- Liontown Resources (ASX:LTR) shares have sunk 25 per cent in the first hour of trade this morning
- The company is scrapping its Kathleen Valley expansion
- Liontown is ‘confident’ in the lithium market forecast to stay suppressed until 2028
- The company has had to downsize a key debt facility and now owes it to Ford to build a lithium project
- Low commodity prices have claimed several scalps on the ASX in January alone
- Shares last traded at 90 cents
Liontown Resources (ASX:LTR) shares were sinking in the first hour of trade this morning as low lithium prices claimed another scalp.
The company reported it can still produce lithium this year, but, it’s going to be a more humble operation. Assuming it can be done at all.
It now appears the company is going to ditch its expansion plans at Kathleen Valley.
A $760 million debt facility planned back in October has also been scrapped in preference of a smaller instrument.
Unpanicked language red flag
“The recent material decline in spodumene prices has triggered significant reductions in short and medium-term lithium price forecasts,” the company wrote.
That’s one way of putting it. You could also point out that prices have dropped more than 80 per cent over the last year.
“As a result, the company has commenced a review of the planned expansion and associated ramp-up of Kathleen Valley,” Liontown reported.
A critic may want to point out that they’re only conducting a “review”, and not saying outright they’ll scrap the plans.
That’s true. But Liontown has also announced, in the same sentence, the review’s aim is to “preserve capital”. The best way to do that is by not spending it.
Commodity strife
Liontown also wants to examine options to defer a previously announced four million tonne per year underground mining development, though, says it will push on with its 3Mtpa design.
Whether or not it actually does this remains to be seen and will be hotly watched. We’ve seen a number of projects shut down in Australia in the first month of the year alone, due to weak commodity prices.
Right now, the only real goer is uranium.
Iron ore appears to be correcting in price after irrationally high bets, which I wrote about last week. Gold continues to battle with perceptions of war, and its forever rival, government bonds. Yields are on the way back up.
None of this is to say the Rinehart-backed Liontown can’t do what it says it – namely, add its name to the long list of Australian lithium producers now battling at the bottom of the cycle in a very crowded market.
Liontown remains confident
The company has around half a billion in cash as of late December and has drawn the $300 million from Ford, which will combine to fund construction work through to 2H CY24.
“Liontown remains confident in the long-term outlook of the lithium market,” the company wrote.
To counter that, it’s worth noting Benchmark Minerals Intelligence (BMI) doesn’t expect lithium prices to go on another bull run until 2028.
Shares last traded at 90 cents.