May 24th, 2023 | 08:20 CEST
Allkem, Grid Metals, Rock Tech Lithium - Gigantic movements
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"[...] China's dominance is one of the reasons why we are so heavily involved in the tungsten market. Here, around 85% of production is in Chinese hands. [...]" Dr. Thomas Gutschlag, CEO, Deutsche Rohstoff AG
The acquisition wave is underway in the lithium sector. With the Australian producer Allkem and the US lithium chemical company Livent, the merger creates the third-largest lithium producer in the world. Only the US mining company Albemarle and the Chilean conglomerate SQM are larger.
The transaction is expected to be completed within 2023 and will result in Allkem shareholders owning about 56% of the new company, while Livent shareholders are expected to retain the remaining 44%. In doing so, the merger aims to leverage the synergies that the two companies global portfolio of assets and expansion projects can create within a vertically integrated business model, the companies said, pointing to "the rapidly growing demand for lithium battery salts". Livent expects to save about USD 125 million in operating costs.
The merger is reportedly worth USD 10.6 billion and will take place through a share swap. Allkem's share price is currently quoted at AUD 15.12. A total of 18 analysts surveyed on Refinitiv assign an average price target of AUD 15.20.
Grid Metals - Beneficiary of the climate change
With a market capitalization of CAD 23.55 million, this emerging Canadian mining company is focused on developing high-demand battery metals used in the automotive sector, including the growing electric vehicle battery and grid storage sector. The broadly diversified portfolio focuses on projects in Manitoba and Ontario, safe North American mining regions close to high-quality infrastructure. Overall, the properties are being drilled for nickel, copper, platinum, cobalt, palladium and lithium.
The Donner Lake lithium project offers excellent conditions. The drilling program, completed last year, brought lithium oxide to light in several drill holes with grades of 1.5% to 1.7%. The ambitious goal here is to start production as early as next year. Grid Metals wants to use the capacities of the adjacent Tanco mine, which is already in production, to mine and sell the lithium. A corresponding letter of intent has already been signed.
In contrast, the Makwa Mayville project, located in the Bird River Greenstone Belt about 145 km from Winnipeg, Manitoba, has a significant NI 43-101 compliant resource of nickel-copper and platinum group metals, cobalt mineralization and a highly prospective lithium property. A preliminary economic assessment was completed and approved back in 2014. Based on the PEA, the project is designed as an open pit operation with blasting and hauling, transporting ore to a mill at the Mayville site. Test work showed that the Mayville samples can produce marketable nickel and copper concentrates. Grid Metals is now planning an update of the economic parameters and operating and capital costs that will be incorporated into an updated PEA for the project.
Grid Metals is broadly diversified and should emerge as one of the beneficiaries with its properties in North America due to the high demand for metals for the climate transition.
Rock Tech Lithium - Next step in development
While the German-Canadian energy company's share price at CAD 2.35 is struggling to move away from its low for the year at CAD 2.20, fundamentally, things are moving forward step by step. With the completion of the front-end loading stage 3 study, a significant milestone has been reached regarding the preparation of the construction of the lithium hydroxide converter and the refinery plant in Guben, in eastern Germany.
The study includes detailed specifications for construction, commissioning, ramp-up and operation, as well as a ready-to-buy cost estimate for the major assets. The after-tax net present value of 8% is EUR 1.14 billion, a 43% premium over the previous Bankable Project Study. The estimated internal rate of return is 22.3%, which equates to an estimated annual EBITDA of EUR 293 million. The start of production for battery-grade lithium hydroxide monohydrate is estimated for Q1 2026.
In their latest research report, the analysts at Montega gave the Company a "buy" rating with a price target of CAD 8.00. The prospects of success for financing the converter have improved considerably due to the FEL3 study and the acquisition of Deutsche Bank as a placement angel. Despite the expected significant dilution effects, the analyst firm still considers the risk-reward ratio for Rock Tech to be very attractive.
The demand for lithium continues to increase dramatically due to electromobility. Rock Tech Lithium achieved a milestone with the completion of the FEL3 study. The merger of Allkem and Livent will create the third-largest lithium producer in the world. Grid Metals owns promising properties and should benefit from the increasing demand for critical metals.
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