Shares in Allkem Ltd (ASX: AKE) spiked higher today to finish trading at $10.39, up 5.48%. The company, formerly known as Orocobre, has been on a bumpy ride these past few months when examining the charts.
Yet investors have bid up its share price in vertical fashion over the last week of trading following the release of the feasibility study and Maiden Ore Reserve for its James Bay Lithium Project located in Québec, Canada.
In the announcement, Allkem confirmed a sustainable, high value hard rock lithium operation utilising renewable hydropower.
The company says this results in an approximate 2.5x increase in Net Present Value (NPV) from the preliminary economic assessment that was released in March 2021.
Construction is now planned to commence towards the end of 2022 with commissioning in the first quarter of 2024, subject to certain criteria being met.
Allkem believes the move gives strategic exposure to purveyors "located in proximity to high-growth electric vehicle markets in North America and Europe".
Allkem's share price popped from $9.19 to over $10.30 in the days following the announcement, a 12% gain. The strength in pricing left UBS updating clients on its outlook in a note to investors today. Here are the details.
What is UBS saying on the Allkem share price?
UBS wasn't too surprised with the results of Allkem's feasibility study and maiden ore reserve results for its lithium Bay Project. Figures were in line with expectations, the investment bank says, however, UBS notes one curious factor.
It comments "What we find interesting is that the suggested recovery profile sees 71.2% in the early years and 66.5% in the later years, but the timing of variations in process plant recoveries are unknown and a key value driver".
The firm sees Allkem delivering a more conservative recovery at the moment, and says there is added benefit of owning a plant that can produce up to 6% lithium oxide from 2 million tonnes of mined ore for high-end chemical use each year.
Aside from that, UBS reckons that Allkem is most likely to use a combination of cash flow and debt to fund the James Bay project, out of all the options provided.
The broker submits that Allkem could even tread towards forms of project financing or work alongside a collaborator to do some of the heavy lifting.
Regarding financing of the project, UBS notes that "of these options, we expect that strategic partners would be lining up to secure supply…it is more likely the project will be funded through a mix of operational cash flow and debt".
UBS rates Allkem as a buy and values the company at $10.75 per share.
Meanwhile, both Macquarie and JP Morgan also reckon that Allkem is a buy right now, each valuing the company at $13.60 and $12 per share respectively.
Allkem share price summary
In the past 12 months, the Allkem share price has gained more than 128% after rallying 132% this year to date. Over the course of the previous month, it has shown strengths also.
In that time it has climbed almost 9% and has rallied 13% in the past week of trading. As such, it has outpaced the benchmark S&P/ASX 200 Index (ASX: XJO) across each of these timeframes.
