Albemarle starts a lithium fire and US EV subsidies could pour fuel on it

Albemarle’s $5.5 billion takeover bid for Liontown Resources and a $560 million expansion by Pilbara Minerals returned lithium to centre-stage this week but there could be more to come with a go ahead for the proposed US$7500 U.S. Government subsidy on electric vehicles.

EV 2

Those three events, a takeover, a project expansion, and the details around a government hand-out to boost EV sales, are the lithium story in a nutshell and the reason why investors should not take their eye off the battery metals sector.

The burst of good news also went a long way to shaking off the uncertainties of the past month associated with the banking crisis, which continues to hang over markets like a dark cloud and which may, or may not, become a financial storm.

Of the three developments, the least known, but potentially the most important, is the U.S. tax decision which could underpin EV (and lithium) demand in the world’s biggest economy – just as similar tax breaks have sparked EV demand in China and Europe.

Confusion over which vehicles qualify for the US$7500 subsidy outlined in the U.S. Government’s economy-boosting Inflation Reduction Act (IRA) has held back EV sales in the U.S. because dealers are confused, as are financial advisers, who can’t tell clients whether it’s better to buy or lease an EV under the IRA.

Albemarle’s $2.50 a share bid for Liontown is a lot simpler. It’s a pile of money on the table which could grow if a rival bid can be flushed out, or U.S.-based Albemarle is encouraged to pay more, which could happen given the expectation that its home EV market could be on the cusp of a powerful increase in demand.

On the market this week, Liontown was the obvious star with its rise of $1.15 (79%) to an all-time high of $2.64 before easing to trade around $2.60, suggestively above the $2.50 on the table and enough to spark speculation that there might be other potential buyers in the wings.

Names being bounced around as possible counter bidders include Rio Tinto, which is keen on lithium, BHP, which is yet to show its hand, Fortescue Metals, which needs a second string to its rusty iron ore bow, and Wesfarmers, which is putting the finishing touches to its Covalent lithium mine and processing plant development with Chile’s lithium leader, SQM.

Of those names, it’s the Wesfarmers/SQM joint venture which appears to have the greatest potential to top Albemarle because the two companies have the established skill-set to run a complex lithium project all the way to finished product and they are about to turn on their first processing plant.

Investment banks are mixed in their advice to Liontown shareholders. UBS reckons the $2.50 is a good price, but CG Capital Markets believes Albemarle could be convinced to increase its offer to seal the deal. Macquarie sees $3 as the correct price, while Bell Potter reckons Liontown could rise as high as $3.35, though that lifts Liontown’s price to $7.4 billion, big money for any bidder.

The effect of the Liontown takeover offer was felt across the battery materials sector, led by Pilbara, which rose by 48c over the week to $4.03, reversing a three-month downward trend.

Brokers think Pilbara could go a lot higher as the battery metals and EV sectors get fresh wind. CG initiated coverage of Pilbara this week with a buy tip and share price target of $5.65. Citi sees $4.60 as the target, down 20c on a previous recommendation thanks to the cost of the expansion project, while Macquarie remains the bull in the room with a price forecast of $7.50.

Other lithium stocks to bask in the glow of Albemarle’s big cheque book included:

  • Allkem added $2.23 (23%) to $12.17 thanks to a combination of the Albemarle/Liontown effect and a report that it had boosted the resource at its Olaroz lithium project in Argentina by 27% to 20.7 million tonnes of lithium carbonate equivalent.
  • Midas Minerals rose by 5c (35%) to 19c after announcing the presence of “abundant course spodumene” in outcropping pegmatite at a promising exploration project in Canada.
  • Argosy Mineral said commissioning of its Rincon lithium project in Argentina was nearing completion, news which lifted the stock by 4.2c to 45c while Macquarie stuck with a price tarot of 80c, and
  • Lithium Plus rose by 3.5c to 27c after reporting fresh assays from work at its Bynoe project in the Northern Territory.

Overall, the Australian market bounced back strongly this week after being sold off in the wake of the Credit Suisse collapse, with the all-ordinaries index up a solid 2.6%, taking it back to where it was three weeks ago.

Mining, as measured by the minerals and metals index, moved 4.4% higher thanks largely to the lithium surge while gold, despite being forced to play second fiddle to its lightweight cousin, moved up by 4.2% but was weakening as the gold price shed a little steam to sell for US$1958 an ounce.

Northern Star was the pick of the big goldminers, adding 45c to $11.97 after reports that it was poised to raise US$600 million in the U.S. bond market to help pay for expansion projects.

Other gold moves were modest. Evolution rose by 9.5c to $3. Bellevue slipped 1c lower to $1.19. Gold Road rose by 3.5c to $1.62, while Kingsgate lost 28c to $1.50 after unveiling a $46 million capital raising priced at $1.50.

Chalice, as was to be expected, was a star among the nickel and platinum stocks, rising by $1c to $7.15 after reporting a 50% increase in the metal content (on a nickel equivalent basis) in its Gonneville polymetallic project.

Copper stocks caught the eye of investors thanks to the price edging back to US$4.09 a pound and because copper is a key battery material, which means it was tugged along with the lithium revival.

Solid news flow from the copper sector, and price moves, included:

  • Carnaby Resources, up 24c to $1.24 after reporting excellent drilling results from work at its Mount Hope project near Mt Isa in Queensland with a best hit of 83 metres at 2.4% copper and 0.3 grams of gold per tonne.
  • Aeris, up 14c to 66c after reporting the discovery of a high-grade lens at its Jaguar copper project in WA.
  • Coda Minerals, up 4c to 28c after releasing a scoping study into its Elizabeth Creek project in South Australia, and
  • Sandfire, up 47c to $6.22 following news that a copper asset adjacent to its mine in Botswana might be for sale.

Rare earth stocks also had a good week as the winds of optimism blew off the technology metals sector with RareX leading the way with a price rise of 1c (21%) to 5.8c after reporting a major increase in the resource at its Cummins Range project in WA.

Other rare earths news included:

  • American Rare Earths, up 5.5c (27%) to 26c after a resource upgrade at its Halleck Creek project in Wyoming.
  • Arafura Rare Earths rose by 6c to 53c after reporting that a German export credit agency had confirmed a loan guarantee for its Nolans project in the Northern Territory, and
  • Macquarie Bank told clients that the rare earth market remained tight which would support explorers and producers such as Lynas which rose by 7c this week to $6.39 while Hastings added 9.5c to $2.51 with the bank tipping a price target of $3.60.

Other news and market moves in what was a solid recovery week for the stock market even as central banks kept their fingers poised over the interest rate button:

  • Fortescue Metals Group added 83c to $21.36 after shrugging off news that its Iron Bridge magnetite processing project has been further delayed, this time by bad weather. Macquarie is sticking to a price target of $17.50.
  • Highfield Resources put on 14c to 69c after reporting the issuing of a construction licence for its Muga potash mine in Spain.
  • Centaurus Metals rose by 6.5c to 94c after reporting outstanding nickel assays from deep drilling at its Jaguar project in Brazil with a best hit of 20.4m at 3.94% nickel.
  • VHM ran out of steam, slipping 2.5c lower to 78c, despite its Goschen mineral sands and rare earth project in Victoria returning a refreshed definitive feasibility study present value of $1.5 billion.
  • Strandline added 3.7c to 36c after reporting a fourth shipment of heavy mineral concentrate valued at $11.4 million from its Coburn project in WA, and
  • Galena Mining rose by 1c to 24c after reporting a maiden shipment of mineral concentrate from its Abra project.

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