Monsters of Rock: Allkem posts bumper lithium result, Alumina in bauxite blues, mining services stocks on the card
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All eyes may have been on BHP (ASX:BHP) today but the market took a much stronger shine to lithium giant Allkem (ASX:AKE), which is heading in the direction of a $16 billion merger with America’s Livent that could make the world’s third largest lithium producer.
It saw revenues surge 1.6 times in the past year to US$1.2078 billion, hardly a drop in the ocean for lithium-shy BHP, but stunning given it and other lithium miners were pretty much out on their arse only a few years ago.
That spurred gross profit of US$1.0658b, EBITDAIX of US$909.8m and net profit after tax of US$524.6m.
A big reason for that was a production increase to the tune of 30% YoY at its Olaroz facility in Argentina to 16,703t, which led to a 102% revenue lift there to US$592.2m, on average lithium carbonate pricing which almost doubled to US$43,981/t FOB.
But the split between price and cost is where the lithium producers are really making things count at the moment. Peep the 89% cash margin. Wowzers.
At the Mt Cattlin spodumene mine in WA, revenue rose 36% to a record US$615.6m despite Allkem experiencing a tough year operationally. Almost US$100 million was generated from low-grade sales such was the demand for lithium tonnes from Chinese converters and the electric vehicle market.
Mt Cattlin’s cash margin came in at 78% on a 2.2x lift in average realised spod prices to US$4879/t CIF.
Allkem still has US$648.4m of cash in the bank ahead of the Livent transaction, keeping it well stocked for an ambitious growth schedule that includes the Sal de Vida brine in Argentina’s Catamarca Province, Olaroz Stage 2, the ramp up of the Naraha lithium hydroxide plant in Japan and the James Bay lithium project in Canada.
While the Allkem results are a picture of health, the lithium industry in China has become extremely volatile this year, with prices diving twice including over the past month.
Hydroxide and carbonate are back in the low US$30,000/t range as oversupply and weaker than expected EV demand growth hit prices consumers are willing to pay to get their hands on chemicals in the spot market.
But Allkem marketing chief Christian Barbier said there remains profitability along the supply chain and that fundamentals remain robust.
“In terms of pricing, as you noted, there is volatility in the price [and] there has been for some months. It is still a relatively immature industry where buyers try to put pressure on the sellers and sellers try to take advantage of the buyers whenever they can, and that induces volatility,” he said.
“The spot price in China over the last few months, has been fluctuating between probably something like US$25 and $45 (/kg) and continues to fluctuate.
“What we see, however, is first very healthy market fundamentals. So a market that is growing year on year on steady growth, despite again some concerns about the economy.”
Barbier noted EV sales growth was sitting at around 35% in China and 50% YoY the US and Europe despite poor economic conditions in the West, with around 2.5% of India’s auto market share now taken by EVs.
“For a country like India (that) is very promising,” Barbier said.
“We also have low inventories in the supply chain in China and this is why the fundamentals remain healthy and lastly a pretty fair level of profitability along all the steps in the supply chain.”
The owners of an historic alumina business in WA’s South West have revealed the impact of a protracted process to approve new environmental permits to extend bauxite mining, warning delays are causing them to bleed cash.
Alcoa and Alumina’s (ASX:AWC) 60-40 JV Alcoa World Alumina and Chemicals business counts the assets south of Perth in WA among their flagship assets.
But the 60-year-old operations are struggling with the companies unable to access higher grade bauxite amid a protracted approval process.
They delivered 5Mt of alumina in the first half, down from 6.1Mt in the first half of 2022, with margins tenuous at average alumina prices of $361/t against cash costs of $319/t.
That saw EBITDA fall eight times over from $836m to $102m for AWAC in the first half, with the JV swinging from a $439m profit to a $67m loss.
Alumina, which spun out of Western Mining Corporation more than two decades ago, reported a statutory net loss after tax of US$43m, compared to a $168m profit in H1 FY22, electing not to post an interim dividend to shareholders.
“The alumina price had strong support at the start of 2023, increasing to $371/t in February, before declining at the end of the half on the back of weak aluminium demand outside China and lower industry costs of production. Prices have risen again in the last 3 weeks, reflecting the tight global balance for alumina and a recovery in aluminium production in China,” AWC CEO Mike Ferraro said.
“Alcoa is continuing to work with a range of WA Government agencies on the approvals required for it to operate our WA mines which in turn supply bauxite to our WA alumina refineries. We are operating in a complex regulatory environment where there is no certainty as to timeframes or outcomes and the potential impacts on the business are unclear.
“AWAC is currently processing lower grade bauxite within areas already permitted under Mine Management Plans at the Huntly Mine in WA, resulting in both higher costs and lower production.”
“Despite the current impacts of this unresolved permitting process in WA, the longer-term outlook for the alumina market remains positive, with the anticipated growth in aluminium metal consumption driven by de-carbonisation.”
Alumina shares fell around 7% today.
A whole bunch of mining services stocks were on the card for their full year results today.
The biggest disappointment for investors was Perenti (ASX:PRN), which fell over 16% after its board decided not to offer a payout to shareholders after a major business turnaround, saying with net debt at $499m it wants to keep leverage sustainability below 1x before re-evaluating at the next half year.
Perenti, which is planning a merger with the ASX’s biggest drilling stock DDH1 (ASX:DDH), saw its revenue climb 18.2% to $2.88b, EBITDA climb 29.6% to $552.6m, NPAT lift 57.7% to $131.8m and net debt fall 9.8% to the aforementioned $499m, taking it gearing from 1.3x earnings to 0.9x.
Ahead of the DDH1 vote, Perenti MD Mark Norwell played to the company’s discipline rather than its capacity to make returns to investors.
“Perenti continues to go from strength to strength, as the foundations we have laid with our 2025 Strategy allow us to deliver excellent operational performance, strong client relationships, and disciplined commercial and capital management,” he said.
“Year-on-year we delivered significant revenue and earnings improvement as our growth projects continued to progress through their respective ramp-up phases, as our strategy enabled each of our businesses to capitalise on and take full advantage of the improvement to macro-economic conditions, including the ‘end of COVID’ and as we saw continued strength in markets for the metals and minerals we mine on behalf of our clients.
“Although I would note that various macro-economic challenges still exist, however we are cautiously optimistic.”
Monos raked in $53.5m in NPAT and $109.1m in EBITDA in the traditionally low margin contracting sector, declaring a final dividend of 25c per share (full year 49c fully franked), for a payout of 88% of NPAT.
Macmahon meanwhile offered a 0.45cps final dividend to take its distributions for FY23 to 0.75c, up from 0.65c in FY22.
Macmahon saw revenue lift 12% to $1.9b, with underlying EBITDA up 6% to a record $308.7m, and statutory NPAT some 110% higher at $57.7m.