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"Investors in red hot Liontown Resources cooled their heels on Wednesday after the stock enjoyed a blistering run a day earlier on news that the company had rejected a hostile $5.5 billion takeover bid by US lithium giant Albemarle. After soaring almost 70 per cent to $2.57 at the close on Tuesday, shares in the Tim Goyder-chaired lithium mine developer swung only marginally in both directions during the session before finally settling up just 0.8 per cent at $2.59. That still leaves them above the $2.50-a-share offer lobbed by Albemarle on Monday. It marked the suitor’s third bid in five months and it came just weeks after the second proposal, on March 3, priced Liontown at $2.35 a share. That was up on the initial $2.20-a share offer proposed on October 20 last year. Liontown’s Kathleen Valley project under development about 680km north-east of Perth will be one of the world’s largest lithium mines and is expected to supply about 500,000 tonnes of spodumene concentrate a year to global markets. What the experts say ... Analysts Stuart Howe and James Williamson from Bell Potter agreed Liontown was right to thumb its nose at the bid, saying it “speaks to the quality of Kathleen Valley and the scarcity of growth opportunities in the sector”. They believe the offer also made only minimal allowance for Kathleen Valley’s downstream processing potential. It said Albemarle’s approach was reasonable but not full, with additional value to be argued from Liontown’s de-risking of Kathleen Valley and complementary ESG strategy and location. “The board’s rejection stems principally on value and the opportunistic timing of Albemarle’s approach,” they said. “Liontown’s board and management own around 19 per cent of shares, providing defence against scheme proposals. “Acquiring Liontown would deliver Albemarle (or any acquirer) a large, long-life bolt-on project with production ramping up from mid-2024, complementing its existing Australian mining operations and downstream lithium business.” They have a price target of “$2.81/sh” on the stock based on a conservative lithium price outlook of $US1300 a tonne. Citigroup analysts Kate McCutcheon and Alexander Papaioanou priced Liontown at $3 a share and said Albemarle’s offer “needs a bump” to bring the board to the negotiating table. They said in a note that Kathleen Valley represented a “unique, long-life project” in WA that could ramp up production more quickly if held by a company with a larger balance sheet. Analysts at Barrenjoey lifted their target price to match Albemarle’s offer and said the bid implies a spodumene price of $US1650 atonne — well below the current Platts spot price of $US4750/t. “Despite near-term lithium price concerns, the offer highlights the power of owning the rock in the ground. We lift our price target to $2.50 in line with the offer ... but we maintain a neutral rating due to the asymmetric risks to the share price should Albemarle’s bid be withdrawn,” they said. UBS considers the offer full. “On planned spodumene production, Albemarle’s current offer appears to reflect a $1.3b premium to a potential greenfield development cost,” their analysts wrote in a note. “This premium could also reflect utility/infrastructure investments made to support eventual lithium hydroxide facilities (or value of off-take contracts).” Analysts at Canaccord Genuity agreed the offer was opportunistic “given the recent equity pullback experienced by the sector as lithium pricing eased”. “Albemarle stated that it is ‘prepared to engage immediately in discussions with Liontown to work toward a mutually acceptable agreement’, and Albemarle’s recent on-market purchases (up to 5 per cent) of stock suggest it is committed to pursuing a potential transaction, and may return with a higher bid,” they said in a note. “We believe management confidence in rejecting the offer likely implies a solution to the capex/working capital shortfall [for Kathleen Valley] is close to being resolved.” They also said the offer could signal the US giant’s confidence in sustained high prices for lithium. “It may also impact lithium markets as consumers think about the loss of an independent lithium producer and become concerned around project timelines. If this were the case, it may provide some support to pricing,” they said. RBC Capital believes Albemarle’s shares will trade flat in the US on Liontown’s rejection. “We think investors initially may not look favourably on another attempt to take out Liontown at an increased offer price, given the decline in lithium prices this year,” their analysts said. “... some investors may be thinking earlier stage projects such as Liontown could be available at lower prices later in the year.”
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