Livent Corp Capitalises On Cost Advantage In Lithium Carbonate Production

Business Strategy and Outlook

Spun out of FMC in late-2018, Livent is a pure-play lithium producer. The company’s lithium carbonate production in Argentina is among the world’s lowest-cost lithium sources. As electric vehicle adoption increases, high-double-digit annual growth is projected for global lithium demand. Livent is looking to expand its Argentine brine-based lithium production capacity from 20,000 metric tons in 2020 to 100,000 metric tons on a lithium carbonate equivalent basis by 2030. The company also plans to increase its lithium hydroxide capacity from 25,000 metric tons in 2020 to at least 45,000 metric tons. Lithium carbonate is produced by pumping brine out of the ground (primarily in South America) or via pegmatite mining that produces spodumene, which is later converted to lithium carbonate. Lithium hydroxide can be produced either from the conversion of carbonate or directly from spodumene. Producing hydroxide from spodumene can cost less than starting from low-cost carbonate for fully integrated producers with low-cost spodumene operations.

Livent’s strategy is to have the flexibility to produce either lithium hydroxide or carbonate. Hydroxide is a higher-quality and typically higher-priced product. It can either be produced as a derivative of lithium carbonate, or directly from spodumene. Livent is one of the lowest-cost carbonate producers globally but has a higher-cost position in hydroxide. Fully integrated hydroxide producers that start with high-quality spodumene assets can produce hydroxide at a lower cost than Livent, which may result in Livent’s position on the lithium hydroxide cost curve rising over time. Livent also increased its stake in the Nemaska lithium operation to 50%. The proposed project is a fully integrated hard rock operation in Quebec, Canada. While the project can be profitable, it carries risk as the previous owner, Nemaska, filed for bankruptcy due to cost overruns. The company is also planning to build a lithium recycling plant that will likely have tolling economics.

Financial Strength

As of March 31, 2022, Livent had a little over $240 million in debt and a little less than $70 million in cash. Net debt/adjusted EBITDA calculations show 1.5 times but all of the debt sits in long-term convertible bonds, which is anticipated to be converted into equity, leaving the company debt-free. Livent is in the midst of a major capacity expansion, planning to spend $1 billion in capital expenditures over the next three years. To fund these projects, Livent issued equity and raised over $250 million. Combined with increasing EBITDA and cash flow from higher lithium prices and sales volumes, the company should have adequate cash to fund the first wave of capacity expansion. Further, with a clean balance sheet, the company can draw from its untapped $400 million credit facility to help fund the expansion projects. However, with lithium prices rising, the company should be able to fund a decent portion of its capital expenditures from operating cash flow.

Bulls Say’s

Livent benefits from a low-cost position in lithium carbonate production, which is among the lowest cost globally.
Livent’s decision to invest in increased lithium carbonate and hydroxide production should create value as the marginal cost of lithium production is well above the company’s cost position.
As a lithium pure play, Livent is well positioned to increase profits from EV growth through lithium batteries.

Company Profile

Livent is a pure-play lithium producer formed when FMC spun off its lithium business in October 2018. Livent should benefit from increased lithium demand via higher electric vehicle adoption, as lithium is a key component of EV batteries. The company’s low-cost lithium carbonate production comes from brine resources in Argentina. Livent also operates downstream lithium hydroxide conversion plants in the United States and China and has a 50% stake in a fully integrated Canadian lithium project.

(Source: MorningStar)

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