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



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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