Monsters of Rock: Allkem flags growth over dividends ahead of Livent merger
It’s the only one of Australia’s three major lithium names not paying out cash returns to shareholders despite strong profits from recently booming lithium prices and margins in the order of 90%.
And Allkem (ASX:AKE) chairman Peter Coleman, formerly the head honcho at Woodside, says that anomaly is likely to continue after a multi-billion dollar merger with US lithium stock Livent.
He says the company, which will be rebadged as Arcadium Lithium and run by Livent CEO Paul Graves, is in a growth phase.
It’s the biggest hint the miner, which operates brine assets in Argentina and the Mt Cattlin lithium mine in WA, is taking a view that growing production for a long term lithium demand boom is its priority.
With Livent’s El Fenix DLE operations in Argentina in the family, the company (which will be 56-44 split between the holders of Allkem and Livent) plans to become the world’s third largest lithium producer by 2028 behind Albemarle and SQM.
It global portfolio, which will include Mt Cattlin, the Olaroz, El Fenix, Sal de Vida and Cauchari brines in Argentina, James Bay and Whabouchi hard rock mines in Quebec and Naraha lithium hydroxide plant in Japan, will eventually produce 248,000t of lithium carbonate equivalent tonnes a year.
Heading into the merger — due for a shareholder vote next month — Coleman told investors at the $6 billion lithium giant’s AGM in Perth today both Allkem and Livent were in a ‘growth phase’.
AKE doesn’t pay dividends, putting it at odds with peers Pilbara Minerals (ASX:PLS), Mineral Resources (ASX:MIN) and IGO (ASX:IGO), though the latter two were paying dividends on iron ore, mining services, gold and nickel earnings previously.
“Despite having very robust financial results for the financial year ended in June 30 of this year, we believe the optimal way to maximise shareholder value and returns is to execute our strategy on delivering business critical scale to customers to strengthen our position as a global leader and supplier of choice of lithium chemicals,” Coleman said.
“Now the assets in our portfolio have considerable capital expenditure requirements, but are expected to generate very robust returns in the mid to longer term. Having said that the board continues to assess the appropriate time to issue dividends without compromising our growth strategy.”
That’s unlikely to change when Allkem — the result of a merger in 2021 between Orocobre and Galaxy Resources — joins in holy matrimony with Livent.
“With respect to the MergeCo, we don’t anticipate there’ll be dividends, at least in the short to medium term. Again Livent has a growth profile, not too dissimilar to Allkem’s,” Coleman said.
“Livent is not currently paying a dividend to shareholders and neither is Allkem, so we don’t foresee a change in that policy. But of course, the MergeCo board will need to make that decision when we get together.”
The jostling for position in WA’s dominant hard rock lithium scene has been a major talking point in recent weeks and days, with Gina Rinehart and Chris Ellison building stakes in just about anything that isn’t pinned down.
Allkem and Livent are bigger dogs and haven’t yet seen any threat emerge to their long proposed merger from outside — indeed the Mt Cattlin mine, while operating, is smaller in scale and mine life than the resources Ellison and Rinehart have been targeting.
With its enlarged scale Arcadium — which is facing up to that short Mt Cattlin lifespan — could be another entrant into the battle for WA’s lithium riches.
Flanked by outgoing CEO Martin Perez de Solay, Coleman said he couldn’t comment on whether a player like Hancock could come in to scupper the deal, and hinted it would look at opportunities to grow the WA business despite its shorter mine life compared to the company’s Argentine and Canadian deposits.
“Western Australia is clearly one of the areas where we’re very happy that we’ve got a very good operating business and we continue to look for opportunities to extend or expand that operating business, and as Martin said the board’s already approved extension of that business and we look for opportunities to grow that business as well,” he said.
“With respect to what’s happening in the marketplace. I think it just simply to be honest with you validates that others are taking a long term view of lithium as well.
“And as I mentioned, in our view, current equity prices don’t reflect the long term value of the shares in the company and of course of many companies in the sector.
“So people are being opportunistic at the moment now as equity prices are lower with the view that they can develop assets in a longer term and take advantage of that.”
Sitting at a 16.58% gain today the $460 million niobium play is sitting on a $462 million market cap, up a tidy 585% YTD.
Its latest run has come from a string of high grade assays, ranging up to 30m at 4.7% niobium pentoxide from just 54m at the Luni carbonatite discovery in WA’s West Arunta region.
It comes ahead of a maiden resource for what promises to be one of the world’s highest grade niobium discoveries in the first half of 2024. Luni is looming as a globally critical project, given its potential to break into a virtual monopoly held by the world’s largest and highest grade producer, Brazil’s CBMM.
Around 90% of the 100,000tpa niobium feeds into steel production, but increasingly it is being prized for its use in lithium ion battery technology, where Nb2O5 can reduce charge times and extend battery life.
It was a major standout as the materials sector tumbled over 1%, led by a drop for the Pilbara iron ore miners.