Understanding the Allkem lithium growth story

Allkem (ASX: AKE) is on track to be the second ASX-listed lithium stock to surpass the $10bn valuation mark. The first being Pilbara Minerals (ASX: PLS).

The company's stock chart has gone almost vertical in the past three weeks, up almost 50% since mid-March.

Allkem is arguably one of the most diverse lithium players, with both operational and developing lithium brine, hard rock and downstream projects.

While Allkem shares are quite extended, it might be worth taking a look at what growth levers are in place to drive long-term shareholder value.

The Pipeline

Allkem Project Pipeline (Source: Allkem Strategy Presentation - April 2022)

The Breakdown

Operational projects Olaroz is a long-life and low-cost brine operation in Argentina.

In the first-half of FY22, Olaroz produced 6,466 tonnes of lithium carbonate, sold for an average price of US$11,095 a tonne.

The project generated a total revenue of US$66m, worth around 34% of Group revenues in 1H22.

Allkem expects June quarter carbonate pricing to be around US$35,000 a tonne.

Mt Cattlin is a mature hard-rock project, contributing approximately 60% of Group revenues in the first-half. The project produced 96,871 tonnes of spodumene at an average price of US$1,186 a tonne.

Allkem expects June quarter spodumene pricing to be around US$5,000 a tonne.

Near term growth catalysts

Olaroz is about to commission Stage 2 expansion to bring production up to 25,000 tonnes per annum (tpa). To add some perspective, Olaroz produced around 12,600 tonnes of lithium carbonate in FY21.

The Stage 2 expansion is expected to hit first production in the second-half of 2022, with ramp up expected to take 12-18 months.

The Naraha Project in Japan will enable Allkem to climb the value chain towards a more refined lithium product - lithium hydroxide.

For the uninitiated, lithium hydroxide produces battery cathodes that are more sustainable and longer lasting than lithium carbonate. Although the cost of extracting hydroxide from brine is much higher.

The project is expected to make its first production in the third-quarter of 2022 at a rate of 10,000 tpa.

Juniors coming online

The Sal de Vida project is in many ways a superior Olaroz in the making. Stage 1 construction commenced in January 2022 and targeting production in the second-half of 2023.

Stage 1 is targeting a production profile of 15,000 tpa, with an improved scope from lessons learned from Olaroz. A future Stage 2 expansion is expected to drive production to 30,000 tpa.

The Canada-based James Bay Project is also expected to surpass Mt Cattlin across production and cost metrics. The project is forecast to have a production capacity of 321,000 tpa of spodumene, with first production targeted in the first-half of 2024.

Putting it all together

Now

• FY22e Mt Cattlin: 200-210,000t spodumene

• FY21 Olaroz: 12,600t carbonate

What 2025 might look like

• Mt Cattlin: 210,000 tpa spodumene

• James Bay: 321,000 tpa spodumene

• Olaroz Stage 2: 25,000 tpa carbonate

• Sal de Vida: 15,000 tpa carbonate

• Naraha: 10,000 tpa hydroxide