Merger: Yes or No, page-73

The share price being in the $8’s has little to do with the deal, rather it is because unlike the previous 2022 scare campaigns from the investment banks, this one actually has legs. The most consistent and likely but unpopular explanation for the recent data and market tends is that we really are now in lithium oversupply.

For oversupply, see the Kroll report, and for confirmation see the Alb quarterly and “Battery Metals Lose Luster as Surge in Supply Outpaces Demand”. There’s reports that Africa has ramped up suddenly, over the next few years we have P1000 at pilgangoora, greenbushes expansion, LTR production, Mt Holland, and if we’re lucky James Bay starting production. Theres also additional Brines coming online, both expansions and new small scale projects. The 2022 narrative that most large Spod deposits in WA have been found appears to have been destroyed with the Andover and Tabba Tabba discoveries. Of course, these will most likely all face delays and teething issues. Whilst there’s no argument that demand won’t exist, it looks increasingly likely that demand won’t fully keep up with supply for the next four years at least.

The processing of lepidolite at all shows that ESG concerns are merely virtue signalling. Buyers don’t care about lithium being produced in the most environmentally sustainable way possible.This means that we shouldn’t be surprised if lepidolite processing still occurs on a small scale at a loss, and is used to manipulate the market to keep Spod prices low.

As unpalatable as it is, it seems pretty clear that lithium pricing still has more downside risk than upside risk. Of course at $30k/tonne, AKE would probably be better off going alone. I argue that this pricing may no longer be realistic.

How much profit is AKE making alone if lithium is close to the long running forecast price? PLS used a long running spod price of US$1450 in their models, it appears we are heading down that way right now. The software margins from Spod production are most likely gone, so at those prices does Olaroz and Mt Cattlin make enough profits to fund the multibillion expansion pipeline for AKE? What if there’s a James Bay capex blowout?

My biggest fear of a no vote is that AKE lacks the funds to progress expansion plans rapidly, wallows around without achieving much for the next few years, and ends up in the same boat as it was in 2022 when the Lithium 3.0 bull cycle rolls around from 2028, 2029, or 2030.

Hombre Meurto is arguably the best brine resource in Argentina, Livent has the box seat, and it’s coming with soon to be 30k/year of production. That revenue I think is absolutely necessary for the growth pipeline.

Would I like 60:40 split? yep, will I let a difference of 4% make me vote no and lose the brine income and Livent knowledge? Absolutely not.