UBS summary 24 Jan Recent M&A might've been priced high but...

UBS summary 24 Jan


Recent M&A might've been priced high but identified the asset quality. Looking through this price cycle, we see value in the Kathleen Valley operation (quality of the rocks, grade and concentrate), life and cost profile as it begins to ramp up into an improving price outlook further out. LTR is pricing US$1,220/t SC6.0 below recent corporate activity (AZS - see note), current peers PLS and MIN and our long-term SC6.0 price of US$1,400/t.

Woodmac forecasts below UBSe and consensus :

The Q4-23 Woodmac update expects an extended low of US$950/t real spodumene right out to 2027-28 which sits well below us and consensus (see here). This forecast was cited by the lending syndicate for withdrawing the LTR loan. Having reduced our EV demand outlook last year to 18% in 2024, we still see demand growth swamped by the 40% supply growth (note). At the same time, we are watching cost support (high cost China Inc lepidolite/Africa petalite and spodumene) fall away. The oversupply is pushing prices into the cost curve (last spodumene SC6.0 ~US$850/t) and we expect to hear more decelerating supply growth (e.g. ALB) and even mine closures (e.g. CXO) through these quarterlies and coming months. Given spot prices, downside risk remains to our 2024/25 average spodumene price of ~US$1,060/1,210t, but we expect prices to rise over the medium term with a supply response to current low prices already starting.

Valuation: Reduced to A$1.25/sh; Upgrade to Buy Our Price Target is 1x NPV derived using a 10% WACC and US$1,400/t long-term real SC6.0 spodumene. We have lowered our Price Target from A$1.50/sh to A$1.25/sh after reducing value for downstream, Buldania, exploration/optionality and potential beyond current plans.