As per H1 FY23 |
ALLKEM LIMITED is a company formed by Galaxy Resources and Orocobre, forming one of the fifth largest global lithium carbonate supplier and an established producer of boron. Probably most of the lithium used in the current mobile phone batteries comes from the fields that Allken explores. In 2018 Orocobre announced the Stage 2 Expansion of its flagship Olaroz Lithium Facility in Argentina.
Recent report has provided some very solid and compelling sustainable grow with all key metrics being remarkably positive in H1 FY23.
✅ The group revenue up 209% for the period has almost tripled to US$558 million.
During the period, the group revenue has nearly tripled to US$558 million compared to the previous corresponding period (PCP). The Olaroz Lithium Facility has achieved record production of 7,542 tonnes, 13% higher than the previous record in 2019. The facility generated record revenue of US$296 million, almost 4.5 times higher than the PCP, due to the sales of 6,852 tonnes of lithium carbonate and an average price of almost 4 times the PCP to US$43,236/t FOB2. Additionally, revenue from spodumene has increased by 65% to US$190 million from the PCP due to sales of 36,951 dry metrics tonnes of spodumene concentrate at an average price of US$5,136/tonne CIF2. Finally, an extra revenue of US$72 million has been generated from the sales of low-grade product from both Mt Cattlin and Olaroz, reflecting strong market conditions and demand from customers.
✅ The group gross profit has been generated by the excellent operating performance and highly supportive market conditions, which is US$462 million. The group EBITDAIX has been reported at US$401 million, and consolidated net profit after tax of US$219 million.
✅ Strong cash generation and existing net cash balance of US$552 million is expected to fully fund committed projects.
✅ In Q3 FY23, lithium carbonate prices are expected to be approximately US$53,000/t FOB, excluding Naraha feedstock, which is an intermediate input for the production of battery-grade lithium hydroxide. nevertheless customer demand in the spodumene market remains robust, driven by strong lithium hydroxide requirements, and pricing in the March quarter is expected to be 5% above the December quarter.
✅ The Stage 2 Expansion will add 25,000 tpa of lithium carbonate production capacity, taking full production and capacity to 42,500 tpa of lithium carbonate for sale to industrial, technical and battery markets, positioning Orocobre as one of the world’s largest and lowest cost lithium chemicals producers. The Olaroz Stage 2 Expansion’s Finance Facility was finalised in Q1 FY20. Furthermore, the company has successfully merged with Galaxy Resources Ltd in 25 August 2021, with the merge, Sal de Vida, Mt Cattlin and James bay projects are also part of the firm.
✅ Allkem has plans to become top 3 lithium chemicals supplier in the world with two projects already under production (Olaroz and Mt Cattlin and other 3 on the pipeline to start production within the next 3-12 months therefore making Allkem an explorer, developer and most importantly producer at the same time.
✅ Macroeconomic environment is favourable with very short supply and Upwards pricing momentum for lithium products continues with March quarter FY22, indicative pricing for 43.5kt of spodumene concentrate shipments of US$2,500/t CIF for 6.0% Li2O. Lithium carbonate prices has increased by 200% last year with revised guidance to continue to increase further. Strong Demand for EV as demand forecast to increase by 63%
Fundamental Value for the Long term Investor
Olaroz Stage 2
Olaroz Lithium Facility (66.5% owned) is Allkem’s flagship brine-based lithium facility is based in Northern Argentina and supplies high-quality lithium chemicals across the globe.
The expansion project is in its final stages, with construction at over 97% completion by the end of January. Commissioning and first production are expected in the second quarter of CY23, with the ponds already completed and commissioned. Lime plant 3 and lime plant 4 have been commissioned and handed over to operations, while the soda ash facilities are in the final stages of commissioning. The carbonation plant reached 89% completion by the end of January. New operating staff have been recruited and trained in Olaroz Stage 1 ahead of first production, and operations are set to ramp up during the June quarter. The project has a total CAPEX of US$425m, with a competitive capital intensity of US$17,000/t.
With the construction being ~%97 completed, the company aims to produce an additional 25ktpa of lithium carbonate out of Olaroz.
Naraha Allkem Limited has recently constructed the first-ever lithium hydroxide plant in Japan.
The Naraha plant is specifically designed to convert primary grade lithium carbonate feedstock into purified battery grade lithium hydroxide, making it a valuable addition to the company’s portfolio. The plant is expected to process approximately 9,500 tonnes per annum of lithium carbonate feedstock, which will be sourced from Olaroz and transported to the Naraha facility for further processing. This development is a significant milestone for the company, as it enables them to cater to the rising demand for high-quality lithium hydroxide in Japan and the Asia-Pacific region.
The company’s recent update.
The company has achieved its first production milestone in late October 2022, producing high-quality lithium hydroxide products. The first sales of hydroxide production have already been completed, and the ramp-up activities are currently ongoing, using technical grade lithium carbonate from Olaroz as feedstock. The focus during the ramp-up period is to increase product quality and volumes to reach the plant’s nameplate capacity. As of the date of this report, the plant has been consistently running at 85% capacity and producing on-spec battery grade lithium hydroxide. These developments signify the company’s progress in meeting the growing demand for high-quality lithium hydroxide products in the market.
Sal de Vida
This project is current at Stage 1 status Construction with the first two strings of evaporation ponds are currently at ~87% completion and first production estimated in mid-2024. The output is lithium carbonate 80% battery and 20% Technical.
The tier 1 brine project is located in Catamarca Province on the Salar del Hombre Muerto, ~1,400km northwest of Buenos Aires, Argentina and ~200km from Allkem’s flagship Olaroz Lithium Facility. Catamarca is a proven mining jurisdiction, home to several successful mining operations and development projects. Sal de Vida is a globally competitive project with superior brine chemistry that readily upgrades to battery grade lithium carbonate.
✅ Stage 1 Product output of 15 ktpa of mainly battery grade lithium carbonate.
✅ Stage 2 expansion to 30 ktpa to be developed sequentially, with stage 2 and stage 3 now combined into one of larger stage 2 for a total sdV capacity of 45ktpa.
Mt Cattlin is a low-cost spodumene producer utilising conventional techniques to extract and process the resource. An Australian based and mature project, the open-pit mine and concentrator is located approximately two kilometres north of Ravensthorpe in the Great Southern region of Western Australia. Operations recommenced at Mt Cattlin in late 2016, producing high-quality spodumene concentrate that is qualified in the lithium supply chain globally. This project also has been undertaking extensive exploration in order to expand its capacity and resources.
✅ Produces high quality spodumene concentrate that is qualified in the lithium supply chain globally.
✅ Resources extension in progress with 2 rigs on site on drilling commencing in April and permitting in place. with targeting drilling completion by Q4 CY22.
Allkem is proposing to develop the James Bay Project as a sustainable, hard-rock operation, maximising the usage of renewable energy and utilising spodumene expertise gained from its successful Australian operation, Mt Cattlin.
The James Bay lithium project is currently in the detailed engineering phase, with the process plant engineering at 79%. The procurement for long lead items is still ongoing. Hydro-Quebec has completed the detailed engineering work and started the construction of an 8MW power line to the site. In January 2023, the federal authority granted approval for the Environmental and Social Impact Assessment (ESIA), with final consultations for provincial approval in progress, and discussions about Indigenous Benefits Agreements (IBA) underway. The company has completed key construction permits and is ready for submission once the ESIA is approved. Once the permits are secured, the construction phase will commence, and the company will update its guidance for the first production. The company has also begun a resource extension drilling program of 19,255m to test open areas of mineralization around the current ore body, with 24% progress at the end of December. The company aims to provide a mineral resource update by the end of H1 CY23. These developments demonstrate the company’s commitment to advancing the James Bay lithium project and further expanding its resource base to meet the growing demand for high-quality lithium products.
We have done several trades with Allkem in the past lock in profits of 38% and 40% in each of the trades. Allkem has done well since our last analysis and if you have invested in AKE (former Orocobre) 52 weeks ago, you would be 16% up on this stock. Provided that we are having a very significative correction in the market, once again, we saw a very strong opportunity to buy this stock at the support level and under SMA40 and SMA250 which means at technically discounted price for BGS20 Strategy.
The fundamentals in FY23 H1, macro-economic and growth prospect are all favourable for a long term investor and a trader that would like to take advantage of the latest correction. We classify this stock as investment grade company for investors that are looking for long term growth must to ensure having a long term target in mind as macro-economic scenario change from time to time.
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