Strong Underlying Lithium Fundamentals Lead to Massive Guidance Increases: LTHM, ALB
Amid a stubbornly high lithium carbonate price which seems to have stabilized this summer at 475,500 (CNY/T) representing a YTD gain of +70% or a 1-year gain of over +400%, as expected from our July 13 update (link here) both Livent Corp. and Albemarle reported quarterly financial results which handily beat consensus estimates while also prompting massive increases to FY/2022 guidance.
On back of the strong lithium prices, Livent Corp. (LTHM) announced record Q2/2022 financial results which were highlighted by revenues of $218.7M (consensus $208.4M, $102.2M in Q2/2021), adjusted EBITDA of $95.0M (consensus $82.1M) and adjusted EPS of $0.37 (consensus $0.30, $0.04 in Q2/2021). Seeing as management expects the lithium market to remain structurally tight at least until Q1/2023 FY/2022 guidance was increased. Revenues are now seen between $800M-$860M (representing an increase from the previous $755M-$835M) while adjusted EBITDA is seen between $325M-$375M (previously $290M-$350M). On the operational front, Livent's first 10,000mt expansion of lithium carbonate in Argentina will be mechanically complete by YE/2022 and in commercial production by Q1/2023. Additionally, the 5,000mt expansion of lithium hydroxide in Bessemer City is expected to be mechanically complete by the end of Q3/2022 and in commercial production by Q4/2022. Longer term, the Nemaska JV (50% Livent) is nearing a conclusion on work for the construction plan. The 34,000mt of nameplate capacity lithium hydroxide is expected to have initial production in 2H/2025. Management continues to look for funding and/or MOUs for its approximately $1.0B share in the project. Lastly, during the quarter it was announced that a 6-year supply agreement was signed with General Motors (GM). The agreement includes a $198M advance payment to Livent (due later in 2022) and includes the capacity for longer term expansion.
With Albemarle (ALB), Q2/2022 financial results were highlighted by revenues of $1.48B (consensus $1.43B, $773.9M in Q2/2021), adjusted EBITDA of $610M (consensus $558.4M) and adjusted EPS of $3.45 (consensus $3.11, $0.89 in Q2/2021). Guidance was also increased for the FY/2022 period with revenues now seen at between $7.1B-$7.5B (representing an increase from the previous $5.8B-$6.2B) and adjusted EBITDA between $3.2B-$3.5B (previously between $2.2B-$2.5B). As a testament to the current tightness in the market, note specifically that adjusted lithium EBITDA for FY/2022 is expected to grow by approximately 500%-550% y/y, up from the previous outlook of +300%. Note that the guidance assumes that selling prices will remain flat over the remainder of 2022. Moreover, FY/2022 volume is expected to be up 20-30% y/y primarily due to new capacity coming online as well as higher tolling volumes. On the operational front, the Kemerton I lithium conversion plant in Western Australia achieved first production in July 2022 while the Kemerton II conversion plant remains on track for mechanical completion in 2H/2022. In the U.S., new wells and expansion projects at Silver Peak continue to progress ahead of schedule.
In light of Livent's supply agreement with GM, expect additional agreements to be signed by additional OEMs as both lithium companies have mentioned advanced stage negotiations with numerous automakers. On the development side, our preferred names include Lithium Americas (LAC) and Cypress Development (CYP.V). Since our last update from July 13, both have rebounded by +22.5% and +23.0% respectively. We note that catalysts remain abundant with Lithium Americas as construction at Cauchari-Olaroz is now over 90% complete (as of July 28, 2022), the processing plant is preparing to commence commissioning shortly. We also like the fact that management continues to concentrate on efforts/possibilities to spin-out the Thacker Pass asset (located in Nevada) which is very overlooked currently due to Cauchari-Olaroz, located in Argentina. More details at the link above.