The Allkem Ltd (ASX: AKE) share price is on the slide on Monday.
In morning trade, the lithium miner's shares are down 5% to $11.43.
Image source: Getty Images
Why is the Allkem share price sinking?
Investors have been selling the company's shares today after broad weakness in the lithium industry offset the release of updated technical studies for its Olaroz, Sal de Vida, Cauchari, James Bay and Mt Cattlin operations.
In respect to the latter, according to the release, Allkem's updated studies confirm the robust economics and tier one nature of the asset base, which management believes further de-risks both company growth and future production.
Also failing to lift the Allkem share price was news that the studies reveal total group resources of ~40 million tonne (Mt) lithium carbonate equivalent (LCE), which management feels demonstrates its world-class asset base.
In addition, management notes that its highly competitive and low overall group cost of production and capital intensity of growth projects will deliver material operating cashflow under current market conditions and industry pricing forecasts.
From these operations, the company is guiding to 179,000 tonnes of LCE production capacity by FY 2028, which is up from a forecast of approximately 50,000 for FY 2024. These growth projects are planned to be fully funded from existing corporate cash, existing or new corporate debt/project finance facilities, and cash flow from operations.
However, it is worth noting that, as was widely expected, the costs of growing its production will be higher than originally forecast. The company notes that "SDV 1 and SDV 2 capital costs have increased to US$1,031million in line with general industry inflation" and James Bay capex is up 34% to US$381.5 million.
But its spending may not end there. Management sees potential for further multiple large-scale expansions at Olaroz, Sal da Vida, James Bay and Cauchari.
Allkem's managing director and CEO, Martin Perez de Solay, commented:
These project updates confirm the robust economics and tier one nature of our asset base, further derisking company growth, future production and profitability. The studies which are underpinned by our significant operating and project development experience demonstrate low costs and low capital intensity that will maximise margins and shareholder returns throughout the pricing cycle. The Allkem project portfolio provides us with a solid base to enhance our vertical integration strategy and relationships downstream in the global supply chain.
