So I spent a lot of time reading transcipts and listening to presentations centering around what Arcadium (the merged Livent and Allkem) is doing and what Paul Graves (CEO of Arcadium and former CEO of Livent) is saying.
The most recent is the RockStock Channel (Episode 92) with Howard Klein, which as a precursor has about 20mins of replay from the fireside chats and earnings call. Tremendous amount of useful information.
But why is it useful to PLL? You have to remember what PLL's mission/goal/strategy is (and what KP said what potential customers want). I think that Arcadium has become that through its combined Carbonate and Hydroxide positioning.
This is a very salient excerpt - talking about agreements and Ford's 11 year commitment to Livent which carries through to Arcadium. My bolding added
(HK) But like,what's this deal with Ford? Ford is kind of like throttled back. They have anissue with Liontown. They've lent money there. Was there any money attached tothat deal? Is Ford a significant strategic partner to finance this as well asjust take the offtake?
(PG) ltwasn't announced as a binding agreement - it is now a binding agreement, soit's not an either party it can walk away at will. That's absolutely not thecase at all. Ford is very much a strategic partner of Arcadium through Nemaska.I would describe that commitment to Ford and Ford's commitment to be more thanjust a Nemaska supply agreement. One thing that we are extremely sensitive toas a lithium hydroxide producer is that our customers' plans are not as certainas some people think they are. And we offer to our customers, like Ford andothers, flexibility as to how they tap into and access resources, whetherthat's timing of material needed or the type of material needed. Withoutgetting into the details, which I'm unfortunately not allowed to do for variouslegal reasons, you should assume that, yes, Ford are very much a supporter ofwhat we're trying to do. We're very much a supporter of what Ford is trying todo. And then the Nemaska agreement is an important piece of that, but not the onlypiece of what we expect will be. We wouldn't have made an 11-year commitment tosomebody on a transactional basis. To us, that's a proper two-way commitment orwe wouldn't make an 11-year commitment.
(HK) Do youforesee making similar commitments with other OEMs as part of the broaderfinancing package for this $1.6B?
(PG) Thatbusiness model is certainly Livent’s and I’m looking forward as Arcadium, tomake multi-year commitments to OEM customers. We've been supplying Tesla forwell more than a decade. We've been supplying BMW for quite a few years andhave a multi-year commitment to BMW. We have the announced deal with GM and nowone with Ford. You can assume that part of our business model, particularly inthe hydroxide space, is to have these multi-year commitments to customers. Idon't need 10 customers of that type. I have 4, in fact, 5, if you count Toyotanow, that really matter to us and are meaningful and are material. And ourfocus will be on those five customers. That doesn't mean there isn't scope toadd others, but we certainly are very much focused on our existing OEM supplyagreements today. And that's like a little bit of part of the rationale for theArcadian merger was to get bigger, to get bigger at our customers, not just toget bigger. If I've got three times as much lithium available, it probablymeans I'm gonna supply three times as much to each of my major customers ratherthan have three times as many customers - it's just the nature of the industrythat we're in and it's a little bit - by the way I mean to digress too much - you'vealso heard me talk about being a single resource lithium company, not being asustainable business model. It is if you're willing to just sell spotconcentrate and take whatever the market price is. But if you're really tryingto position yourself as a chemical company, supplying qualified materials intoan end market, i.e. you're selling lithium rather than selling the feedstock,you can't be a single resource company is my view. And these customers don'tlook at us and say, you're a single resource company. They understood the riskswe had with Argentina, but we have two separate hydroxide lines in the U.S. andnow four separate hydroxide lines in China, plus Naraha. We have a diversity ofsupply that customers demand. When Nemaska comes online, another one. It's justa business model I think lithium has to get to. And as we move in thatdirection, the customers support you. They recognize it's in their interesttoo. And so they support you in multiple ways, whether it's contracts,financing, technical help, frankly help with governments, help with subsidies. It'sreally important to be partnered with OEMs, in my view.
HK then says "if you have ex-China tier one customers who are willing to partner with you long term, you should have less volatile earnings" and getting to the core of valuation is "earnings quality - not specialty chemical versus commodity – but predictability of earnings"
PLL has an existing relationship with TSLA. TSLA also building a USA LiOH that needs feedstock and so NAL partially addressed that. But I think its full circle back to CLP. That's what TSLA is going to need ... (IMO) as well as a short list of other ex-China OEMs.
I'll go back to earlier in the interview
"but in the EV supply chain the OEM pays for the lithium. Doesn't matter who contracts, doesn't matter what happens in the supply chain, they pay for it. It all gets passed up to them. And so that's why you see them increasingly want to take ownership and control of supply"
and
"I don't ever get OEMs push back on hydroxide and say, I'm not giving you a floor price. They just don't. They totally get it. They understand what we need to be credible or to be capable of delivering on investments. I think what's interesting though is, as their own battery roadmap changes, and they look at more LFP or more mid nickel that uses carbonate, they are willing to have what I'll call a multi-product contract in place that allows you to get the same structural terms for carbonate as you do for hydroxide. We talk about stapled contracts. We're stapling a carbonate supply on top of a hydroxide supply agreement."
PG does talk to what enables much of this strategy (brine based Carbonate ... which is easily upgraded to Hydroxide as necessary) but Livent and now Arcadium sees itself as multi-product but Hydroxide focused (but not just hard rock to Hydroxide and certainly not hard tock to carbonate - obviously given their brine assets).
Some of the commentary in the interview raises some eyebrows on Quebec.
(20min delay)
