakness of the lithium price to getLiontown on the cheap. Which could indeed be true. But it's necessary to think a little here. Because it's not entirely obvious that it's just a short term weakness. Yes, the Li price is some 40% off it's tippy topmost in the last few months. But what is there to say that it's going to go back to those peaks? Our view is that people always underestimate the amount of any particular mineral that there is out there. Thus prices, when demand rises, do call forth more supply and more supply than most think can be delivered. That is, metals and minerals prices do climb, as lithium has done, but then they crash again. Not immediately, but in time they do and will.
Albemarle may well come back with a higher again offer and it might be worth having a bet that it will. But long term we're bearish lithium shares and would, if we were holders here, recommend take the money and run.