Shares of lithium producer Allkem [ASX:AKE] rose on Thursday on plans to increase lithium production threefold by 2026 and secure a 10% share of the global lithium market.
Along with its peers, AKE has enjoyed a strong year, with AKE shares gaining 120% in the last 12 months:
Source: Tradingview.com
Allkem plans to boost production
Today Allkem updated investors on its global lithium portfolio, business activities, and finances for the 31 March 2022 period.
Importantly, AKE outlined its ambition to be a major player in the industry.
AKE plans to ‘increase lithium production 3-fold by 2026 and maintain a 10% share of the global lithium market over the next decade.’
To that end, Allkem is increasing the resource at Olaroz by 2.5-times, from 6.4 million tonnes lithium carbonate equivalent (LCE) to 16.2 million tonnes LCE.
AKE said its total resources at Olaroz and its adjacent basins are now 22.5 million tonnes in all resource categories, ‘making it one of the largest lithium resources in the world.’
AKE’s Sal de Vida production capacity increased by 40% and a new drilling program at Mt Cattlin is due to begin this month.
Stage 2 Olaroz has reached 77% construction, with production expected to get going by the end of 2022.
AKE’s Naraha plant will likewise begin its first production by September this year.
Sal de Vida (Stage 1) will not begin until later next year and permits have been progressed for operations at James Bay.
Allkem’s financial position
AKE’s group revenue came in at US$235 million for the March quarter, with an operating cash margin of around US$189 million.
Allkem said the high operating cash margin reflected ‘strong market demand and high sales prices.’
AKE’s Mt Cattlin Project posted ‘record revenue’ of US$143.8 million within three months, while the Olaroz Lithium Facility mirrored record revenue with US$86 million.
As at 31 March, AKE had US$421.3 million in cash.
Source: Allkem
Lithium market outlook
Allkem reported that the strong demand for lithium chemicals and spodumene concentrate during 2021 carried over into the March 2022 quarter.
On top of that, EV sales for the March quarter came in at two million units, up 70% on the prior corresponding period.
EV sales in China alone totalled 1.1 million units during the quarter, up 150% on the prior corresponding period.
As Allkem noted:
‘Spot prices for lithium carbonate and hydroxide across all key geographies rallied to new records as limited uncommitted supply fell short of demand during the quarter.
‘Spodumene concentrate spot prices also registered records during the quarter, approximately double the prices of the December quarter. Contracted prices were gradually adjusted up to reflect tightening market conditions across the supply chain.
‘Allkem’s sales contracts of lithium carbonate negotiated at 2021 prices came to an end during the March quarter. In 2022, annual contracts that previously had a fixed price are now linked to contract indices and are adjusted periodically.’
Allkem share price outlook: lithium producers versus developers
Lithium has dominated investor interest lately.
And no wonder, given the recent results.
Sayona Mining [ASX:SYA] and Lake Resources [ASX:LKE], for instance, are both up more than 550% in the last 12 months.
In comparison, AKE’s yearly gain is modest.
But can Allkem’s goal to increase production threefold by 2026 change the outlook?
Most of the top performing lithium stocks currently are lithium juniors — either still exploring or developing their mines.
The actual producers — like Allkem and Pilbara Minerals [ASX:PLS] — are lagging behind in terms of share price gains.
But it’s the producers who are best placed to take advantage of current elevated lithium prices.
Take Sayona and Lake Resources. Both are years away from production — and years away from profitability.
Will the market conditions remain the same in five years? Or will prices stabilise just as the likes of LKE and SYA start shipping lithium?
Will 2022 be the year when lithium producers outperform lithium developers, who may be priced to perfection already?
And are there lithium stocks the market is overlooking right now?
According to Money Morning’s latest research report on the sector, yes.
In fact, the research report profiles three of them.
To find out more, access the report here.
Regards,
Kiryll Prakapenka,
For Money Morning
