Albemarle: Decision Not to Pursue Liontown Acquisition Is Value-Neutral

Key Morningstar Metrics for Albemarle

• Fair Value Estimate: $350.00
• Morningstar Rating: 5 stars
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: High

Albemarle ALB announced it would walk away from a previously announced acquisition of Liontown Resources following the end of the company’s due diligence period. We thought the deal made strategic sense, as it would have provided a third high-quality lithium hard rock resource. However, Albemarle’s all-cash offer price of AUD 3 per share was fair, meaning the deal’s ending neither creates nor destroys any of the stock’s value. Accordingly, we maintain our fair value estimate of $350 per share for Albemarle’s stock, as well as our narrow moat rating for the company.

We currently view Albemarle stock as materially undervalued, more than 50% below our fair value estimate. Albemarle is one of our top lithium picks, as its current valuation offers strong upside, and we think it carries relatively lower risk than the other lithium producers under our coverage.

Albemarle management cited growing complexities with the proposed transaction as a factor in their decision not to pursue the deal. Over the weeks since the acquisition had been announced, Hancock Prospecting, an iron ore miner in Australia, amassed a 19.9% equity stake in Liontown. We think Albemarle did not want to raise its bid to buy out Hancock, and also likely did not want to partner on the project. Regardless, with multiple high-quality lithium concentrate (spodumene) resources under development throughout the world, we think Albemarle could find another acquisition target to grow its upstream volumes if it chooses to.

We previously forecast that with the Liontown spodumene acquisition, Albemarle’s 2030 volumes would be closer to the high end of management’s range of 500,000-600,000 metric tons. We now forecast that volumes will be closer to the lower end.