Good day, ladies and gentlemen, and welcome to the Albemarle Logena Joint Venture Update. At this time, all participants are in a listen only As a reminder, this conference call may be recorded. I'd now like to introduce your host for today's conference call, Mr. Dave Ryan, Vice President, Corporate Strategy And Investor Relations. Sir, you may begin.
Thank you. And thank you for joining the conference call to discuss the recent announcement that Albemarle has signed an asset sale and share subscription agreement with Mineral Resources Limited to acquire a 50% interest in MRL's Wagina hard rock lithium project. Please note that prior to this call, we published an investor deck and linked to this webcast on the Investors section of our website at www.albemarle.com. Joining me on the call today are Luke Kissam, Chairman and Chief Executive Officer Scott Tozier, Chief Financial Officer and Eric Norris, President, Lithium. As a reminder, Some of the statements made during this conference call, including statements about management's expectations regarding the planned Wagina joint venture related impacts, margins and capital expenditures may constitute forward looking statements within the meaning of federal securities laws.
Please note the cautionary language about forward looking statements contained in our press release. That same language applies to this call. Now, I will turn the call over to Luke.
Thanks, Dave, and good morning, everybody. I'm pleased to announce that we've entered into definitive agreement with mineral resources and expect to close the transaction during the second half of twenty nineteen. When fully operational, This joint venture is expected to produce enough spodumene concentrate lithium hydroxide plant to be constructed in two stages of up to 50,000 metric tons LCE each. The deal combines the mining and operational expertise of mineral resources with Albemarle expertise in the production and marketing of lithium. It is also consistent with our plan of pursuing M and A opportunities that can accelerate or derisk our strategy.
This deal has a number of key value drivers as the exclusive market up of all spodumene concentrate and lithium hydroxide produced by this venture. This allows Albemarle to continue to support our customers' growth with increased volumes and fulfill our long term customer agreements to provide an effective Albemarle has already over 100,000 metric tons of lithium hydroxide committed in 2025 under long term agreements or evergreen contracts and significant additional volume still under negotiation. And that volume under negotiation continues to We expect to be able Albemarle will toll convert some of the spodumene concentrate volume produced and will market the remainder to strategic accounts. Combining the Wodgina resource with mineral resources mining expertise and Albemarle's lithium technology and design should result in a world class asset at the lower end of the cost curve, likely second only to Talos from a hard rock standpoint. As a result, we expect adjusted EBITDA margins from those operations to be in the range of approximately As a result, we are expecting a return on investment for Albemarle that meets our goal of approximately two times our cost of capital.
With an acquisition price of net debt to adjusted EBITDA to end We will limit significant M and A and share buybacks until the debt ratio is back in the 1.0to1.5 range. We will also evaluate the priority and timing of in the $800,000,000 to $1,000,000,000 range over the next few years. We are committed to moving forward with the 1st production lines at Kemerton as planned. After completing the lithium hydroxide We have a clear and straightforward strategy, grow our lithium franchise, leverage our strong cash flow from bromine and Catalyst and deliver very strong margins and return on our capital growth investments. We've outlined our growth plan well into the next decade and this joint venture fits directly with that strategy.
Operator, we are now ready to open the lines for Q And A, but before doing so, I'd like to remind everyone to please limit questions to 2 per person to ensure that all participants have a chance to
Thank Our first question comes from Robert Koort from Goldman Sachs. Your line is open.
Good morning. This is Dylan Campbell on for Bob. What is the cost curve differential for producing hydroxide through hard rock versus brine assets and kind of how much of that did that play a role and your decision as compared to maybe regional diversification with this mineral resources JV?
Yes. So from a as we've talked about in the past, it all depends upon the concentration of lithium in the in the product. So if you look at in the Salar de Atacama, you go from brine directly to carbonate and then carbonate directly to hydroxide. So that's what Albemarle SQM and Lavenue today. With hard rock, we go directly from the hard rock, the spodumene concentrate, to the lithium hydroxide.
We've always said Talison is at the same cost curve. Are better than any other lithium hydroxide produced in the world because of the concentration. This probably doesn't have as good of a cost position as Talos but it would be next in class. So it would be very cost competitive on a global scale with any other producers out there. It would be on the left side of that cost That had a obviously anytime you can get a quality resource with a quality partner and be on the low end of the cost curve and still provide additional geographic diversity and give you that additional capacity to service your customers, all of that figured into our decision on this transaction.
Got it. Thank you. And I guess on the back of that, obviously, this is a large resource. But do you have any type of when you're doing due diligence, do you have any type of hesitation about your ability or the JV's ability to translate that resource into actual reserves?
No. We had a significant due diligence from third parties, experts, and we are very confident in our ability to monetize these assets. Got it. Thank you.
Thank you. Our next question comes from Ian Bennett from Bank of America Merrill Lynch. Your line is open.
Luca made some comments about this project median goal of twice the cost of capital and a 45% EBITDA margin, highlighting the low cost asset here Could you make some comments about what you're kind of assuming for the long or medium term lithium price in the market and kind of how you're coming to that conclusion?
Yes. So what we did is we looked at what our contract prices are. That we have in our long term agreements through 2025 and for beyond where we have those beyond. And then we made very didn't make any assumptions related to significant increases of price thereafter So it's based on what we see through 2025. And then we looked at scenarios of price being flat price being up only to cover expenses, price increasing.
So we look at kind of a tornado effect of what's the difference impact on pricing and where we could be. In all situations, we are greater than our cost of capital and in our most practical situation that we see, we are 2x our cost of capital.
Yes. Luke, if I can add, this is Scott. If you remember from our November earnings call, the long term contracts, have pricing at or better than 2018 pricing as well.
Got it. Okay. And on the lithium hydroxide plants, a slide here highlighting that you use Almirall Technology. And I'm not sure to what extent some of the the engineering and construction work on the potential lithium hydroxide plant was already completed. And if there need to be any changes, what if any, that could affect the timeline?
Yes. That plan had not begun construction yet. So I'm sorry. He's asking about Wagina. The one at Wagina had not begun construction yet, so it will have no issue from a timing standpoint.
And that you can see on the presentation, we said around 2022 that's really comes to a point of when are we going to be able to close? When are we going to and all of that? So, it will have no view on the timing of the Wodgina lithium hydroxide plant.
Thanks very much.
Thank you. Our next question comes from David Begler from Deutsche Bank. Your line is open.
Thank you. Good morning. Luke, on the spodumene, how much will you toll yourself and how much will you sell in whom do you think you'll sell it to during the beginning 2 years prior?
Yes. We don't know. I I don't have a good number on that yet, a good breakdown on that. If they haven't started producing spodumene rock yet from that site. They expect to be able to do it toward the end of the first quarter of 2019 and we remain confident that that will be the case.
We are in the process. Obviously, we couldn't talk too much about this till after it became public. So we're in the process right now of lining up additional tollers to see how we could do that. And also talking to some strategic accounts that would enter be able to enter into agreements rather than on spot, but we'll take an approach similar to what we have with lithium hydroxide to try to sell this. And we believe that that is the most prudent course to take.
But right now, David, I don't have a breakdown to give you.
Got it. And last thing, do
you foresee any either marketing or operating engines with, with Kemerton and or green bushes in Washington? Yes.
I mean, not green bushes, but obviously with regard to Kemerton, we see a lot of synergies. We're not going to have to add a whole lot of sales people because we already have the sales people. We're not going to have to add a whole lot of customer service or build a new system because we already have that. In place. And will be any incremental cost that we have to add, we will be that will be included.
If you look at it from a capital standpoint. And you start thinking about spare parts, we'll be able to have critical spares in one location And if there's an issue with Kemerton, if there's an issue at Wodgina, if there's an issue in our China assets, because it's all a very similar design we can have one set of spares and be able to airship them wherever we need to in order to ensure that we're able to operate. So I think when you look across the portfolio, it gives us significant capital synergies, spare synergies, and also operational know how, we're going to turn loose a team of process engineers, just like we've done at all our at our other site around the globe in bromine and an FCC catalyst, and we'll be able to improve the yield. And once we improve the yield in one of those sites, we'll be able to share that learning across the sites and the other 2 sites. So I'm very optimistic about the power of the synergies that we'll see from a cost standpoint, from a yield standpoint, and really from an operational standpoint going forward.
Very good. Thank you.
Thank you. Our next question comes from Alex Yefremov from Nomura Instinet. Your line is open.
Luca, should we infer from this acquisition anything about the prospects of Talison expansion? You're working on 1 right now, but of the following expansion after that? Is it more or less likely because of this?
No, I think it's we assume that that was going to be expanded when we looked at this deal, I think what you can assume is that you'll see us, our other projects that we've talked about in Wave 3, Kings Mountain Antifia things like that, you'll certainly see a slowdown and focus on these resources first and limit the work we're doing on those, going forward until we build out all of Kemerton and we build out all of the WOGEN assets.
And just to follow-up on the sequence, I think you had mentioned that after completing Kemerton Phase 1 and 2, you'd proceed with Wodgina hydroxide and then you would decide on additional camera to extension. Is that correct? And if so, why not why is there not a preference to just build out Kemerton since it's 100% known?
Well, if you look at it, the way part of it was negotiation, right? So when we looked at that and compared it, what we'll be able to do is we'll be able to spend half the capital and get 2x the volume for our customers whenever you look at it because we'll be paying 50 percent of the capital for that 100,000 metric tons 50 of that will be owned by somebody else, but we will be marketing 100,000 metric tons. So That to us makes the most sense. That to us provides an acceptable return on invested capital. It allows us to meet our customers' demand in de risk our strategy and we still have other world class assets to be able to build out, subsequent that to meet the ever growing demand that we see from the EV market.
Thank you.
Our next question comes from Kevin McCarthy from Vertical Research. Your line is open.
Yes, good morning. The Mineral Resources press release that was put out, I think it was Friday makes reference to a license whereby Albemarle would provide plant design technology for lithium hydroxide to the joint venture. My question is, are there any cash flows that would flow to Albemarle as part of that license? Or is it simply part of the overall deal that that would be provided to the JV free of charge?
Yes. Kevin, it's part of the overall deal. And but any improvements to that technology are 100% owned by Albemarle. In addition to that, the overall structure this joint venture, which we put. I think it's on page 6 of our presentation that we put out.
The one thing is that we're gonna share the benefits and the risk from this on a fifty-fifty basis. So, there are going to be some fees provided by MRL. There are going to be some fees I mean, services provided by both of us and both of us will get some fees for those, but at the end of the day, it's going to be treated as a fifty-fifty joint venture from an economic standpoint if that makes sense, Kevin.
It does. Thanks for that. And then second question, to account for this new joint venture? Do you have line of sight into whether it would be consolidated or equity method?
Kevin, this is Scott. So we will consolidate our 50% into our both balance sheet as well as P and L. Mineral Resources will do the same. So it's set up to allow us to consolidate each of them.
Very good. Thanks for that.
Thank you. Our next question comes from Colin Rusch from Oppenheimer. Your line is open.
Thanks so much guys. As you look at this capacity and the evolving technology on the battery chemistry side, how much flexibility are you going to have with this facility and then also a stage too to meet some of the evolving needs of your customers as they change battery designs going forward?
Yes. I think one of the things that we've seen here is, as we talk about, we've seen a movement towards lithium hydroxide. And from a standpoint of that, and we see the demand through 2025 of lithium hydroxide, in order to meet that going forward, we need this design. That's another reason to build in some flexibility and to stair step the capital that we will spend so that in the future, if we see a movement to another product, whether lithium metal, lithium sulfate, whatever it may be, it gives us the ability to alter those plans for capital going forward. We'll build in some flexibility here, but it's still, if it goes from all the way away from lithium hydroxide, there's going to be additional capital that will need Great.
And
then just in terms of the contract and the senior expectations around it, given the redundancy that you're talking about and the flexibility with the portfolio, are you seeing that translate into pricing initially? Are you getting early indications on that? Is that something that customers are valuing? How should we think about it?
Yes. I think if you look at customers, what customers want to be able to do is they want somebody who's got geographic diversity, got the volume that they can supply to meet their needs of both carbonate and a drop side. And when you look like what we're doing and the steps that we're taking around the globe in order to be able to produce carbonated low cost at the low end of the cost curve and a drop side low end of cost curve, both inside and outside of China. They see value in partnering with us. And I think that's why you're seeing big customers coming to us and committing to us through 2025 already.
So Colin, this is Eric.
Let me add that feedback, it's very early obviously, but the feedback leads had from our customers is one of excitement, right? And anticipation, because they're seeing now a resource, which was coming to the market now being a part of the Almar portfolio, part of the Almar marketing engine, part of the Almarva technology from a hydroxide standpoint that, but because it's a qualified product with them gives them comfort, right? Because I know that we've got the demand now to meet their growing needs, which we described is quite significant in the last earnings call.
Okay. Thanks guys.
Thank you. Our next question comes from Chen Bray from Berenberg.
I just wanted to get some color on your expectations for the delivering of Avamal Post Acquisition
Am I
right in saying if you're going to move from 2.2x net debt to EBITDA in 2019, one point five times by 2021 2022. Are you basically expecting the rest of your lithium assets to turn cash in 2020, unless there's massive growth in EBITDA, I find it a bit difficult to get down. The second question is on the a bit of supply demand outlook. We heard last week that there was going to potentially be additional Bolivian lithium hydroxide supply, how are you feeling in terms of both the longer term pricing assumptions around carbonates given that this begins to become relatively less attractive and those around hydroxide given that Bolivia seemingly has some of the largest lithium resources in wells? Thank you.
I'm going to let Scott take the deleveraging, the question first and then I'll address the second
Yes, Sebastian. So as we look at the deleveraging, obviously with the outlay of the 1.15 $1,000,000,000, probably in the second half of twenty nineteen. We'll end up around 2.2 times, as our kind of peak Key thing for us is given the growth in our core assets, as well as the growth in this joint venture, in terms of earnings that we actually grow down into that 1 to 1.5 times. So there's not necessarily a significant amount of pre payables in that required to get there. So our core assets continue to perform well from our earnings perspective.
Obviously, from a cash flow perspective, we don't anticipate having to take on any any other incremental debt in that timeframe?
With respect to the supply demand, I'm going to address Bolivia. And then I'll turn it over to Eric to address some other supply demand outlook issues from a price standpoint. I think in Bolivia that if you go back and look at Argentina and you look at Orocobre, it took Orocobre Essentially from the time they started roughly 10 to 12 years to be able to get to the point that they are today where they're producing a quality battery grade spec. Bolivia's never had an infrastructure in place related to this lithium hydroxide. So I would tell you, I think that it is not a 2019 or even a 2025 issue.
It is well past side. And I think you'll see the market for the demand growing significantly over that period of time. Remember all the capital that we're putting in the ground only allows us to maintain our market share and not grow it. So we need other people to fill that. I'm not worried at all about Bolivia in any medium period of time.
We have been conservative in the pricing assumptions that we put into the model I believe we talked about it's essentially 2018 level pricing in 2025. Is one of the things that we've done. So we've looked at the highs and lows of that still get a great return on it. And I'll let Eric address some of the questions about other supply demand. Eric?
Yes. So this is Eric. With regards to, I think, I believe your question was more specific to Carbon how we're feeling about carbonate. Recall that from our Q3 earnings release, we described a very robust commitment through 2021. Not the same level of commitment through 2025 that you're seeing in hydroxide.
Now that's partially that's negotiation and the timing of negotiations. It may be representative to some degree of the visibility that people have for carbonate demand long term. But I think as we look at our pricing, Remember call, it's all under a contract. So it's at 2018 levels as a floor. We don't have any concerns about that.
I mean, there's There's gyrations that might happen in China and a market small portion of the market that's trading spot that's just not relevant to the contracts we have, the customers we serve. And as such, we feel very confident about and our customers are very much looking forward to additional capacity we'll bring on with omega-three and 4 in the coming 12 to 18 months.
Great. Thank you. Thank you.
Our next question comes from PJ Juvekar from Citi. Your line is open.
Hi, this is Scott on for P. J. Thanks for taking my question. So my first question is just how will you go about selling the spodumene while you're constructing the lithium hydroxide version plant? Will it be similar to the long term structure that you sell your lithium compounds on?
And are you also pursuing a price to kind of achieve your hurdle rate of 2 times cost capital?
Yes, I think the answer to that is we're going to look at selling it as in a similar fashion. Who are those that are willing to commit to a length term of a contract. It'll be the producers that everybody knows who the producers are. We'll look to partner with the more stable producers. We'll look to ensure that we're able to put it at a price that makes sense from a return standpoint.
So to answer both of those, yes.
Okay. Thank you. And my second question is on the special purpose company that will manage the JV. Can you talk about who from your team will be involved in that? And also will there be anybody from our model involved on the management committee that will see that special purpose company?
So we hadn't gotten all those details, but as a fifty-fifty joint venture, we're going to obviously be involved in the governments and all major decisions. And where we're the experts, we're going to take the lead and where MRL is the expert say don't take the lead. That's why you get the best of both coming together. And that's why it's so important that you have a partner who philosophically agrees with your approach to business. And I think that's what we've gotten Chris Allison in mineral resources.
Okay, got it. Thank you.
Thank you. Our next question comes from Joel Jackson from BMO Capital Markets.
You talked about running various pricing scenarios in your analysis to get to the 45 percent EBITDA margin. I guess base case expectation for the project. Can you talk about what some of the margins were or what they look like in the Bear case scenario?
They were lower than 45.
And mineral resources, their original estimate for the hydroxide plant was about $1,200,000,000. Now the CapEx estimate looks like one 0.6 So can you talk about what change or what the delta there is? And when can we expect the capital outlay to occur?
Yes. So if you look at what they had, they had a design from a group that we thought what's going to be as efficient from an operating standpoint. We believe that we've learned as we've built these plants in China And as we look to the work that we've done at Kemerton, that's a more robust design and a more robust operating parameters. MRL get to that credit have done a great job, but they tell you the same thing. And they never built a lithium hydroxide plant.
That's why they got us. So, we think that it's more prudent that number 1.6 is closer to reality to what what we think is achievable after having built some. And so the capital would probably start in 2019 with the bulk in 2020 2021. Great. Thank
you.
Our next question comes from Arun Viswanathan from RBC Capital Markets. Your line is open.
Thanks. Good morning. Just a couple of questions. I guess first off, last call, you talked about delaying Lanegra
of 4 or
5 or something like 4 or 5. So should we characterize this 50,000 of new high of new capacity on the hydroxide side or is it just potentially replacing what you would have brought on anyway in Chile?
No, Chile was carbonate. This is a drop side. So you ought not view it that way. This is additive lithium hydroxide volume.
Right. Okay. And I guess, so is that expansion still possible later on down the road, if you evaluate that there's enough demand on the carbon side or is that now completely off the table?
No, it's always, it's always an option going forward.
Our next question comes from Mike Harrison from Seaport Global Securities. Your line is open.
Hi, good morning.
Hey, good morning.
Just wondering if you can clarify on the CapEx outlook over the next couple of years. I've leave you said $800,000,000 to $1,000,000,000 in CapEx. Just wondering, is that Is the CapEx associated with the Wajina project incremental to what you were going to be spending otherwise or does delay some of the spending that you were going to make otherwise. Just want to make sure I have the right numbers in the cash flow outlook.
Yes. So as Luke said in the prepared comments, our outlook over the next couple of years will remain in that $800,000,000 to $1,000,000,000 range. So this capital will be displacing other capital projects we mentioned that we would be pushing out the Cameron the final stages, the final phases of the Kemerton project. This obviously would push out the Kings Mountain Spending as 2 examples. So So it does displace and that $800,000,000 to $1,000,000,000 is our expectation is a total CapEx for the company.
Understood. Okay. Thanks for that. And then in terms of the buyback plans, you mentioned that you would sort of delay any additional repurchases until you get back to that 1 to 1.5 times leverage, will you still have some flexibility on that, or are you going to actually be suspending the authorization or anything like that. And the other component of that question is, did you execute on the other, $250,000,000, is, during the fourth quarter or was there a change there?
Yes. So we will not be suspending the authorization So that'll continue to be out there. However, just from a practical perspective, you should not expect us to be exercising that. Until we reduce our leverage. The second question around the second buyback that we had started in 2018.
And the answer is yes. We have executed that. That started in August. And I can say now that it has now been completed. So that contract has now been closed.
And so we have fully exercised that in total, we bought back just over 2,600,000 shares in that process.
Very much.
And our next question comes from Lawrence Alexander from Jefferies. Your line is open.
Good morning guys. This is Dan Rosal from Lawrence. How are you?
Great. Good. Thanks.
Okay. As you've dealt to evaluate different ore properties to invest in, and as the oral prop purity level deteriorates, does the expected cost structure move in a linear or non linear fashion?
Man, that's a great question. It's actually one would think it would move in linear, but it depends upon what the impurities are. And It could, it could be non linear. Yeah.
It depends on the purities, the strip ratio. There's multiple
questions that go into that. It's how do you operate the mine? So are you going cherry pick the mine or are you going to get a lower concentrate level. It's just a number of parameters that you have to go into. We've got internal expertise that we have this got years and years years of experience.
And we also use third parties. And what you have to do is The fact of the matter is you don't know what's in the ground that you pull it out of the ground. And you got to get in there and do it. So you've got to rely on the best expertise you can have and do a scenario planning around what if it's X, what if it's X minus, what if it's X Plus. And that's that's how we look at it.
But the cost as the purity levels go go down. As the size goes down, you'll see increased costs and that's one of the things we have to look at.
All right. Thank you. That's very helpful. And then second question, including the derivative units and ramp up costs, what will be the total investment to hit run rate economics?
Scott? Yes. So in total, we're expecting to have the buy into the joint venture. So that's 1,150,000,000 plus any final closing adds or subtracts that go normally. And then the second piece of that is the capital spending on the lithium hydroxide plant.
As we mentioned, that is expected to be around $1,600,000,000. So still some work to be done on that. Our half of that will be $800,000,000. So that puts you just under $2,000,000,000.
Thank you. Our next question comes from Josh Spector from UBS. Your line is open.
Yes. Hey, guys. Just another one on the CapEx costs. I guess So this cost for this project came in a little bit higher. I think than what I've expected on the past or at least what you guys have talked about as a rule of thumb of $10,000 to $15,000 per ton.
I'm curious between the different phases, I guess, phase 1, phase 2, what the numbers look like on those pieces? Does it come down with phase 2? And based on what you said earlier, what you're seeing with Kemerton, what do those numbers look like for phases 1 through 3 versus 4 through 5? Are they similar, lower, higher? What's the difference between the two?
Yes. So if you look, what's going to happen is you got to build a you got to have an infrastructure in place, okay. So at Kemerton, we got all the infrastructure in place. So the cost of the early trains are going to bear a heavier burden for that infrastructure. So you're going to see the permit on costs of the earlier trains higher than the subsequent trains.
Certainly we would expect that. And that could be some inflation in that, but on that kind of basis, that's what one would reasonably expect, correct? Then if you look at loads, what you would see is they already have some of the infrastructure there, but they also it is a very remote location So there's an increased cost of doing the capital there. I would assume, and we have assumed that the second trains the second 50,000 met tons would be at a lower capital intensity than the first because you can weigh that that first will bear the brunt of some of the infrastructure costs and some of the earth movement, etcetera, etcetera. That the second won't have because they'll already be there.
So you ought to see a capital intensity go down as you build subsequent lines both at Kemerton as well as Wodgene.
So I guess if I said phase 1 was like $18,000 a ton and phase 2 was $14,000 a ton, would I be way off or is that roughly the ranges to think about?
At Kemerton, that's a little that's a little low. But if you look at Wodgina and you look at the numbers, I couldn't argue with it. We but again, we have not sat down and done the final engineering package. These are all estimates. And as we get better numbers and more definitive numbers, we'll let people know.
Okay, great. Thanks.
Thank you. Our next question comes from Mike Sison from KeyBanc. Your line is open.
Guys, happy holidays. In terms of the lithium hydroxide production and startup by 2022, even the past been able to fill up prior to actually prior to production. So do you have plans to maybe put most of that in long term contracts before you start up? Or is there a demand for that potential?
Absolutely, particularly if we look at delaying the later ones at Kemerton. So you'd see a need where we would bring that online to meet the customer needs. Certainly not going to bring it online. If we don't have the demand for customers, remember, we've always said we wanted to be about 80% and we're still holding true to that. So this is consistent with the strategy.
No change to the strategy. Just a change of whether or not it's all at Kemerton or whether it's at Kings Mountain or whether it's on this joint venture. You should assume this would place under our long term agreements. And we like the way that face to the market. It was very, very, very important for us in the negotiation.
That we had to write in the market, this volume coming on the market under our long term agreements.
Great. And then I I think I recall that the deal is supposed to be accretive in year 1. Can you maybe walk us through some of the numbers there? How much spot you mean will you have to produce and And is there any volatility in spodumene concentrate pricing and maybe talk about the history there?
Yes. So, yes, so while it will be accretive in year 1, it'll be modest, I'd say a very modestly accretive for the 1st couple of years until that hydroxide plant comes on and then it starts to ramp up well there. We are using in our assumptions that there are some market based spodumene concentrate pricing that that has been projected out there. So we're just using market based pricing for that. So there is some potential upside depending on how that gets placed in the market and what kind of deals we end up doing.
So obviously there is some volatility in that pricing. So if there's some sort of a significant increase, then we'll see a different result.
Great. Thank you.
Our next question comes from Jim Sheehan from SunTrust. Your line is open.
Thanks. Luke, I think you made a remark that this JV would keep you on track to maintaining your global market share Why wouldn't this allow you to maybe expand market share?
Well, we're not looking to do that. But if you look at the way the growth is, we're just simply not going to be able to build out this and the project at Kemerton at full rates. And in order to grow market share. We need to build this out at the same time. We'll build in Kemerton out to 100,000 metric tons.
And from capital deployment standpoint, from a people standpoint, from all of that, it didn't make sense for us to try to do that and we won't. What we'll do though is we will bring these things online to meet the demand we have of our customers. And this will allow us in the 2023 to 2024 kind of timeframe to have the flexibility to go after even more volume as we look at where those negotiations are right now. We have more confidence that we'll be able to supply additional volumes in that 2020 five kind of timeframe than we previously had. And I think too it sends a message to the marketplace from a customer standpoint that if you're looking for significant volumes in lithium hydroxide, Albemarle is a partner of choice that you need to come talk to.
Great. And on your leverage targets, would you consider divesting some non lithium businesses and monetizing them in order to reduce leverage faster?
As long as it we could be convinced that created shareholder value, we would do that. I have you can look at my track record since I became in charge, we've not hesitated to pull the trigger on portfolio adjustments, where we believe we can create shareholder value. We talked to our board about our portfolio and potential adjustments that would create value on a regular basis and talked to our shareholders about that. So we certainly If there's an opportunity, they'll allow us to create shareholder value and allow us also to have the cash flow to to meet these, capital, organic capital growth opportunities and lithium, we'd certainly do that and we wouldn't hesitate.
Thank you.
Thank you. And our next question comes from Chris Kapsch from Loop Capital Markets. Your line is open.
Yes. Good morning. I had a couple of follow ups. 1, so, I guess the strategic impetus for this, this, investment should be more widely understood. Now I think everybody is starting to understand the shift of the battery market to hydroxide over carbonate.
So as you evaluated options, hard rock options as a way to expand your hydroxide production capacity, I'm curious about the process and why this one was preferred maybe versus other possibilities. Is there something about the resource itself in terms of scale or geology or impurity profile that gets you to where you think you need to be on the hydroxide cost curve Or is this just really merely a function of Wagina being actionable? Or maybe the answer is both?
Yeah. I was going to say answers both. 1, it's actionable. 2, we had significant discussions and we've been doing a lot of work and this was something that was on our list for a long period of time. We had done a good deal of work on it.
I had an opportunity to meet Chris Ellison, I think anytime you're doing a joint venture, you're doing a joint venture with a human, with a person. And I think to be able to talk to their leadership and them to get a chance to talk to our leadership to make sure it made sense from a culture standpoint that they were the kind of people, quite frankly, that they want to make money and they know how to make money. And so, that is you're always happy whenever there's an alignment of goals. So that was one. Secondly, it is size of this resource is an impressive resource.
It is a big resource to give you an idea at full rates at 100,000 metric tons on an LCE basis. If you go back to 2017, the entire market was roughly 220,000 metric tons of lithium. So this is a significant size of an asset with a mine life that we think upwards to 30 years. So again, it's not as good as Talison, but nothing in the world is. So this is a top quartile markets for the long term.
And it was actionable and it was owned by people who have a consistent thought process about how we operate in how we go about making money.
Would be 2x the cost of capital even the most conservative scenario. I'm just wondering if that scenario, I think you mentioned flat pricing, say, 18 to 25. Can you just talk about the evaluation of sensitivities around the possibility of down pricing? Is that something that was contemplated in your returns analysis?
Anytime we do an analysis on anything, we look at a number of permutations including the recession. And quite frankly, we don't know what's going to happen We haven't lived through a downturn in automotives and what that does with EV. So we've got to look at that. We look at all kind of scenarios and look, the worst scenario does not get you a 2 times your cost of capital. But in a very pessimistic ceremony, we still get our cost of okay?
So when you look at that, you look at the ability to get the return on the capital. You look at the ability to derisk our strategy And when you look at our ability and the lithium hydroxide that comes out of this joint venture under our philosophy of these long term agreements we thought it became a very, very attractive investment for Albemar and for the lithium industry at large.
That's helpful. Thanks.
Thank you. And that does conclude our question and answer session for today's conference. I'd now like to turn the conference back over to Dave Ryan for any closing remarks.
In participation today. And as always, we appreciate your interest and this concludes the call.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a wonderful