Albemarle/Liontown: US lithium producer willing to pay up down under

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China’s speedy buildout of electrical automobile battery capability might itself run out of vitality. Capability can be twice this yr’s demand, based on commodity analysis group CRU. That discovering suggests demand for lithium can be extra muted than anticipated by bulls. These embody US chemical substances group Albemarle.

The world’s main lithium producer is closing in on an all-cash deal for Australia’s Liontown Assets. That is value A$3 per share or A$6.6bn ($4.3bn) in complete. Regardless of weak spot lithium costs, down 61 per cent this yr, Albemarle nonetheless needed to pay up. Its earlier provide in March was A$2.50.

Liontown will now open its books. Albemarle needs Kathleen Valley, the fifth largest exhausting rock lithium useful resource in Australia with 5.4mn tonnes. Australia issues to the US producer. It already has giant stakes within the first and third largest mines there.

The resource-dependent nation welcomes US lithium funding to stability Chinese language curiosity. In July Australia’s Treasury blocked a takeover by a China-linked shareholder of Alita, a lithium miner in administration.

Albemarle’s shares have completed little for 2 years. Trailing one-year ebitda for its lithium division, which makes 88 per cent of group income, has decelerated. Revenue margins have slipped in current quarters.

This deal can be its second largest lithium mining deal introduced to this point, based on Dealogic knowledge. However it might not add to money circulate earlier than 2025. That places the provide worth at 16 occasions consensus ebitda for that yr. Bigger native rival Pilbara Assets, which is already worthwhile, trades at a 3rd of that valuation.

Liontown’s shareholders needs to be happy. Its personal valuation again in late 2021 — when spot lithium costs have been related — put a A$4.2bn worth on Kathleen Valley. Albemarle’s downstream lithium conversion crops are some 1,000km away by rail close to Perth. An extended Australian rail hyperlink is preferable to long-distance street hyperlinks in creating nations akin to Mali, as Liberum factors out.

Albemarle has loads of kind in Australia. However given battery overcapacity in China, the probabilities of its inventory worth benefiting from this added manufacturing are slim.