PLS chart, page-15360

This AKE announcement is a little more complex than a conventional rerate caused by a takeover at a premium, higher ore prices, an expansion of reserves, or increase in profit, etc.

In this situation two companies announced a merger using a share swap, so the total value of the two has not notionally increased, although there should be some increase in profitability due to administration savings. In theory their existing potential has already been separately priced into the individual values of the SP's. The announcement coincided with a lift in the spod pricing which benefits AKE to some extent and Livent are using a rapid extraction system for brine which could have some benefit to AKE, but the latter are already committed to a conventional pond based extraction tech on existing fields. So the main gains are from economies of scale and the lifting spod prices which benefits everyone. The announcement also coincided with a lift in C2O3 prices which is highly relevant to both AKE & LTHM, so I'd suggest the outside jump in SP had more to do with this than just the merger announcement.

The improvement in spod & C2O3 pricing leading into July (as the primary cause of the drop was likely the introduction of new more restrictive emissions standards in China commencing July 23 and necessitating the dumping of existing ICE car inventories at "give-away" prices causing a drop in EV demand until July) has been anticipated for some time and is thus already built into the expected SP path.

So I am thinking maybe 6% of the increase is from the merger exuberance and the balance is from product pricing improvements, mostly anticipated, but with timing unknown. Now I believe the pattern will remain the same, but the trigger points for the pattern have changed. So rather than doing the retrace from 463 - 472 we are starting the schedule retrace from 493, thus the retrace targets are higher than they were, but it will do the 4th wave retrace regardless. The more the spod prices lift during this time, the shallower and faster will be that retrace. The minimum is likely to be 14%, the maximum 50% with 38% being "normal". Now if it is only 14% down then we have actually already done it at 471 and that will make it very tricky to interpret the next wave up. 14% is the minimum a 4th wave should theoretically be (and something I have never seen before), so I'd bet it is more likely to be at least 23%, simply because I have seen that before, but by far the majority I have observed have been 38% down so I lean towards that as being the most likely position and I expect it to be reached very quickly.

Clearly I am rating the change in spod & Carbonate pricing as being far more significant than the AKE-LTHM merger in the market wide shift in SP values, as the merger did not in fact change the underlying values of the entities concerned significantly. I think there was some effective gain for AKE due to the ratio of shares exchanged, and the fact that it appears to be the dominant partner, but not for Livent. I think an 18.3% rerate is excessive at this point, and I expect it to come back somewhat, although not all the way back (possibly somewhere between 1351 and 1417), before it takes off again. Now I also think that it will rise to ridiculous heights during the next run up as it will be fed by both a merger news drip-feed and rising spod & carbonate prices. Last time during ORE and GXY merger the companies played the merger for all it was worth and really drove the SP through good management during the merger, so I expect them to play this game again.