Monsters of Rock: Allkem merger 'fair' and all the rock Orica blew up last year

Allkem preps for Livent merger with shareholders to vote on December 19
Independent expert gives support for ‘fair’ deal, recommending shareholders of the lithium miner take up the offer
Mine explosives and chemicals supplier Orica boosts profit as it looks to future facing commodities for growth

A day on from an uneventful AGM the real business is afoot for Allkem (ASX:AKE) as it moves to finalise the merger with America’s Livent by early 2024.

The companies are looking to combine in a deal that would create the world’s third biggest player by lithium volumes, at least once all of their myriad growth options are brought to market by later this decade.

If successful, the merger would see Allkem’s ASX and TSX shares delisted by January 5, a day after the new company’s shares begin trading on the New York Stock Exchange. Its CDIs will be traded on the ASX.

Allkem has received the vote of support it needed from independent expert Kroll Australia, releasing a scheme booklet for the December 19 meeting containing a report from Kroll that deemed the offer ‘fair’.

They value Allkem at an equity value of between $12.76-15.41, well above the $9.22 trading value of the stock today, and placed the combined equity value of the group at between $9.79 and $11.43 billion.

That’s well below the roughly $16b value trumpeted when it was originally announced roughly six months ago, but also comes after Allkem and Livent shares tumbled 26.1% and 38.2% lower over the period as lithium prices have dropped significantly.

Allkem shareholders will emerge with 56.1% of the merged entity once the deal is done, while Livent – spawned from within lithium battery pioneer FMC Lithium – will hold 43.9%.

Kroll thinks Allkem and Livent, to become a new lithium player known as Arcadium Lithium, will see $603-654m of synergies on a discounted cash flow basis, along with $200m in one times capex savings by being able to share infrastructure across its Sal de Vida and Salar de Hombre Muerto assets in Argentina and the James Bay and Nemaska Lithium deposits in Quebec.

At Wednesday’s AGM at Perth’s Crown Towers, where shareholders will reconvene in a little over a month, Allkem’s Peter Coleman – who will become chairman of the merged vehicle – suggested the large growth profile of the new Arcadium meant dividends were unlikely to be on the table.

Allkem (ASX:AKE) share price today

Orica profits run higher as ‘future facing commodities’ capture attention

Minesite explosives and chemicals supplier Orica (ASX:ORI) was up today after delivering ‘double digit growth’ in its sales, NPAT and earnings, reporting a 16% lift in underlying NPAT to $369m and 12% rise in sales revenue to $7.95 billion.

It announced a 25c per share dividend, with a full year FY23 payout of 43cps resembling a payout ratio of 53%. The largest share of revenue came from copper and future facing commodities including lithium, nickel, lead and zinc, with 24% of the company’s earnings from miners operating in these fields, with 21% in gold.

Met coal, around 7% of its commodity exposure, was the fastest growing segment of Orica’s exposure, with quarry and construction activity in the US also reflected in a YoY rise to 14%, though thermal coal (also 14%) saw a decline year on year.

All up Orica’s net profit on a statutory basis rose from $60.1m in FY22 to $295.7m in FY23 despite its exit from Russia, with underlying earnings of 81.2c per share up 4.8c on the prior corresponding period.

“The strategy we’ve outlined in 2021 states that we’ll focus on growing our exposure to future facing commodities, you see that in our product portfolio, now copper becomes really big and important to us,” Orica MDs Sanjeev Gandhi told analysts on a results call today.

“We’ve now started looking at opportunities in lithium, especially here in Australia which is quite exciting, and the other strategic growth driver is our presence in emerging markets.

“We’ve seen significant success in Africa, you’ve seen that in our results in the EMEA region (Europe, Middle East and Africa), LatAm continues to be a very, very attractive opportunity for us and then emerging markets in Asia like China and India are very attractive.”

Gandhi also flagged the growth of its digital solutions segment as a focus area for Orica, after reporting a 103% lift in EBIT to $54.3m in FY23.

He also said the company was looking at opportunities to get into chemical supply for lithium refining and copper purification either by partnering with existing providers or setting up its own manufacturing base.

“That’s a work in progress and that’s why the traffic light there is yellow and not green,” he said.

Gandhi cited an investment in Alpha HPA (ASX:A4N), near its Yarwun ammonium nitrate plant in Queensland, as an example of its interest in engaging with processors in EV commodities.