US IRA is ‘cream on top’ as Arcadium eyes lithium growth

MELBOURNE (Reuters): US subsidies for critical minerals development will support growth for top 3 lithium producer Arcadium Lithium if the $10.6 billion Livent (LTHM.N) and Allkem (AKE.AX) merger creating the new company goes ahead, Allkem’s chairman said Thursday.

The US Inflation Reduction Act (IRA) has refocused global supply chains for minerals critical to the energy transition toward the US The tie-up is expected to close by Jan. 4 if Allkem shareholders approve it at a Dec. 19 meeting.

Allkem chairman Peter Coleman said the companies are considering post-merger growth options for Arcadium in Canada and North America, where Livent has half ownership of miner Nemaska Lithium shared with the Quebec government. The IRA represented an opportunity for additional “cream on the cake,” he told reporters in Melbourne.

“As we look at building out our Canada operations, for example, it’s natural that processing be done either in Canada or North America at the moment, and that’s good for us,” he said.

“They don’t have their own IRA,” he added, referring to Canada. “But they’re highly competitive and they know our option is to go 150 kilometres (93 miles) across the border. They understand that they need to compete to be able to get that value-added product.”

Coleman will continue as chairman of the new company, which will produce the metal in Canada, Argentina, and Australia, behind only US-based Albemarle (ALB.N) and Chile’s SQM (SQMA.SN). Allkem is listed in Australia; Livent is listed in the United States.

SUBMERGED PRICES

Coleman also said he sees current low lithium prices extending for the near term, forcing companies to look at cost-cutting and pushing back investment decisions on new projects. But he said it would not squeeze any firms out while prices are still at relatively “healthy” levels for the metal, which is crucial for electric vehicle batteries.

Lithium prices shot too high last year because of China’s stimulus and the impact of COVID-19 on global supply chains, but this year fresh supplies, including from Africa, have led to a collapse in prices, Coleman said.

Prices for the lithium ore spodumene, of which Australia produces about half of the global supply, soared to above $6,100 a metric tonne late last year. It traded on Thursday at $1,380.

“That’s natural. You get a price signal in the market and everyone runs off to the bank and their investors and says it’s time to build a mine,” he said. “That price signal arrived a few years ago. Now we have to work that (excess supply) out of the market. We’re going to be here for a little while.”

Lithium prices have fallen amid slowing demand growth for electric vehicles, which has led to a price war among makers in China.

GATECRASHERS

Coleman, who ran Australian gas producer Woodside Energy (WDS.AX) for a decade, also said he had never seen Australian investment coming into any sector on the scale it is flowing into lithium.

Mining moguls Gina Rinehart and Chris Ellison have spent more than A$2 billion ($1.30 billion) between them snapping up stakes in lithium developers this year, spoiling deals underway by the world’s biggest lithium chemicals makers.

That could potentially hamstring any future purchases by Arcadium, which has targeted Australia for growth. But Coleman said it was a “real positive.”

“It’s people who understand the business well, understand Australia well, taking a very long-term view,” he said.