Full planning permission for Alkemy’s lithium processing plant could just be the start of the share price rocket.
Alkemy Capital (LON: ALK) hit the headlines late last month after announcing that it has been given permission to build Europe’s largest lithium refinery in Teesside, UK. With its shares now having rocketed by 189% year-to-date to 311p, the company nevertheless maintains a market cap of just over £22 million.
To me, Alkemy is similar to HARL in that while it has seen a sharp share price increase over the past few weeks as a result of a long-expected catalyst, it could have much further to go. The gap between Alkemy’s market cap and potential value could be described as a gaping chasm.
And as a proponent of exploratory miners, Alkemy shares can also help to gain further exposure to the future lithium supply chain.
Business strategy
Alkemy’s newly approved brownfield site is situated within the well-established Wilton International chemical engineering park in Teesside, the UK’s largest freeport.
Having completed initial due diligence in April, the company believes it can establish a Lithium Hydroxide Monohydrate (LHM) plant which will initially be able to produce 24,000 tonnes per annum on its first processing train.
And it’s confident it can ramp up to four processing trains to 96,000 tonnes per annum, equivalent to 15% of projected European demand. Alkemy expects to predominantly use causticisation and electrochemical processing methods, as these afford the highest levels of output given site constraints.
With financing ongoing, the company expects construction to begin in the new year, with main construction to conclude by the end of Q4 2023. Of course, projects of this size and ambition usually go over in the UK, so I’m taking this timeframe with more than a pinch of salt.
Funding options for the project could come from a combination of private equity, a structured bond and an institutional equity component. And as the facility will be financed and operated from subsidiary Tees Valley Lithium (TVL), there should be no share dilution for Alkemy shareholders in the near-term.
Site approval
On 25 November, the company announced that TVL had received full planning permission from Redcar & Cleveland Borough Council to build what will be the UK’s first, and Europe’s largest lithium hydroxide refinery.
The facility will cost circa $300 million to construct, with production slated to begin in 2025 — again beware timeframe predictions — and generate 1,000 jobs for locals. Unlike similar propositions, the site benefits from massive existing infrastructure, with ready access to utilities and plenty of skilled workers ready to be recruited.
It’s worth noting that while the company remains a comparative minnow, Alkemy has inked a deal with oil major BP to supply the site with 100% green energy from its HyGreen Teesside project. This means Alkemy will be producing the world’s lowest-carbon lithium hydroxide.
The company has also appointed Wave International as its lead engineering and tech partner, which lead the Class 4 Feasibility study earlier this year. Anzaplan is also involved in the design. It’s also signed a partnership agreement with Traxys to source lithium feedstock, and a MoU with Weardale Lithium. These are not companies that partner with no-hopers.
And in August, Alkemy informed investors of plans to build a LSM plant at Port Hedland in Pilbara, Australia, to feed the Teesside facility.
Director Sam Quinn believes that the planning permission represents ‘a critical step in taking TVL to its next phase of developing the UK’s first lithium hydroxide refinery and spearheading a brand-new industry in Europe… the burgeoning demand from electric vehicle OEMs highlights the urgent need for significant lithium refinery capacity in Europe, which currently does not exist.’
Next steps
Alkemy’s feasibility study concluded that the site could deliver pre-tax NPV of $3.9 billion based on the long-term lithium price of $25,000 per tonne, with gross revenues of $68.4 billion, and a post-tax IRR of 32.9%.
ALK expects to supply 100% of the UK’s lithium needs by 2030, with a further 35% of total production available for export elsewhere. And in addition to funding conversations, it’s now conducting ‘advanced discussions’ with offtake customers across Europe.
It’s important to remember the long-term catalysts. China overwhelmingly dominates the lithium conversion industry, with 80% of the global market share, and relations between the eastern nation and the west have never been more strained. Russia’s war in Ukraine, Taiwan’s political status, the treatment of Uighur minorities, coronavirus lockdown cycles, regulatory stock market issues, and a wobbling global economy are just some of the current issues.
Moreover, China’s $11 trillion Carbon Neutral 2060 plan will require all of its own lithium processing capacity. To combat this expected lack of supply, over 700GW of gigafactory capacity has already been announced across Europe, with an annual projected demand of 650,000 tonnes of refined lithium.
Further, lithium hydroxide is a key component of renewable tech including EV batteries, and there will likely be a severe shortage in the 2020s and beyond as demand exceeds supply, an argument covered extensively both here and elsewhere. For perspective, Tesla has just opened its European gigafactory in Berlin. The EV race is gathering pace.
And Alkemy has a market cap of just £22 million. Of course, it still needs to raise $300 million to build its processing plant, but the potential means it should have no shortage of suitors. And yes, there will be bumps in the road to production.
But with lithium processing a key missing ingredient in European EV and clean tech ambitions, ALK shares could be just getting started.
This article has been prepared for information purposes only by Charles Archer. It does not constitute advice, and no party accepts any liability for either accuracy or for investing decisions made using the information provided.
Further, it is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.
