Arcadium Lithium, the newly proposed business combination between Livent Corporation (NYSE: LTHM) and Australian lithium company, Allkem Limited (ASX: AKE) will receive support from United States subsidies if the USD$10.6 billion merger goes through.
On Thursday, Allkem chairman Peter Coleman announced that the companies are actively considering post-merger growth options for Arcadium in Canada and North America. In this region, Livent holds a fifty per cent ownership stake in miner Nemaska Lithium, which it shares with the Quebec government.
“As we look at building out our Canada operations, for example, it’s natural that processing be done either in Canada or in North America at the moment, and that’s good for us,” said Coleman.
“They don’t have their own IRA,” he said, 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.”
The US Inflation Reduction Act (IRA) has produced incentives towards bolstering global supply chains for critical minerals including lithium, which are integral for meeting energy transition goals set by the United States. The merger is expected to close in early January if Allkem shareholders approve at a company meeting set Dec. 19.
Most of the benefits offered by the IRA come for United States-based companies but also extend to friendly countries in which the US has a free trade agreement. This is primarily because the United States is poor in terms of critical minerals such as lithium, having only one producing lithium mine.
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IRA benefits come with an end-date
The benefits for non-American companies come with a limited time frame.
The IRA introduces a phased approach for critical mineral requirements. Beginning in 2024, companies must ensure that 40 per cent of critical minerals used in EV batteries are either extracted or processed in the United States or countries with free trade agreements, or they must have been recycled in North America.
This percentage increases to 80 per cent by the end of 2026. Also, starting in 2024, 50 per cent of battery components must be manufactured or assembled in North America, with this requirement reaching 100 per cent by the end of 2028.
Unlike other companies either owned or operated outside of the United States, this serves to benefit companies like Arcadium, which will be housed in the United States.
Coleman will stay on as chairman of the new company. Arcadium Lithium will also produce the metal in Canada, Argentina and Australia. The merger will make Arcadium Lithium the third largest lithium producer in the world, behind US-based Albemarle Corporation (NYSE: ALB) and Chile’s Sociedad Química y Minera (SQM) (NYSE: SQM).
Coleman anticipates the current low lithium prices to persist in the near term.
This will compel companies to cut costs and delay investment decisions for new projects. However, he emphasized that these prices are still within a respectable range for the metal and won’t force any companies out of the market.
Lithium prices surged due to China’s stimulus efforts and disruptions in the global supply chains caused by the COVID-19 pandemic. However, this year there has been a rebound spurred by the introduction of fresh supplies, leading to decline in prices.
The price of spodumene reached a peak of over USD$6,100 per metric tonne late last year, but as of Thursday was trading at USD$1,380 per tonne.
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Merger will tighten competition in Argentina
The newly merged company will take control of four major initiatives in Argentina, and contribute to the company’s overall goal of achieving a lithium carbonate equivalent production of 250,000 metric tonnes per year by 2027. A representative from Allkem said that the new initiatives will also result in savings of USD$200 million through cost reductions courtesy of shared infrastructure, which provides access to a larger resource of raw materials.
Allkem plans to develop the Cauchari project in Argentina’s Jujuy province. It provides a potential production capacity of 25,000 metric tonnes of lithium carbonate. In the same region, the second phase of the Olaroz project is scheduled to commence operations with a capacity of 25,000 metric tonnes of lithium carbonate in 2024.
Livent is also expanding the Fénix plant in Argentina’s Catamarca province, which receives brine from the Hombre Muerto salt flats. The expansion aims to achieve a lithium carbonate production of 30,000 metric tonnes by the end of 2026.
The company is also set to start construction on the Sal de Vida project, with an initial capacity of 15,000 metric tonnes of lithium carbonate in 2024, followed by an expansion to 30,000 metric tonnes in 2025.
The amalgamation of projects will make competition for resources tighter as well. A few of the other companies operating in the Salar del Hombre Muerto include the South Korean steelmaker, POSCO Holdings (KRX: 005490), which has a lithium project encompassing both exploration and processing, and Lithium South Development Corporation (TSXV: LIS) (OTCQB: LISMF) (Frankfurt: OGPQ).
Lithium South recently filed a technical report for its 3,287 hectares wide Hombre Muerto North Lithium Project defining a 1.5 million tonne lithium carbonate equivalent resource with an average grade of 736 mg/L lithium.
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Lithium South Development Corporation is a sponsor of Mugglehead news coverage
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