Lithium

Allkem shares flop on expansion delays and cost pressures

Fri 21 Oct 22, 10:33am (AEST)
A row of lithium brine ponds extend into the distance in a straight line from the photographer; mountains cover the horizon in the distance.
Source: iStock

Key Points

  • Allkem's average selling prices for lithium spodumene and carbonate continued to trend higher in the September quarter
  • The company pushed back the timeline for its Olaroz Stage 2 expansion due to delays in key materials
  • Olaroz's total capital expenditure was bumped up by 12% to reflect the delays and inflation impacts

Allkem (ASX: AKE) posted another strong quarterly performance and said its business is set to enter a period of 'significant growth' with three new projects set to come online in the next two years.

Group revenue was US$298m in the September quarter compared to US$337m in the previous quarter and US$69.8m a year ago.

Production at the Olaroz Project in Argentina improved 17% to 3,289 tonnes of lithium carbonate, which supported a record $150m in quarterly revenues. This was underpinned by further strength in lithium carbonate prices, with third party sales averaging US$43,237 a tonne compared to US$41,033 in the previous quarter.

Lithium spodumene production at the Mt Cattlin project tapered off in the quarter due to ongoing labour and equipment shortages as well as 'temporary unfavourable fine-grained mineralisation.' These expectations were made clear in late August. Allkem expects production to be heavily skewed towards the second half of FY23.

Mt Cattlin production was down -29% quarter-on-quarter to 17,606 tonnes of spodumene. Though, spodumene prices continued to climb, averaging US$5,028 a tonne compared to US$4,992 in the previous quarter.

'Significant growth' on the horizon

Allkem's development projects at a glance:

Olaroz Stage 2: Currently at 93% completion. Delays in the delivery of key components has delayed first production to the second quarter of 2023 instead of December 2022. This will also result in a 12% jump in total capex to US$425m. The Stage 2 expansion is expected to double Olaroz production to 25,000 tonnes of lithium carbonate per annum.

Naraha: The Naraha lithium hydroxide plant is well advanced in commissioning activities and first production is expected to occur in-line with expectations, in the December quarter. The plant has an annual production of 10,000 tonnes of high value battery grade lithium hydroxide.

Sal de Vida and James Bay are greenfield projects scheduled to come online in late 2023 and mid-2024 respectively.

"Capital expenditure for James Bay and Sal de Vida remain subject to the same cost pressures that all resource projects are experiencing globally," noted Allkem.

Lithium market outlook

Allkem said EV sales for the September quarter experienced 'robust demand growth across all major regions'.

EV sales in China accelerated to 1.9m units during the quarter, up 107% compared to a year ago. Sales in Europe and US remain resilient despite high inflation and supply chain disruptions, up 3% and 44% respectively.

Allkem noted that the supply side tightened in the quarter due to power rationing in China's Sichuan province. Although Australia is picking up the slack, with spodumene concentrate shipments in July and August 2022 up 89% compared to the prior period.

"Despite this increase, a significant shortage in spodumene concentrate remains highlighted by record high prices and increase in demand for lower grade lithium products," said Allkem.

The company expects the race to secure the supply of critical materials to continue to intensify as "auto and battery manufacturers seek to leverage the significant incentives on offer as part of the Inflation Reduction Act."

Allkem price chart
Allkem 12 month price chart

 

Written By

Kerry Sun

Content Strategist

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

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