Good day, ladies and gentlemen, welcome to the Albemarle Wodgina Joint Venture update. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, instructions will be given at that time. If anyone should require assistance during the conference, please press star then zero on your touchtone telephone. 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. 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 Wodgina Hard Rock Lithium Project. Please note that prior to this call, we published an investor deck and link 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 Wodgina 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, good morning, everybody. I'm pleased to announce that we've entered into definitive agreements with Mineral Resources and expect to close the transaction during the H2 of 2019. When fully operational, this joint venture is expected to produce enough spodumene concentrate to feed 100,000 metric ton LCE 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's expertise in the production and marketing of lithium. It is also consistent with our plan of pursuing M&A opportunities that can accelerate or de-risk our strategy. This deal has a number of key value drivers for our shareholders and our customers. This deal appoints Albemarle as the exclusive marketer 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 channel to market for this capacity addition. As announced in the November earnings call, 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. That volume under negotiation continues to grow. Once the hydroxide plant is operational, we expect to be able to place this volume under our long-term agreements. Until such time as the hydroxide plant is operational, 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 Talison from a hard rock standpoint. As a result, we expect adjusted EBITDA margins from those operations to be in the range of approximately 45% once the lithium hydroxide plant is fully operational. As a result, we are expecting a return on investment for Albemarle that meets our goal of approximately 2x our cost of capital. With an acquisition price of $1.15 billion, we estimate our 2019 net debt to adjusted EBITDA to end around 2.2x and expect it to decline going forward. We will limit significant M&A and share buybacks until the debt ratio is back in the 1.0- 1.5 range.
We will also evaluate the priority and timing of other planned investments to keep the annual capital expenditures in the $800 million-$1 billion range over the next few years. We are committed to moving forward with the first production lines at Kemerton as planned. After completing the lithium hydroxide investment at Wodgina, based on market conditions, we will make a decision on additional production lines at Kemerton. 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. This joint venture fits directly with that strategy.
Operator, we are now ready to open the lines for Q&A. Before doing so, I'd like to remind everyone to please limit questions to two per person to ensure that all participants have a chance to ask questions. Feel free to get back in the queue for follow-ups if time allows. Please proceed.
Thank you. Ladies and gentlemen, if you have a question at this time, please press the star followed by the number one key on your touch-tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Once again, to ask a question, please press star and then one. 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? How much of that, did that play a role in your decision as compared to maybe regional diversification, with this Mineral Resources JV?
As we've talked about in the past, it all depends upon the concentration of lithium in the product. If you look at, in the Salar de Atacama, you go from brine directly to carbonate, then carbonate directly to hydroxide. That's what Albemarle, SQM, and Livent do 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 or better than any other lithium hydroxide producer in the world because of the concentration. This probably doesn't have as good of a cost position as Talison, it would be next in class, it would be very cost competitive on a global scale with any other of the producers out there. It would be on the left side of that cost curve.
Obviously, anytime you can get a quality resource, with a quality partner, be on the low end of the cost curve and still provide additional geographic diversity, give you that additional capacity to service your customers, all of that figured into our decision on this transaction.
Got it. Thank you. I guess on the back of that, obviously, this is a large resource, but when you're doing a 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.
Okay.
We had significant due diligence, from third- parties, experts, we are very confident in our ability to monetize these assets.
All right. Thank you.
Thank you. Our next question comes from Ian Bennett from Bank of America Merrill Lynch. Your line is open.
Hi. Thank you. Good morning. Luke, you made some comments about this project meeting a 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 assuming for the long or medium-term lithium price in the market, and how you're coming to that conclusion?
Yeah. 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. We didn't make any assumptions related to significant increases of price thereafter. 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. We looked 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. In our most practical situation that we see, we are 2x our cost of capital.
Yeah. 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. On the lithium hydroxide plant, you have a slide here highlighting that you use Albemarle technology, and I'm not sure to what extent some of 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?
Yeah. That plant had not begun construction yet. I'm sorry. No.
Go ahead, Luke. Yeah. Okay.
He's asking about Wodgina.
All right.
The one at Wodgina had not begun construction yet, it will have no issue from a timing standpoint. That you can see on the presentation, we said around 2022. That really comes to a point of when are we going to be able to close, and all of that. It will have no view on the timing of the Wodgina lithium hydroxide plant.
Thank you very much.
Thank you. Our next question comes from David Begleiter from Deutsche Bank. Your line is open.
Thank you. Good morning.
Hey, man.
Luke, on the spodumene, how much will you toll yourself and how much will you sell, whom do you think you'll sell it to during the intervening two years prior?
Yeah. We don't know. I don't have a good number on that yet, a good breakdown on that. They haven't started producing spodumene rock yet from that site. They expect to be able to do it toward the end of the Q1 of 2019. We remain confident that that'll be the case. We are in the process. Obviously, we couldn't talk too much about this till after it became public, we're in the process right now of lining up additional tollers to see how we could do that, also talking to some strategic accounts that would be able to enter into agreements rather than on the spot. We'll take an approach similar to what we have with lithium hydroxide to try to sell this. We believe that that is the most prudent course to take.
Right now, David, I don't have a breakdown to give you.
Got it. Last thing, do you foresee any either marketing or operating synergies with Kemerton and/or Greenbushes and Wodgina?
Yeah. Not Greenbushes, obviously with regard to Kemerton, we see a lot of synergies. We're not going to have to add a whole lot of salespeople because we already have the salespeople. 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. Any incremental cost that we have to add, that'll 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.
If there's an issue at 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 air ship them wherever we need to in order to ensure that we're able to operate. 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 our other sites around the globe in bromine and in FCC catalysts. We'll be able to improve the yield. Once we improve the yield in one of those sites, we'll be able to share that learning across the other two sites.
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 Aleksey Yefremov from Nomura Instinet. Your line is open.
Thank you. Good morning, everyone. Luke, can we infer from this acquisition anything about the prospects of a Talison expansion? You're working on one right now, the following expansion after that, is it more or less likely because of this?
No. We assumed that that was going to be expanded when we looked at this deal. I think what you can assume is that you'll see our other projects that we've talked about in wave three, Kings Mountain, Antofalla, things like that. You'll certainly see a slowdown in 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 Wodgina assets.
Just to follow- up on the sequence, I think you had mentioned that after completing Kemerton phase I and II, you'd proceed with Wodgina hydroxide, then you would decide on additional Kemerton expansion. Is that correct? If so, why is there not a preference to just build out Kemerton since it's 100% owned?
Well, if you look at it, part of it was negotiation. When we looked at it 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. We'll be paying 50% 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. 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. It de-risks our strategy, and we still have other world-class assets to be able to build out subsequent to that to meet the ever-growing demand that we see from the EV markets.
Thank you very much.
Thank you. Our next question comes from Kevin McCarthy from Vertical Research. Your line is open.
Yes. Good morning.
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?
Kevin, it's part of the overall deal. Any improvements to that technology are 100% owned by Albemarle. In addition to that, the overall structure of this joint venture, which we put, I think it's on page six of our presentation that we put out. The one thing is we're going to share the benefits and the risks from this on a 50/50 basis. There are going to be some fees provided by MRL. There are going to be some services provided by both of us, and both of us will get some fees for those. At the end of the day, it's going to be treated as a 50/50 joint venture from an economic standpoint. If that makes sense, Kevin.
It does. Thanks for that. The second question, how do you expect to account for this new joint venture? Do you have line of sight into whether it would be consolidated or equity method?
Yeah, Kevin, this is Scott. We will consolidate our 50% into our both balance sheet as well as P&L. Mineral Resources will do the same. 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 with Stage 2 to meet some of the evolving needs of your customers as they change battery designs going forward?
I think one of the things that we've seen here is, as we talked about, we've seen a movement towards lithium hydroxide. 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 stairstep the capital that we will spend, so that in the future, if we see a movement to another product, whether it's 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, it still, if it goes from all the way away from lithium hydroxide, there's going to be additional capital that will need to be put into place in order to address that change in molecule.
Great. Just in terms of the contract and your expectations around it, given the redundancy that you're talking about and the flexibility with the portfolio, how 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?
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 hydroxide. 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 carbonate at low cost at the low end of the cost curve and a hydroxide at the low end of the 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.
Colin, this is Eric. Let me add that the feedback, it's very early, obviously. The feedback we've had from our customers is one of excitement and anticipation because they're seeing now a resource which was coming to the market now being a part of the Albemarle portfolio, part of the Albemarle marketing engine, part of the Albemarle technology from a hydroxide standpoint. It's a qualified product with them gives them comfort. They know that we've got the demand now to meet their growing needs, which we described as quite significant in the last earnings call.
Okay. Thanks, guys.
Thank you. Our next question comes from Sebastian Bray from Berenberg. Your line is open.
Good morning. Thank you for taking my questions. I would have two, please. I just wanted to get some color on your expectations for the delevering of Albemarle post-acquisition. Am I right in saying if you're going to move from 2.2x net debt to EBITDA in 2019 to 1x- 1.5x by 2021 and 2022, are you basically expecting the rest of your lithium assets to turn cash positive in 2020? Unless there's massive growth in EBITDA, I find it a bit difficult to get there. The second question is on the 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 seems to be becoming relatively less attractive, and those around hydroxide, given that Bolivia seemingly has some of the largest lithium resources in the world? Thank you.
I'm going to let Scott take the deleveraging question first, and then I'll address the second one.
Sebastian. As we look at the deleveraging, obviously, with the outlay of the $1.15 billion, probably in the H2 of 2019, we'll end up around 2.2x 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 1x- 1.5x . There is not necessarily a significant amount of prepayables in that required to get there. Our core assets continue to perform well from an earnings perspective. Obviously, from a cash flow perspective, we do not anticipate having to take on 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- 12 years to be able to get to the point that they're today where they're producing a quality battery-grade spec. Bolivia's never had an infrastructure in place related to this lithium hydroxide. I would tell you, I think that it is not a 2019 or even a 2025 issue. Well past that. 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. 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've 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. We've looked at the highs and the lows of that, still get a great return on it. I'll let Eric address some of the questions about other supply-demand. Eric?
This is Eric. With regards to, I believe your question was more specific to carbonate, and 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. 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. I think as we look at our pricing, recall it's all under a contract. It's at 2018 levels as a floor. We don't have any concerns about that. There's gyrations that might happen in China and a small portion of the market that's traded in spot that's just not relevant to the contracts we have or the customers we serve.
As such, we feel very confident about, and our customers are very much looking forward to the additional capacity we'll bring on with La Negra III and IV in the coming 12-18 months.
Great. Thank you.
Thank you. Our next question comes from P.J. Juvekar from Citi. Your line is open.
Hi, this is Scott. I'm for P.J. Thanks for taking my question. My first question is just how will you go about selling the spodumene while you're constructing the lithium hydroxide conversion plant? Will it be similar to the long-term contract structure that you sell your lithium compounds on? Are you also pursuing a price to kind of achieve your hurdle rate of 2x cost capital?
Yeah, I think the answer to that is we're going to look at selling it in a similar fashion. Who are those that are willing to commit to a length of 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, and we'll look to ensure that we're able to put it at a price that makes sense from a return standpoint. The answer to both of those is yes.
Okay. Thank you. 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 Albemarle involved on the management committee that will oversee that special purpose company?
As a 50-50 joint venture, we haven't gotten all those details, but we're going to obviously be involved in the governance and all major decisions. Where we're the experts, we're going to take the lead, and where MRL's the expert, they're going to 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. I think that's what we've got in Chris Ellison in Mineral Resources.
Okay, got it. Thank you.
Thank you. Our next question comes from Joel Jackson from BMO Capital Markets. Your line is open.
Hi, this is Robin on for Joel. Thanks for taking my questions. You talked about running various pricing scenarios in your analysis to get to the 45% 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.
Mineral Resources, their original estimate for the hydroxide plant was about $1.2 billion. Now the CapEx estimate looks like $1.6 billion. Can you talk about what changed or what the delta there is? When can we expect the capital outlay to occur? Thanks.
Yeah. If you look at what they had, they had a design from a group that we thought wasn't 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, give to their credit, have done a great job, but they'd tell you the same thing. They never built a lithium hydroxide plant, that's why they got us. We think that it's more prudent. That number, $1.6 billion, is closer to reality to what we think is achievable after having built some. The capital would probably start in 2019 with the bulk in 2020 and 2021.
Great. Thank you.
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 La Negra III and IV. Should we characterize this 50,000 of new capacity on the hydroxide side, or is it just potentially replacing what you would have brought on anyway in July?
No, Chile was carbonate. This is the hydroxide. You ought not view it that way. This is additive lithium hydroxide volume.
Right. Okay. I guess, is that expansion still possible later on down the road if you evaluate that there's enough demand on the carbonate side, or is that now completely off the table?
No, it's always an option going forward.
Okay, thanks.
Thank you. 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 believe you said $800 million- $1 billion in CapEx. Just wondering, is the CapEx associated with the Wodgina project incremental to what you were going to be spending otherwise, or does it 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.
Yeah.
Yeah. As Luke said in the prepared comments, our outlook over the next couple of years will remain in that $800 million- $1 billion range. This capital will be displacing other capital projects. We mentioned that we would be pushing out the final stages, the final phases of the Kemerton project. This obviously would push out the Kings Mountain spending as two examples. It does displace, and that $800 million- $1 billion is our expectations of total CapEx for the company.
Understood. Okay. Thank you for that. In terms of the buyback plans, you mentioned that you would sort of delay any additional repurchases until you get back to that 1x- 1.5x Leverage. Will you still have some flexibility on that? Are you going to actually be suspending the authorization or anything like that? The other component of that question is, did you execute on the second $250 million accelerated share repurchase during the Q4 , or was there a change there?
Yeah. We will not be suspending the authorization. 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, the answer is yes, we have executed that. That started in August, I can say now that it has now been completed. That contract has now been closed. We have fully exercised that. In total, we bought back just over 2.6 million shares in that process.
All right. Thanks very much.
Thank you. Our next question comes from Laurence Alexander from Jefferies. Your line is open.
Good morning, guys. This is Dan Rozon from Laurence. How are you?
Great.
Good. Thanks.
Okay. As you evaluate different ore properties to invest in, as the ore 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. It could be non-linear easily.
Yeah. It depends on the impurities, the strip ratio.
There's multiple questions that go into that. It's how do you operate the mine? Are you going to 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 that's got years and years of experience. We also use third parties. What you have to do is, the fact of the matter is you don't know what's in the ground till you pull it out of the ground. You got to get in there and do it. 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- , what if it's X+ . That's how we look at it.
The cost as the purity levels go down, as the size goes down, you'll see increased cost, that's one of the things we have to look at.
All right. Thank you. That's very helpful. Second question, including the derivative units and ramp-up costs, what will be the total investment to hit run rate economics?
Scott?
Yeah. In total, we're expecting to have the buy-in to the joint venture, that's $1.15 billion, plus any final closing adds or subtracts that go normally. The second piece to that is the capital spending on the lithium hydroxide plant. As we mentioned, that is expected to be around $1.6 billion, still some work to be done on that. Our half of that will be $800 million. That puts you just under $2 billion.
All right. Thank you very much.
Thank you. Our next question comes from Joshua Spector from UBS. Your line is open.
Hey, guys. Just another one on the CapEx cost, I guess. 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- $15,000 per ton. I'm curious between the different phases, I guess phase I, phase II, what the numbers look like on those pieces. Does it come down with phase II? Based on what you said earlier and what you're seeing with Kemerton, what do those numbers look like for phases I through III versus IV through V? Are they similar, lower, higher? What's the difference between the two?
If you look, what's going to happen is you got to have an infrastructure in place. Okay? At Kemerton, we've got to put all the infrastructure in place, the cost of the early trains are going to bear a heavier burden for that infrastructure. You're going to see the permitting costs of the earlier trains higher than the subsequent trains. Certainly, we would expect that. Now there could be some inflation in that, but on that kind of basis, that's what one would reasonably expect. Correct? If you look at Wodgina, what you would see is they already have some of the infrastructure there, but it is a very remote location, there's an increased cost of doing the capital there.
I would assume, 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 lay that first or bear the brunt of some of the infrastructure costs and some of the earth movement, et cetera, that the second won't have because it'll already be there. You ought to see a capital intensity go down as you build subsequent lines, both at Kemerton as well as Wodgina.
I guess if I said phase I was like $18,000 a ton and phase II 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 low. If you look at Wodgina and you look at the numbers, I couldn't argue with you. Again, we have not sat down and done the final engineering package. These are all estimates, 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 Capital Markets. Your line is open.
Hey, guys. Happy holidays.
Hey, you too.
In terms of the lithium hydroxide production and startup by 2022, you've in the past been able to fill up prior to production. Do you have plans to maybe put most of that in long-term contracts before you start up? Is there a demand for that potentially?
Oh, absolutely. Particularly if we look at delaying the later ones at Kemerton. You'd see a need where we would bring that online to meet the customer needs. We're certainly not going to bring it online if we don't have the demand for customers. Remember, we've always said we want to be about 80%, and we're still holding true to that. 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 important for us in the negotiation, that we had to ride the market, this volume coming on the market under our long-term agreements.
Great. I think I recall that the deal's supposed to be accretive in year one. Can you maybe walk us through some of the numbers there? How much spodumene will you have to produce? Is there any volatility in spodumene concentrate pricing? Maybe talk about the history there?
Yeah. While it will be accretive in year one, it'll be modest. I would say very modestly accretive for the first 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 has been projected out there. We're just using market-based pricing for that. There is some potential upside depending on how that gets placed in the market and what kind of deals we end up doing. Obviously there is some volatility in that pricing. If there's some sort of a significant increase, then we'll see a different result.
Great. Thank you.
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, 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. In order to grow market share, we need to build this out at the same time we're building Kemerton out to 100,000 metric tons. From a capital deployment standpoint, from a people standpoint, from all of that, it doesn'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. This will allow us in the 2023- 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'll have more confidence that we'll be able to supply additional volumes in that 2025 kind of timeframe than we previously had. 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. On your leverage targets, would you consider divesting some non-lithium businesses and monetizing them in order to reduce leverage faster?
As long as we could be convinced that it created shareholder value, we would do that. 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 talk to our board about our portfolio and potential adjustments that would create value on a regular basis, and talk to our shareholders about that. We certainly, if there's an opportunity that allow us to create shareholder value and allow us also to have the cash flow to meet these organic capital growth opportunities in lithium, we'd certainly do that, and we wouldn't hesitate.
Thank you.
Thank you. Our next question comes from Chris Kapsch from Loop Capital Markets. Your line is open.
Yeah, good morning. I had a couple follow-ups. One, I guess the strategic impetus for this investment should be more widely understood now. I think everybody's starting to understand this shift of the battery market to hydroxide over carbonate. As you evaluate 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 Wodgina being actionable? Or maybe the answer is both.
Yeah, I was going to say the answer is both. One, it's actionable. Two, we had significant discussions, we've been doing a lot of work, 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. 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. You're always happy whenever there's an alignment of goals. That was one.
Secondly, the 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. This is a significant size of an asset with a mine life that we think upwards to 30 years. Again, it's not as good as Talison, but nothing in the world is. This is a top quartile asset from a quality standpoint, from a cost position standpoint, from a size standpoint, and for the ability to service this market for the long term. It was actionable, it was owned by people who have a consistent thought process about how we operate and how we go about making money.
Okay. That's helpful. Thanks. I think you said that the return on this investment would be 2x the cost of capital, even in the most conservative scenario. I'm just wondering if that scenario, I think you mentioned flat pricing, say $18-$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 a recession. 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 EVs. We've got to look at that. We look at all kind of scenarios. Look, the worst scenario does not get you a 2x your cost of capital. But in a very pessimistic scenario, we still get our cost of capital, okay.
When you look at that, you look at the ability to get a return on the capital, you look at the ability to de-risk our strategy, and when you look at our ability to market 100% of the spodumene concentrate 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 attractive investment for Albemarle and for the lithium industry at large.
That's helpful. Thanks.
Thank you. 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.
Okay. We'd just like to thank everyone for your questions and participation today. As always, we appreciate your interest. This concludes the call.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect. Everyone have a wonderful day.