SK Innovation is reportedly reconsidering acquiring a stake in Australian Mines (AM) which produces electric vehicle battery materials as global cobalt prices have sharply dropped.
Petrochemical industry watchers say that SK Innovation is unlikely to exercise its option to purchase 19.9 percent of AM’s common stock for 0.12 Australian dollars per share. The company obtained the option in February of last year when it signed a seven-year contract with AM to import a large volume of cobalt sulfate and nickel sulfate.
Under its agreement with AM, SK Innovation has to decide whether or not it will exercise the option within three months from Nov. 20, when AM disclosed a banking feasibility study (BFS) on Sconi Mine in Queensland in Australia. The total acquisition price will amount to 67.72 million Australian dollars.
The problem is that AM’s stock price has since fell sharply. The stock dropped from 0.135 Australian dollar a share in January of 2018 to 0.035 Australian dollar this month. There is no reason for SK Innovation to exercise the option.
The fall of the AM stock price is closely linked to resource prices including cobalt. According to the London Metal Exchange (LME), cobalt prices more than doubled to US$81,000 per ton in February last year, but fell to US$41,500 per ton this year. The drop in cobalt prices is attributed to a surge in cobalt production by the Democratic Republic of Congo, the world's largest producer of cobalt. Market analysts forecast a glut of about 25,000 tons of cobalt next year. AM faces an uphill battle to raise its stock price.
Despite these circumstances, AM seems to be hoping that SK Innovation buys its stake. "SK Innovation can afford to acquire a stake in our company," said Benjamin Bell, CEO of AM. "Even if SK Innovation does not buy a stake in AM, the two companies will move towards attaining their shared goals." AM says that the future value of its shares is huge. The BFS released by AM estimates the value of Sconi Mine at 697 million Australian dollars (550 billion won). AM also plans to raise profitability by mining nickel and cobalt from Takaringa and Flemington in addition to Sconi.
SK Innovation has not made its stance clear regarding its option.