Specialist
Former director at Albemarle Corp
Agenda
- Albemarle’s (NYSE: ALB) capacity expansions, including construction and cost risks
- Recessionary impact on lithium pricing and Albemarle's bottom line
- Potential Liontown (ASX: LTR) acquisition, including key synergies and strategic positioning
Questions
1.
Albemarle aims to substantially increase its overall output capacity by 2030. What are the key execution risks?
2.
Why do you think Albemarle came over budget and experienced such significant delays with its Kemerton plant? Is it something specific to that plant or to the company, especially given other players that are developing conversion facilities seem to be able to do it quicker?
3.
Albemarle has acknowledged the failures it had in building out Kemerton, and has claimed that for future facilities, it’s learnt its lesson and won’t be coming in over budget, both in terms of dollar and time. Are you convinced? Do you think the issues with Kemerton are likely to repeat in future facility builds?
4.
Albemarle bought a second set of trains in Chile and those have yet to realise a cash flow. Is that correct? What’s the issue in Chile?
5.
If there’s an issue of feedstock quantities coming into La Negra from the Salar, do you think the approach Albemarle will take is going to be tech-driven, so DLE [direct lithium extraction], or will it bring in more satellite ponds and expand the overall resource?
6.
Between the issues at Kemerton and the potentially dropping yields at the Salars in Chile, is there any indication that Albemarle is shifting up the cost curve? My understanding is that the company was always quite low because of the Greenbushes spodumene and the extreme low costs there. Do you get the sense that it is getting less competitive on cash cost?
7.
You mentioned one of the key execution risks being that Albemarle is going to have to consider being a greenfield developer, which is not something it’s really done. How much of a risk do you see in that, given that the company has also acknowledged that the acquisition cost for new lithium resources is upwards-sloping?
8.
Do you think it was a mistake for Albemarle to double down on lithium and the EV growth trend as a whole? Did it take the company out of its core competency and come with consequences, such as becoming more cyclical or more levered to EV uptake?
9.
Another execution risk for Albemarle as it scales up is the issue of matching conversion facilities with a specific resource feedstock to maximise yield, and how if you get flexible with feedstock, you lose yield. That sounds like the mega-flex facility the company wants to build in the US. Will that be an issue, that it’s going to have lower yield than its other conversion facilities?
10.
I know Albemarle wanted feedstock to be flexible so it could take things such as second-hand battery or recycled battery material – if we think about its original plan, as I recall, it wanted to restart Kings Mountain and take spodumene from there – and feed it to this facility. I haven’t heard discussion on this feedstock strategy in the company’s discussion on the mega-flex facility. Do you think Albemarle is encountering issues with restarting that mothballed mine?
11.
If we assume Albemarle can get past delays and successfully get permitting for its plan – obviously a big if – is there any upside in at least the restart being CAPEX-light or not requiring as much restart capital as any other greenfield feedstock linkage for its mega-flex facility?
12.
One of the big things coming out of Tesla is that it wants to build its own lithium refinery, I think in Texas. Do you see this as a big risk for Albemarle?
13.
What’s different about Albemarle trying to scale production in the US vs what it has done previously in Australia and Chile? It has Silver Peak in Nevada.
14.
My understanding is Albemarle has an option at Kemerton in Australia to double down and expand to 100 kilotonnes. Do you think the company would do that, or do you think its outlook for Australia has soured?
15.
Looking at lithium demand for 2023, are you worried at all about downward pressure on volumes? For example, do you have any concerns around China-based EV demand coming off?
16.
How is Albemarle positioned for the parts of the cycle where pricing for bits is depressed as inventories are high, at least in China? Is it insulated from the major decline in lithium prices we’re seeing, or is it exposed to spot prices? How do we think about that?
17.
What is Albemarle’s current pricing structure and pricing strategy as per its contract vs spot exposure and the split there? Could you talk us through what its offtake structure looks like and how exposed the company is to LCE spot?
18.
If we think about a price level for Albemarle to start to get hit hard on profitability and EBITDA generation, you wouldn’t think the China-based spot price is what we should be looking at?
19.
How well-informed do you think Albemarle’s management is with regards to its visibility of supply and demand? Do you think its leadership has a better read on prices compared to the rest of the market?
20.
What’s your assessment of the validity or credibility of Albemarle’s strategy day forecasts? For example, the company upped its 2030 LCE [lithium carbonate equivalent] demand forecast by 15%, and said it was because of the Inflation Reduction Act and higher-than-expected EV demand. It also has really ambitious 2027 targets, and I think it wants to grow sales by 2.5x and EBITDA by 2x by 2027. Are these targets and increases in forecasts reasonable, given your assessment of leadership’s read on the market?
21.
Albemarle recently made a bid for Liontown Resources, which Liontown promptly refused. What do you see as the biggest synergies from Albemarle’s point of view? What’s the rationale for why the company would pursue this bid so strongly?
22.
Does this potential for shared infrastructure and synergies between Kathleen Valley and Albemarle’s existing base in Western Australia eliminate a lot of the company’s development costs?
23.
You think Albemarle’s bid for Liontown Resources is a resource play. Is Albemarle valuing it based on the net tonnage it would gain, what it would be adding to its network resource or is there another way the company could be valuing this?
24.
If Albemarle pulls off acquiring Liontown – we assume that since it’s been rejected 3x now, the final bid is going to be higher than its recent USD 3.7bn bid – would you start to be concerned about the company’s balance sheet health?
25.
Given your views on Albemarle’s leadership and strategy, at what point do you think it would shift from investing for growth vs collecting the cash? Will that happen, or is this going to be a constant free cash flow negative, but high growth story?
