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Post Market Wrap | Allkem seeks to build capacity to supply 10 percent of global lithium demand

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This Post Market Wrap is presented by KOSEC – Kodari Securities

  • Global decarbonisation is irreversible; lithium is an essential chemical element in this structural shift.
  • High Electric Vehicle penetration in the global passenger vehicle market is driving demand for lithium batteries.
  • Lithium carbonate pricing guidance for 2H22 at US$31,000 a tonne, up 24 percent on previous guidance estimates.
  • Global Net Zero target supportive of continuing strong total shareholder returns for this dependable supplier of lithium chemicals.  

Allkem Limited (AKE or the Company) is a specialty lithium chemicals business with mining operations in Argentina, Canada and Australia. The Company also owns a 75 percent stake in a lithium hydroxide conversion plant in Japan. AKE’s primary asset is its 66 percent stake in the Salar de Olaroz lithium brine project in Argentina. 

Formed by the merger of Galaxy Resources and Orocobre in August 2021, the Company is dual listed on the ASX and the Toronto Stock Exchange (TSX).  

Strategy Update

In its latest ASX/TSX investor presentation, Allkem reiterated the Company’s core objective to produce at least 10 percent of global lithium production and become a top 3 global lithium chemicals supplier. The Company did not specify a firm date for the achievement of this objective. However, it is clear that its global portfolio of Tier 1 assets leaves AKE well positioned to become a major supplier of the lithium required to supply the global battery industry. 

In fulfillment of this ambitious objective, AKE will require significant capital expenditure in downstream processing capabilities that may absorb up to US$2.5 billion in capital expenditure over the next 5 years.  

Sustainable Growth Opportunities 

The trend toward global decarbonisation is irreversible and a key element of this structural shift is the high Electric Vehicle (EV) penetration underway in the global passenger vehicle market. The growing EV market is supported by favourable government EV policies, which in turn are transitioning automakers to electrification of vehicles. 

This global EV demand is driving battery material demand in the form of lithium, which is already in supply deficit, leading to soaring prices for lithium carbonate. According to Allkem, lithium carbonate March 2022 pricing is running at US$27,000 a tonne with June 2022 indicative pricing at US$35,000 a tonne. The Company has issued average pricing guidance for the second half of the 2022 financial year at US$31, 000 a tonne, up 24 percent on previous guidance estimates. Market participants consider that the supply deficit may continue for the remainder of the decade. Therefore Allkem continues to scale up its Salar de Olaroz operating facility and further develop other existing assets at Sal de Vida in Argentina and James Bay in Canada. Construction of the Naraha lithium hydroxide plant in Japan is complete and first production is set to follow shortly.   

This vertical integration strategy and the ability to ramp up mine production capacity through mine expansion at its high-quality, low-cost mine assets, underpins the Company’s substantial growth prospects. This is occurring at a time when Tier 1 battery industry players require reliable, quality partners to protect and shorten their supply chains, as global demand for lithium batteries explodes.       

At 31 December AKE had cash and cash equivalents of US$450 million, up substantially from US$258 million at June 2021.

Looking Ahead

As a lithium pure play that is geographically diversified and produces lithium in various forms (spodumene concentrate, lithium carbonate and lithium hydroxide), Allkem is positioning itself as a dependable supplier of lithium chemicals that are essential to the global solution for climate change.   

The pathway to Net Zero powering Allkem’s growth should ensure a continuation of the strong total shareholder returns achieved by the Company over the past 5 years. 

This Post Market Wrap is presented by Kodari Securities, written by Michael Kodari, CEO at KOSEC.

"Michael Kodari is one of the world's most consistent, top performing investor. A philanthropist and one of the prominent experts of the financial markets, he has been referred to as ‘the brightest 21st century entrepreneur in wealth management' by CNBC Asia and featured on Forbes. Featured on TV as the "Money Expert", on the weekly Sunday program "Elevator Pitch", he is recognised internationally by governments as he was the guest of honour for the event "Inside China's Future", chosen by the Chinese government from the funds management industry, attended by industry leaders, when they arrived in Sydney Australia, on April 2014. Michael and George Soros were the only two financiers in the world invited and chosen by the Chinese government to provide advice, and their expertise on Chinese government asset allocation offshore. With a strong background in funds management and stockbroking, Michael has worked with some of the most successful investors and consulted to leading financial institutions. He was the youngest person ever to appear on the expert panel for Fox, Sky News Business Channel at the age of 25 where he demonstrated his skillset across a 3 year period forming the most consistent track record and getting all his predictions right over that period. Michael writes for key financial publications, is regularly interviewed by various media and conducts conferences around the world."

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Money

Research shows daters are looking for solvent partners

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As the cost-of-living crisis continues to grip Australia, new research reveals a shifting landscape in the realm of dating preferences.

According to the survey conducted by eharmony, an overwhelming two-thirds of Australians are now keen to understand their potential partner’s financial situation before committing to a serious relationship.

The findings indicate a growing trend where individuals are becoming more discerning about whom they invest their affections in, particularly as the economic pressures intensify.

Read more: Why are car prices so high?

The study highlights that nearly half of respondents (48%) consider a potential partner’s debts and income as crucial factors in determining whether to pursue a relationship.

Certain types of debt, such as credit card debt, payday loans, and personal loans, are viewed unfavorably by the vast majority of respondents, signaling a preference for partners who exhibit financial responsibility.

Good debt

While certain forms of debt, such as mortgages and student loans (e.g., HECS), are deemed acceptable or even ‘good’ debt by a majority of respondents, credit card debt, payday loans (such as Afterpay), and personal loans top the list of ‘bad’ debt, with 82%, 78%, and 73% of respondents, respectively, expressing concerns.

Interestingly, even car loans are viewed unfavorably by a significant portion of those surveyed, with 57.5% considering them to be undesirable debt.

Sharon Draper, a relationship expert at eharmony, said the significance of financial compatibility in relationships, noting that discussions around money are increasingly taking place at earlier stages of dating.

“In the past, couples tended to avoid discussing money during the early stages of dating because it was regarded as rude and potentially off-putting,” Draper explains.

“However, understanding each other’s perspectives and habits around finances early on can be instrumental in assessing long-term compatibility.”

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Money

US energy stocks surge amid economic growth and inflation fears

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Investors are turning to U.S. energy shares in droves, capitalizing on surging oil prices and a resilient economy while seeking protection against looming inflationary pressures.

The S&P 500 energy sector has witnessed a remarkable ascent in 2024, boasting gains of approximately 17%, effectively doubling the broader index’s year-to-date performance.

This surge has intensified in recent weeks, propelling the energy sector to the forefront of the S&P 500’s top-performing sectors.

A significant catalyst driving this rally is the relentless rise in oil prices. U.S. crude has surged by 20% year-to-date, propelled by robust economic indicators in the United States and escalating tensions in the Middle East.

Investors are also turning to energy shares as a hedge against inflation, which has proven more persistent than anticipated, threatening to derail the broader market rally.

Ayako Yoshioka, senior portfolio manager at Wealth Enhancement Group, notes that having exposure to commodities can serve as a hedge against inflationary pressures, prompting many portfolios to overweight energy stocks.

Shell Service Station

Shell Service Station

Energy companies

This sentiment is underscored by the disciplined capital spending observed among energy companies, particularly oil majors such as Exxon Mobil and Chevron.

Among the standout performers within the energy sector this year are Marathon Petroleum, which has surged by 40%, and Valero Energy, up by an impressive 33%.

As the first-quarter earnings season kicks into high gear, with reports from major companies such as Netflix, Bank of America, and Procter & Gamble, investors will closely scrutinize economic indicators such as monthly U.S. retail sales to gauge consumer behavior amidst lingering inflation concerns.

The rally in energy stocks signals a broadening of the U.S. equities rally beyond growth and technology companies that dominated last year.

However, escalating inflation expectations and concerns about a hawkish Federal Reserve could dampen investors’ appetite for non-commodities-related sectors.

Peter Tuz, president of Chase Investment Counsel Corp., highlights investors’ focus on the robust economy amidst supply bottlenecks in commodities, especially oil.

This sentiment is echoed by strategists at Morgan Stanley and RBC Capital Markets, who maintain bullish calls on energy shares, citing heightened geopolitical risks and strong economic fundamentals.

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Money

How Australians lose nearly $1 billion to card scammers in a year

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A recent study by Finder has unveiled a distressing trend: Australians are hemorrhaging money to card scams at an alarming rate.

The survey, conducted among 1,039 participants, painted a grim picture, with 2.2 million individuals – roughly 11% of the population – falling prey to credit or debit card skimming in 2023 alone.

The financial toll of these scams is staggering. On average, victims lost $418 each, amounting to a colossal $930 million collectively across the country.

Rebecca Pike, a financial expert at Finder, underscored the correlation between the surge in digital transactions and the proliferation of sophisticated scams.

“Scammers are adapting, leveraging sophisticated tactics that often mimic trusted brands or exploit personal connections. With digital transactions on the rise, it’s imperative for consumers to remain vigilant and proactive in safeguarding their financial assets,” Pike said.

Read more – How Google is cracking down on scams

Concerning trend

Disturbingly, Finder’s research also revealed a concerning trend in underreporting.

Only 9% of scam victims reported the incident, while 1% remained oblivious to the fraudulent activity initially. Additionally, 1% of respondents discovered they were victims of bank card fraud only after the fact, highlighting the insidious nature of these schemes.

Pike urged consumers to exercise heightened scrutiny over their financial statements, recommending frequent monitoring for any unauthorised transactions.

She explained the importance of leveraging notification services offered by financial institutions to promptly identify and report suspicious activity.

“Early detection is key. If you notice any unfamiliar transactions, don’t hesitate to contact your bank immediately. Swift action can mitigate further unauthorised use of your card,” Pike advised, underscoring the critical role of proactive measures in combating card scams.

As Australians grapple with the escalating threat of card fraud, Pike’s counsel serves as a timely reminder of the necessity for heightened vigilance in an increasingly digitised financial landscape.

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