Allkem posts nine fold jump in revenue with plenty of growth left in the pipeline

Allkem (ASX: AKE) has posted a massive nine-fold jump in revenue as its flagship Mt Cattlin and Olaroz projects took full advantage of sky high lithium prices, delivering record annual production volumes in FY22.

Results at a glance:

Source: Allkem | Table: Market Index

Growth breakdown

The result was in-line with Macquarie estimates of US$764m revenue and US$325 adjusted net profit.

Allkem no doubt experienced a massive uplift in pricing for both lithium carbonate and spodumene concentrate, including:

• Mt Cattlin: Average FY22 spodumene selling price of US$2,221 a tonne from US$1,186 a tonne in the first-half of FY22

• Olaroz: Average FY22 lithium carbonate selling price of US$23,398 a tonne, up 370% year-on-year

The rapid rise in spot prices greatly outpaced higher costs. Margins for Mt Cattlin jumped from 62% in the first-half of FY22 to 80%, and from 68% to 82% for Olaroz.

Plenty of growth left in the pipeline

“... Our team also achieved significant advancements at all our development assets across the globe with both Olaroz Stage 2 and Naraha on the cusp of commissioning this calendar year," said CEO Martin Perez de Solay.

Olaroz Stage 2 has reached 91% completion and first production is anticipated in late 2022. Stage 2 is expected to ramp up Olaroz lithium carbonate production to 25,000 tonnes per annum. Whereas FY22 production was 12,863 tonnes.

The construction of the Naraha lithium hydroxide plant in Japan was completed during the year and expected to hit production status in the fourth quarter of 2022. "Once product qualification is complete, this plant will provide Allkem with exposure to the high value lithium hydroxide market," the company said in a statement.

"Sal de Vida construction is well underway and James Bay permitting is advancing," added Solay.

Expectations running high

The margin expansion quite clearly shows how leveraged lithium producers are to higher prices. But that also places the company at risk in the unlikely event that lithium prices start heading south.

At the same time, Allkem flagged that Mt Cattlin average cash costs of production will spike to approximately US$900 a tonne in FY23, from US$420 a tonne in FY22.

To a lessor extent, Olaroz cash costs are projected to increase 11% due to higher labour and other costs.

Regardless, Allkem expects underlying fundamentals from EV and battery markets to support strong demand and robust lithium prices.

"Strong ramp up of brownfield expansions but forecast supply is still unable to reach surging demand in the immediate and longer term," notes Allkem.

As such, Macquarie expects another bumper year ahead, projecting Allkem to deliver US$1.53bn in revenue and US$726m in adjusted profits for FY23.