Morningstar | Albemarle Announces Acquisition of Lithium JV; We View Deal as Value Neutral and Maintain $131 FVE
On Nov. 21, Albemarle announced it would purchase a 50% interest in the Wodgina spodumene operation in Western Australia for a price of $1.15 billion. We expect the transaction will close by the end of the year, at which point, Wodgina will be controlled by a 50-50 joint venture between Albemarle and Mineral Resources, or Min Res. Having updated our model, we view the deal as value neutral and maintain our $131 per share fair value estimate for narrow-moat Albemarle.We view Wodgina as a quality spodumene asset that will provide Albemarle with a second low-cost feedstock to produce lithium hydroxide. We forecast that Wodgina will ultimately produce spodumene at lower cost than most Western Australian peers due to a higher lithium concentration in its mined rock. As a result, we think that lithium hydroxide produced from Wodgina spodumene will sit on the bottom quartile of the lithium hydroxide cost curve.
However, we note that Wodgina is currently in its early days and as part of the joint venture agreement, Albemarle will have to fund 50% of all capital expenditures. Given that that majority of capital expenditures required to ultimately produce lithium hydroxide have yet to be spent, we forecast Albemarle will likely have to spend at least another $300 million-$400 million to fund its portion. Due to the high total cost (including the acquisition price) versus developing a new project, we view the deal as value neutral.
Wodgina is currently producing and selling direct shipped ore, the unrefined hard rock that is converted to spodumene, which is then converted to lithium hydroxide or lithium carbonate. Min-Res started the construction of a spodumene plant in March that should be completed by 2020. At that time, the JV will likely begin selling spodumene to converters in China. Ultimately, Albemarle and Min-Res plan to build a lithium hydroxide plant that will have a capacity of 50,000 metric tons, which we forecast to begin production in the early 2020s.
Albemarle is a global developer, manufacturer and marketer of chemicals across a range of end markets including energy storage, petroleum refining, consumer electronics, construction, automotive, lubricants, pharmaceuticals, crop protection and custom chemistry services. The company's segments include: Lithium, which develops and manufactures a range of basic lithium compounds and lithium specialties and reagents; Bromine Specialties, which includes products used in fire safety solutions and other chemicals applications; and Catalysts, which includes Clean Fuels Technologies, fluidized catalytic cracking catalysts and additives, and performance catalyst solutions.
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