Alkemy Capital Overview: Alkemy Capital Investments PLC (LON:ALK) is positioning itself as a key player in the battery materials sector, focusing on the production of battery-grade lithium. This initiative aligns with global trends in electric vehicle (EV) adoption and energy storage solutions, presenting a strategic investment opportunity.
Project Highlight: Tees Valley Lithium
- Strategic Initiative: Alkemy is spearheading the construction of the UK’s largest independent lithium refinery, Tees Valley Lithium, aimed at transforming high-value imported lithium into battery-grade material.
- Location Advantage: Situated in Teesside Freeport, known for its chemical industry heritage, this project benefits from strategic logistics and existing industrial infrastructure, amplifying its investment appeal.
Market Relevance: The global shift towards electric mobility and renewable energy storage underpins a robust demand for lithium, a critical battery component. Currently, market dominance by non-European entities, particularly from China, underscores a significant opportunity for Alkemy to establish a regional stronghold in lithium processing, enhancing supply chain resilience in Europe and the UK.
Financial Model and Risk Mitigation: Alkemy’s business model, focusing on processing fees rather than direct lithium market exposure, offers a lower-risk investment profile. This approach provides more predictable revenue streams, potentially leading to a stable dividend payout for investors.
Operational Milestones:
- All necessary permits and agreements for the Tees Valley Lithium project are in place, with production slated to commence in 2026.
- The project aims to satisfy 100% of the UK’s forecasted automotive battery lithium demand by 2030, with additional capacity for European and global markets.
- Partnerships with established industry players and ongoing discussions for offtake agreements enhance project credibility and future revenue prospects.
Investment Rationale:
- Strategic Market Positioning: Alkemy Capital Investments focus on critical battery materials places it at the heart of the energy transition, offering investors a share in a future-oriented industry.
- Geopolitical Advantage: The project’s alignment with national and European critical mineral strategies bolsters its strategic significance and potential for government support.
- Growth Potential: With project expansion and a second graphite processing initiative underway, Alkemy presents a diversified growth trajectory in battery materials processing.
Valuation and Investment Potential:
Robin Byde Analyst at Zeus Capital in his initiation note wrote: “To provide look-through for equity investors in ALK we primarily focus on the potential dividend stream. We value the first phase (Train 1) of the lithium project only, with production of 24k tpa of material and assuming three scenarios for toll fees. Next we assess the net free cash available for dividends, adjusted lower for potential equity dilution at the project level. We discount net free cash flows using a prudent discount rate of 15%. The result is a valuation range between c. 12x and c. 27x of the current market cap, with a base case of c. 19x (or c. $160m/c. £130m of implied value). Plenty of potential upside – just from Train 1 and the lithium refinery – assuming the project goes to plan.”
