Allkem (ASX:AKE) share price higher amid results and 'surging demand for lithium'

Allkem is benefiting greatly from sky high lithium prices…

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Key points

  • Allkem has released its first results since the Galaxy-Orocobre merger
  • Strong demand for lithium has underpinned even stronger revenues
  • Management has upgraded its lithium pricing assumptions for the second half

The Allkem Ltd (ASX: AKE) share price is pushing higher on Monday morning.

At the time of writing, the lithium miner's shares are up 2% to $9.30.

This follows the release of the company's first set of results since the merger of Galaxy Resources and Orocobre.

Allkem share price jumps after strong half year result

  • Revenue of US$192.3 million
  • Gross profit of US$118.45 million
  • Earnings before tax of US$42.1 million
  • Net profit after tax of US$13 million
  • Cash and cash equivalents of US$449.8 million

What happened during the first half?

For the six months ended 31 December, Allkem delivered revenue of US$192.3 million.

This result includes a four-month contribution from the Mt Cattlin business following the Galaxy-Orocobre merger. This makes comparing the result to the prior corresponding period difficult. However, a good example of its excellent performance can be seen with the Olaroz operation, which was part of the old Orocobre business. It reported a 142% increase in revenue to US$65.6 million.

Olaroz's strong revenue was driven by the sale of 5,915 tonnes of lithium carbonate and a 218% jump average FOB pricing to US$11,095 per tonne. It also recorded a gross profit margin of 68% for the period.

Over at Mt Cattlin, for the period 25 August to 31 December, it reported sales of 96,871 dry metrics tonnes (dmt) of spodumene concentrate, grading 5.7% Li2O, at an average price of US$1,186/tonne CIF. This underpinned revenue of US$114.9 million and a gross profit margin of 62%.

As for its earnings, Allkem reported gross profit of US$118 million, group EBITDAIX of US$97.9 million, and a consolidated net profit after tax of US$13 million. The latter compares to a loss of US$29.1 million a year earlier. Management advised that this reflects improved product prices and comprehensive cost management mitigating inflationary pressures.

Management commentary

Allkem's Managing Director and CEO, Martin Perez de Solay, was pleased with the company's post-merger performance.

He said: "Post-merger we achieved record revenue for the Group, not only from strengthened pricing but from successfully and safely producing high-quality lithium products from our global operations that continue to meet the requirements and specifications of our long-term customers."

"Amidst surging demand for lithium products and continued challenges arising from the COVID-19 pandemic, our team also achieved significant advancements at all our development assets across the globe with both Olaroz Stage 2 and Naraha on the cusp of commissioning this calendar year. With two revenue generating operations and a healthy balance sheet, we are in a strong financial position to continue to advance Sal de Vida and the development of James Bay."

Outlook

Also likely supporting the Allkem share price today is management's commentary on the outlook for lithium prices.

It confirmed that upwards pricing momentum for lithium products continues. In fact, its March quarter indicative pricing for 43.5kt of spodumene concentrate shipments is US$2,500 per tonne CIF for 6.0% Li2O.

Furthermore, lithium carbonate prices for the second half are expected to be ~US$25,000 per tonne FOB. This is up ~125% on the first half and 25% ahead of its previous guidance.

Motley Fool contributor James Mickleboro owns Allkem. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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