Aug 27, 2023

Sentiment: Bullish

Type of Trade: Aggressive, High Growth

Industry: EV - Electric Vehicles - Lithium

Sector: Materials

As per FY23 Full Financial Report

Allkem is a speciality lithium chemicals company with a global portfolio of diverse & high-quality lithium chemicals. The company produces (via its 4 main projects Olaroz, Mt Cattlin and Naraha), explores (Olaroz and Cattlin) and develops (James Bay, Sal de Vida, Naraha, Cauchari).

Recent report has provided some very solid and compelling sustainable growth with all key metrics being very positive and company reporting 55% increase in its NPTA (US$0.5B).

✅ The strong profit, as result of strong pricing results for both lithium carbonate and spodumene concentrate, resulting in record revenue, EBITDAIX and profits, despite lower sales of spodumene concentrate compared to FY22 despite recent decline.

  • Record full year production from Olaroz
  • Strong H2 production from Mt Cattlin, up 185% compared to H1 FY23
  • Lithium carbonate average FOB price of US$43,981/t in FY23 (US$23,398/t in FY22)
  • Spodumene concentrate average CIF price of US$4,879/dmt in FY23 (US$2,221/dmt in FY22)
  • Olaroz cash cost of goods sold US$5,014/t in
  • FY23, compared to US$4,282/t in FY22.
  • Impacted by higher costs for raw materials,
  • energy costs and inflation impact. Export
  • incentives removed from 3rd quarter FY23.
  • Spodumene concentrate cash cost of production was US$909/dmt, compared to US$420/dmt in FY22. Increased costs for mining due to pit transition, mining contract performance, inflation, and lower production year on year. Higher production, lower costs expected in FY24
  • EBITDAIX margin of 75%, compared to 69% in FY22

Fundamental Value for the Long term Investor wanting exposure to growth and capital.

The following pipeline shows the ambitious plan of Allkem to triple production.

Olaroz Stage 1 and 2 (Jujuy Province, Argentina)

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 stage 2 expansion project was successfully finalised with first production achieved for Stage 2, as result, the Olaroz Plant has generated record production and revenue from Lithium Carbonate. The company is focused on completing commissioning process by progressively increasing production volumes and production quality over 12-18 months ramp up period.

✅ Full Year production up 30% on PCP

✅ Record revenue of lithium carbonate ~US$580m from sales with an additional US$12.3 mil in revenue was generated from byproduct sales reflecting strong market conditions.

✅ Cash unit cost of sales of US$5,014/t, reflecting impacts of inflation and higher costs for raw materials and energy. Export incentives were removed from 3rd quarter FY23.

✅ Gross cash margin of 89%, increasing from 82% in FY22.

✅ Resource increased 27% to 20.7Mt LCE and 27Mt LCE Resource when combined with Cauchari which supports further potential expansion.

Guidance for FY24 – 22,000 to 26,000 tones of lithium carbonate production from combined stage 1 and 2.

Naraha (Japan)

Naraha Allkem Limited (75% owned, non-operated) has recently constructed the first-ever lithium hydroxide plant in Japan which is part of product diversification strategy.

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 10,000 tones 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.

✅ First production achieved in later October 2022.

1,345 tonnes of hydroxide sold in FY23, with ramp up activities progressing using Olaroz technical grade lithium carbonate as feedstock.

Battery grade qualification commenced with customers in July. ♨️ This Qualification process with customers ranging from 6 to 12 months.

Sal de Vida (Catamarca Province, Argentina)

Sal de Vida (100% owned) is current at Stage 1 status Construction with the first two strings of evaporation ponds are currently at ~98% completion ♨️ completion by the end of the year, and first production estimated in mid-2024. The output is lithium carbonate 80% battery and 20% Technical.

Sal de Vida is a globally competitive project with superior brine chemistry that readily upgrades to battery grade lithium carbonate.

Carbonation plant construction is now underway and a green, sustainability linked loan for US$130M was agreed and signed with the IFC in July. Discussions continue to increase the loan by US$50m to US$180m.

Stage 1 Product output of 15 ktpa of mainly battery grade lithium carbonate.

✅ Permitting for expansion from 11.4ktpa to 15ktpa approved

✅ 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.

For capital development cost: see previous Analysis

The project life is 40 Years and this project is critical for the long term sustainability and success of Allkem, with 6.85 Mt LCE Brine Resources and 1.74 LCE Brine Reserve estimate.

Mt Cattlin (Western Australia)

Mt Cattlin (100% owned) 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.

✅ Record FY23 revenue of US$616m from sales, including US$%14m from SC sales and US$99m from low grade sales.

✅ Average cash costs of spodumene production1 of US$909/dmt reflects high level of stripping activities

✅ Allkem has recently acquired 80% of Madoonia tenements near Bald Hill covering 440km2 in JV with Lithium WA Investments.

🚩 Gross cash margin of 78%, similar to but slightly below FY22 80%

🚩 Confirmed 4-5 year mine extension to 2027-2028 via open pit methods, although there is such extension, the life mine is relatively short and studies are underway for underground mining options, which is a lot more costly. Drilling campaign of 31,231m led to Resources Extension and informed Reserve update.

Guidance for FY24:

210,000 to 230,000 tonnes spodumene production
– Unit cost of production US$850/dmt with higher strip ratio as Stage 4 is

James Bay (Quebec, Canada)

Allkem is developing the James Bay Project (100% owned) as a sustainable, hard-rock operation, maximising the usage of renewable energy and utilising spodumene expertise gained from its successful Australian operation, Mt Cattlin that btw has short mining life at moment.

The James Bay lithium project is currently in design and permitting phase. 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.

✅ The guidance for annual production of 321 ktpa if selling price of 5.6% spodumene concentrate be at US$1,001/tonne.

The project life is 19 years with 110.2million tonnes (Mt) at 1.3% Li2O2 and Ore reserve of 37.2Mt at 1.3 Li2O2, James Bay is another key project for Allkem.

Take a quick look in comparison, that includes

  • (ASX: SYA) – Sayona’s NAL mineral resources of 58.3Mt.
  • (ASX: CXO) – Core Lithium Finiss Project project 30.6Mt@1.31% Li2O and
  • (ASX: LRS) – Latin Resources, Colina Project 45.19Mt, at 1.32% Li2O

✅ Final consultations related to provincial approval (COMEX) and IBA are advancing. ♨️

Technical Analysis

We have done several trades with Allkem in the past lock in profits of 38% and 40% in each of the trades.

We consider Allkem to be the most diversified lithium company on ASX, with multiple lithium projects across various jurisdictions, providing full exposure to lithium dioxide, lithium carbonate and spodumene concentrate and anyone looking to get exposure to high quality lithium producer, growth should be looking into (ASX: AKE).

The company has once again reported strong growth in all key metrics, but declined lithium prices has limited the share price to growth further, that is currently trading at technically discounted price for the long and short term SMA, BGS 20 Strategy’s key indicators.

If you have bought (ASX: AKE) 1 year ago, you would have made only an ordinary profit of 3.7%, nevertheless the stock presented a great opportunity to buy at technically discounted price in March, with rallied about 73%.

The long term formation is extremely bullish accumulating over 800% share price increase in the last 3 years.

Monthly ChartWeekly Chart

Should I Buy (ASX: AKE) Now?

(Area Restricted For VIP Members Only, If You Want To Access You Will Need To Login)


The information provided by BG Trading to you does not constitute personal financial product advice. The information provided is of a general nature only and does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon, or treated as a substitute for specific professional advice. BG trading recommends that you obtain your own independent professional advice before making any decision in relation to your particular requirements or circumstances. Past performance of any product discussed is not indicative of future performance. (We urge that caution should be exercised in assessing past performance. All financial products are subject to market forces and unpredictable events that may adversely affect their future performance).