Key points
- The Allkem share price has performed very strongly over the past year
- Lithium prices are soaring, helping revenue, profit and cashflow
- Analysts are predicting that Allkem has a number of good years ahead of it
The Allkem Ltd (ASX: AKE) share price has been an exceptionally strong performer. But can the lithium miner keep charging higher?
Over the last month it has risen 24%. In six months it has surged 64%. The last year has registered a 120% rise of the share price.
What's causing this big jump of the Allkem share price?
The business is seeing a strong performance from its Mt Cattlin. The 2021 calendar year annual production was 230,065 dry metric tonnes (dmt) of spodumene concentrate, beating the previous guidance of 220,000 dmt.
In the last quarter, it generated US$60.7 million of revenue by shipping in the quarter. An additional shipment of 23 kt was scheduled for dispatch in January 2022.
Group revenue for the three months to 31 December 2021 was approximately US$107 million and the group gross operating cash margin was approximately US$70 million.
Lithium prices have soared over the past year. Allkem notes that positive lithium product pricing momentum continues with indicative pricing for the second half of FY22 for spodumene shipments already at US$2,500 per tonne.
At Olaroz, 3,644 tonnes of lithium carbonate were produced, of which 51% was battery grade. Sales amounted to 3,293 tonnes at an average price of US$12,491 per tonne.
Development projects continue
Allkem is making progress on its pre-commissioning works at the Naraha Plant, within COVID restrictions.
Environmental permits for the stage one of Sal de Vida have now been received and pond construction commenced in January 2022. First production from stage one is now expected to occur by the second half of 2023.
The James Bay feasibility study and maiden ore reserve has been released, confirming an economically viable, hard rock lithium operation utilising renewable hydropower.
Expansion works at Olaroz have reached 68% completion and first production is expected to commence in the second half of 2022.
The company summarised that it has an "enviable pipeline of expansion and development projects" which it intends to detail in a presentation in March.
Is the Allkem share price a buy?
The company notes that strong demand for lithium chemicals and spodumene concentrate continues. China is producing record amounts of lithium-ion battery materials and batteries.
Electric vehicle sales in 2021 were estimated at around 6.2 million units, approximately double compared to the prior year. Approximately 2 million electric vehicles were sold in the last quarter of 2021, representing a 13% increase quarter on year. Chinese electric vehicle sales in the last quarter of 2021 was a record of around 1.3 million units, equalling total sales in 2020.
Electric vehicle sales are expected to increase substantially in 2022, with continuing growth for lithium in China. Supply continues to fall short of demand.
There are plenty of buy ratings on lithium producers by brokers at the moment, including Macquarie. This broker is expecting that continuing ramping up of electric vehicle sales will help lithium prices for years, whilst Allkem grows its production.
Macquarie's price target on the Allkem share price is $13.60, which suggests a potential rise of 17% over the next year.
