Allkem offers greatest leverage to lithium carbonate prices: Macquarie

Macquarie analysts have upgraded their lithium price outlook on the back of strong electric vehicle demand backed up against softer supply.

The higher lithium price outlook is driving material earnings upgrades for local lithium producers, including Allkem (ASX: AKE).

“Allkem offers the greatest leverage to lithium carbonate prices, and we see upside to price guidance in the second-half of FY22 based on recent moves in regional lithium prices,” Macquarie analysts said in a note earlier this month. 

“The company boasts an impressive production growth profile, which is underpinned by the staged expansion of Olaroz and the development of Sal de Vida. Longer term, we expect AKE to increase spodumene production through the development of James Bay.”

Macquarie held an Outperform rating on the stock with a $16.30 target price. 

The price target represents the most upside among the lithium and rare earths covered, which includes names like Pilbara Minerals (ASX: PLS), Lynas Rare Earths (ASX: LYC) and Liontown Resources (ASX: LTR).

Medium-to-long term growth projects

Allkem currently has two operational lithium projects.

• Galaxy Resources' Mt Cattlin: a stable and mature operation

• Argentina-based Olaroz: currently progressing a stage 2 expansion

On the growth front, Sal de Vida is an emerging tier 1 asset located in the Catamarca Province, Argentina.

Construction for Stage 1 commenced in January 22 and first production is expected in the second-half of 2023.

Stage 1 is targeting annual lithium carbonate production of 10,700 tonnes. A three stage expansion plan hopes to scale production up to 32,000 tonnes per annum.

To add some perspective, Olaroz produced 13,319 tones in FY21.

Sal de Vida has 6.23m in Li₂CO₃ Resource (Source: Galaxy Resources 2021)

James Bay is targeting construction in the third-quarter of 2022 and commissioning in the first-half of 2024 - targeting circa 330,000 tonnes of spodumene per annum.