Our Terms & Conditions | Our Privacy Policy
But crucially, the group’s mines and processing facilities will be able to provide customers with the full suite of lithium products: spodumene, lithium carbonate, lithium hydroxide and a range of specialty products.
As Simon Moores, chief executive of Benchmark Intelligence, said of the deal in a LinkedIn post, the quick win is clear. “Immediate scale is key here: more production clout, offer customers bigger contracts, and increased lithium pricing power.”
But this deal, which Allkem chief executive Martin Perez de Solay says has been in talks for some two years, is about more than just bigger-is-better.
Moving closer to customers
Allkem chief executive Martin Perez de Solay says he has been in talks with Livent for two years. Peter Ker
The combination of an increasingly urgent energy transition and the post-pandemic shift to deglobalisation has sparked an increasingly unfriendly scramble for critical green minerals such as lithium.
As a result, supply chains in sectors such as electric car production and stationary storage are being redrawn, with a new focus on regionalisation and more localisation.
Not only do lithium producers need to become more one-stop-shops, offering greater amounts of a bigger range of products from one source, but they also need to be able to move closer to their customers.
“Scale as a company is not really the focus. We talk about business critical scale,” Graves explains. “And what does that mean? It means you can have a conversation with a customer about being broadly integrated into their supply chain. The supply chains tomorrow will look very different from what they look like yesterday.”
Not only will lithium customers such as car markers require bigger and stronger partners that can meet their different needs in different markets, but governments of all stripes are increasingly incentivising local production in sectors reliant on critical minerals. And as Perez de Solay says, there’s no bigger example than the Biden administration’s Inflation Reduction Act.
“This friend-shoring concept that we saw emerging after the pandemic clearly positions us as the best company in that regard, with all of our assets in countries that are either IRA-compliant or good friends to the IRA,” Perez de Solay says.
Benchmark’s Moore says the deal is an example of what’s coming in the sector. “Lithium producers need to get much bigger, have far more ambition than has been shown to date, and become the next generation of major ‘commodity’ houses.”
Industry still out of balance
While the incredible rise and fall in spot lithium prices over the past 18 months – from $US1650 a tonne in December 2021 to a peak of $US86,170 a tonne last November and back to $US40,000 – led to surge of investor interest (and speculation) in lithium stocks, the merger between Allkem and Livent is built on a much longer-term view of the sector.
Graves, who gently mocked spot price obsessives on an earnings call early this month, sees an industry still out of balance. Demand continues to build rapidly inside and outside China, and inside and outside the EV sector, but Graves sees a world where supply is being constrained by project delays and particularly cost overruns, due to surging construction costs and labour shortages.
The merger of Allkem and Livent is designed to address some of those challenges. The proximity of the two companies’ projects in Argentina (where they are just 10 kilometres apart) and Canada (about 100 kilometres) means Graves and Perez de Solay can integrate their facilities, slash corporate costs, share infrastructure and streamline procurement, engineering and construction work.
The result is forecast to be at least $US125 million in annual synergies, and a one-off $US200 million capital expenditure savings (all of which is somewhat is slightly offset by $US40 million of one-off costs).
Those savings are important.
While the combined entity would have had $US1.9 billion of revenue and $US1.2 billion of underlying EBITDA based on its 2022 numbers, Graves and Perez de Solay say the merged entity can deliver enough cash flow to fund its development projects without needing to tap shareholders or increase debt.
Both Graves and Perez de Solay repeatedly emphasised on Thursday morning how central the merger of equals concept is to this deal; Allkem shareholders emerge with 56 per cent of the company, a touch ahead of the 53 per cent suggested by the two group’s valuations.
Allkem chairman (and former CEO of Woodside Energy) Peter Coleman will retain his position. Philip Gostelow
While that might be a way of addressing the skinny premium that Allkem shareholders are getting in this deal – about 16 per cent to the group’s last close – it does appear to go to the heart of the way the deal came together after two years of discussions, which started in March 2021.
Perez de Solay says the two groups have been “hovering above the landing pad” for some time but as both Allkem and Livent prepared to invest heavily in separate Canadian ventures, it became clear it was time to act.
While Livent will contribute both the CEO and chief financial officer to the merged group, Allkem chairman (and former CEO of Woodside Energy) Peter Coleman will retain his position. Mergers of equals are hard, Graves says, and even harder when two groups from different countries come together, so Coleman’s experience will be vital.
While this deal helps cement Australia’s reputation as a lithium superpower, the merged group’s primary listing will be in New York, in something of a blow for local capital markets.
Graves says the choice was obvious. “It’s a bigger, deeper market. Let’s be realistic.”
Images are for reference only.Images and contents gathered automatic from google or 3rd party sources.All rights on the images and contents are with their legal original owners.
Aggregated From –
