Get to Know Green Metals: Allkem

By Charl Malan
Senior Metals and Mining Analyst

We consider Allkem is properly on monitor to turning into a significant lithium producer in scale and with strategic places which might be near quickly rising EV markets.

Abstract

We overview current market projections for lithium demand and implications for one standout producer, in specific.

• Lithium producers are growing their demand estimates—one by as a lot as 15% for 2030.¹
• Some projections point out 70+ new lithium mines should be constructed to satisfy world battery demand by 2035.²
• In our view, Allkem is among the many most well-positioned to benefit from this accelerating demand development.

In our current academic video, we reviewed lithium’s outstanding position within the world power transition.

Albermarle: Elevating the Stakes

Albermarle, at a market share of 18%, is without doubt one of the world’s largest lithium producers. A current strategic replace offered by the corporate indicated that they’re extra optimistic concerning the outlook for lithium now than a yr in the past.³ For 2023, the corporate forecasted demand at 1.2 million tonnes (Mt) of Lithium Carbonate Equal (LCE) and, for 2030, 3.7 Mt—a determine practically 15% increased than final yr’s forecasts and a compound annual development charge (CAGR) equating to round 16% between 2025 to 2030. Furthermore, these are markedly increased than others’ estimates.

The rise in demand forecasts is because of the Inflation Reduction Act and robust electric vehicle (EV) gross sales. Because of this, Albemarle is estimating world EV manufacturing will rise from 11.2 million models in 2022 to 25.7 million models in 2025, to 46.9 million models in 2030, in comparison with its earlier estimate of 41 million models in 2030. This interprets into an EV penetration charge of 28% in 2025 (in comparison with 14% in 2022) and 48% in 2030.

As for world provide, Albemarle estimates 2.9 Mt of LCE can be produced in 2030. When mixed with its optimistic demand profile, this interprets right into a lithium shortfall of about 800 Kt, subsequently, probably justifying its and others’ continued enlargement methods.

Albermarle’s Lithium Demand Projections (Mt LCE)

Complete Demand

By Utility (MMt LCE)

Supply: Albemarle. Information as of March 2023.

ALLKEM Ltd: The Making of a Main World Lithium Firm

Taking Benefit of the Perceived Elevated Demand for Lithium

• In our view, few firms are higher positioned than Allkem to profit from the perceived rise in lithium demand ensuing from the growing adoption of fresh power applied sciences.
• The corporate is headquartered in Buenos Aires, Argentina, and has a worldwide presence, with a various portfolio of high-quality lithium property, in Australia, Argentina, Canada and Japan.
• By 2026, the corporate’s manufacturing is anticipated to succeed in practically 110 Kt LCE, making it a significant lithium producer with, doubtlessly, a pretty gross working money margin (82% as of December 2022).³
• Allkem is the results of the merger of Orocobre and Galaxy Sources in 2021 which created an organization with distinctive development prospects.

Broad-Based mostly, Close to-Time period Progress at Scale

• We consider firms with numerous, near-term development optionality and the chance to combine vertically, like Allkem, are well-placed. Not least as we anticipate allowing and different regulatory points have gotten greater conundra.

Various Close to-Time period Progress Alternatives

Allkem, in our view, has top-of-the-line manufacturing profiles with near-term enlargement alternatives that would practically triple manufacturing from 40 thousand tonnes every year (Ktpa) of LCE to 110 Ktpa LCE by 2026 (see chart). Moreover, its development profile is broad-based, with choices throughout the Americas in lithium carbonateⁱ and spodumeneⁱⁱ.

Allkem’s Stellar Manufacturing Profile

Supply: VanEck, Allkem Ltd, Bloomberg.

• Olaroz – The corporate’s flagship asset, Olaroz in Argentina (brine-lithium carbonate), is strategically positioned inside the “Lithium Triangle” of Argentina, Chile and Bolivia. It markets technical-gradeⁱⁱⁱ and battery-grade^iv lithium carbonate to a various buyer base in Asia, Europe and North America. Present manufacturing is round 13 Ktpa LCE, at a gross money margin of about 90%⁴ (December 2022) and will develop by one other 25 Ktpa LCE by 2025, as building Olaroz Part 2 nears completion.
• Sal de Vida – Sal de Vida, additionally in Argentina (brine-lithium carbonate), is an advanced-stage undertaking with a design capability of 45 Ktpa LCE of predominantly battery-grade lithium carbonate. Stage 1 of this undertaking is presently below improvement, with completion estimated in 2024 at 15 Ktpa LCE. Stage 2 might ship a further 25 Ktpa round 2028.
• James Bay – James Bay, in Canada (exhausting rock-spodumene), is a mid-stage improvement undertaking. Importantly, it has entry to expert labor and hydroelectricity whereas additionally being near the fast development of North American and European EVs. With a 330 Ktpa (63Kt LCE) spodumene focus design capability, it might change into a big producer inside the North American market. As of lately, materials progress has been made relating to detailed engineering and allowing.
• Mt. Cattlin – Mt. Cattlin, in Australia (exhausting rock-spodumene), has dedicated to an intensive exploration and useful resource drilling program to increase the lifetime of the mine by no less than two years.

Vertical Integration Alternatives

In parallel with its upstream expansions, Allkem is planning on transferring “downstream.” The goal is to supply battery-grade lithium hydroxide^v conversion capability in markets corresponding to Japan and North America. Shifting downstream is a crucial step that ought to enhance margins, stabilize money circulate and supply perception into high-end development markets.

• Naraha – Naraha, in Japan, is Allkem’s battery-grade lithium hydroxide plant three way partnership (75%/25%) with Toyota Tsusho Company. Designed to transform 9.5 Kt of technical-grade lithium carbonate from Olaroz into battery-grade lithium hydroxide. It achieved the primary manufacturing of roughly 200 tonnes of lithium hydroxide on the finish of 2022 and expectations are that it’ll attain a design capability of 10 Ktpa over the following 12 months.

A number of extra research are underway that would doubtlessly improve manufacturing capability past 2026. For instance, incentives from the U.S. IRA (Inflation Discount Act) assist constructing a hydroxide conversion plant in North America with feedstock like James Bay. Growing Olaroz (Stage 3) might additionally improve the corporate’s annual manufacturing.

Sturdy Monetary Place

• Not like many different high-growth mining firms, Allkem has a robust monetary profile. With zero debt on the steadiness sheet⁵ and robust money era (group gross working margin at 82%⁶), the corporate might doubtlessly self-fund its development plans (capex) of round $1.6B from money circulate. Furthermore, capex is projected to peak within the monetary yr 2026, after which Allkem might return extra free money circulate to shareholders by way of a dividend or different means.

Allkem’s Present Monetary Circumstances Seem Sturdy

Supply: VanEck, Allkem Ltd, Bloomberg. Information as of March 2023.

The power to self-fund its manufacturing development is exclusive as many different rising lithium firms with comparable capex profiles would require exterior funding.

Pathway to Web Zero by 2035

• The significance of sustainability is obvious in that the Chief Sustainability and Exterior Affairs Officer stories on to the CEO and has entry to the Board by way of the Chair of the Sustainability Committee. Moreover, the CEO compensation, or no less than a good portion, is instantly linked to numerous ESG targets.
• An extended-term dedication to sustainability underpins new tasks and can improve the corporate’s worldwide scale and undertaking flexibility. For instance, they’re implementing renewable (photo voltaic) power at Sal de Vida to cowl no less than 30% of power use or sourcing 44% of power at James Bay from hydroelectricity.
• Allkem locations a whole lot of emphasis on its ESG credentials. As such, it has once more been included within the Dow Jones Sustainability Indices (2022). We consider lithium producers with accredited ESG credentials will seize a market premium.

Conclusion

Allkem, we consider, is properly on monitor to turning into a significant lithium producer in scale and with strategic places which might be near quickly rising EV markets. Its development profile, in our view, is among the many greatest within the business and is supported by a considerable useful resource and reserve base.

The important thing attributes that set Allkem aside are 1) manufacturing development; 2) engaging margins; 3) self-funded development; and 4) upside within the useful resource & reserve base mixed with its ESG credentials that would end in it capturing a premium valuation.

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Initially published by March 22, 2023.

For extra information, data, and evaluation, go to the Beyond Basic Beta Channel.

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Vital Disclosures

Sources:

¹ Albemarle, “2023 Strategic Replace,” January 23, 2023.

² Benchmark Mineral Intelligence.

³ Allkem December 2022 Quarterly Actions Report.

⁴ Allkem December 2022 Quarterly Actions Report.

⁵ Allkem December 2022 Quarterly Actions Report.

⁶ Allkem December 2022 Quarterly Actions Report.

ⁱ Lithium carbonate: Usually related to brines (saline groundwater) with the ultimate product being lithium carbonate. May be processed into lithium hydroxide however at a further value.

ⁱⁱ Spodummene: Usually related to hard-rock mining, the place spodumene is a mineral that accommodates lithium. May be processed into both lithium carbonate or hydroxide.

ⁱⁱⁱ Technical grade lithium: Decrease grade (lower than 99% in purity) utilized in glass and different industrial functions.

^iv Battery grade lithium: Larger grade (above 99.5% in purity) used for making crucial battery supplies.

^v Hydroxide: Lithium hydroxide is critical for some cathodes, corresponding to nickel-cobalt-aluminum (NCA) and nickel-cobalt-manganese oxide (NCM).

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