Now lets's review this article that was back in March 13, my comments in BOLD.
Liontown buys time for lithium resurgence with shrunken debt dealLess money, fewer banks and a lot less time. Liontown’s new debt deal is very different, but it buys the lithium miner time to start up its new mine and pray for better prices.
Updated Mar 13, 2024 – 3.21pm,first published at 11.03am
At first glance, the contrast between Liontown Resources’ new debt deal and the one it thought it had in the bag last October speaks volumes about the declining fortunes of the Australian lithium market.
The debt deal agreed in October following the collapse
of a $6.6 billion takeover bid for Liontown by US giant Albemarle, was worth $760 million and stretched for at least seven years.
The new deal, announced on Wednesday, is worth $550 million and matures in October 2025, meaning Liontown chief executive Tony Ottaviano will likely be tapping on the door of his lending syndicate by the end of this calendar year.
[
A shortened debt package which requires re-financing again in June 2025 may be tough if the global economy softens or goes into recession, and/or lithium price moves south from here]Speaking of that lending syndicate, the old deal included no less than six commercial banks: ANZ, Commonwealth Bank, HSBC, National Australia Bank, Westpac and Societe Generale.
Just three have signed on to the new agreement: CBA, NAB and Societe Generale. Crucially, government agencies Export Finance Australia and the Clean Energy Finance Corporation have also stuck around.
[
Societe General is in sh*tstreet now with all that is happening in France, this would be the last on its mind or wanting to have an interest]
The last debt deal arrived with bells and whistles, including a facility to cover working capital and cost overruns. The new deal is a plain vanilla package, more like what you see in base metals than in lithium.
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Crucial in the new deal is the repayment of Ford's $300mil, we don't know how soon that has to be repaid. We didn't even know earlier that it was for a short term only]
Still, as low prices heap pain on the lithium sector – with Core Lithium the latest example,
losing both $168 million and its chief executive in a single day on Tuesday – the view inside Liontown is that a vanilla deal is just fine, thanks very much. And investors seem to agree, with the stock up strongly on Wednesday.
[
With all that happening on the LKE front and CAI, it is not assuring for the lenders right now. And they have shown themselves as being capable of being brutal. This is an opportunity for them to back off before the first drawdown, and a 1 year interest on the loan is hardly enticing nor material for them to risk their capital - $550m @ say 8% if they charge that much is just $44mil , chump change]Even a reduced debt deal proves that the company’s Kathleen Valley project in Western Australia retains the support of the market, even in an environment where the lithium price has plunged from $US7000 a tonne for spodumene, to about $U900 a tonne.
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SC6 is now at $1050 spot price, nowhere near where it is necessary to generate sufficient cashflows to address loan covenant needs, and brokers have indicated that lithium price would stay low for until 2028, the loan is to be repaid in one bullet payment in Q3 2025]
The miner has not been required to sign some sort of joint venture or offtake agreement to secure funding, which may have crippled its flexibility down the track.
[
Isn't agreement with Tesla/Ford/LG binding offtake agreement - what is it precisely? ]
And crucially, Liontown has not been forced to go cap in hand to shareholders –
including its biggest investor, Gina Rinehart’s Hancock Prospecting – with a discounted equity raising.
Ottaviano is proving adept at funding scrambles, having stitched together an equity and debt package to fund his Kathleen Valley lithium project in October, and then scrambled again for the revised debt deal announced on Wednesday, after the huge fall in lithium prices gave members of the original lending syndicate
an escape clause.[
Don't speak too soon, I believe that this is coming because I can't see the lenders allowing full drawdown without shareholders sharing some risk, and I think the delay in an announcement each day is giving credence to the probability of a discounted CR in the works. When it is announced, it would be a big blow to the share price. We're still seeing LT investors averaging up, rather than reserving ammo for that likely discounted CR if it gets to that. So lenders have an escape clause, of course they do, we should know how conservative they are and here we're talking about half a billion dollars of loan ]
While he won’t relish the prospect of going back to the negotiating table for a new debt deal within a year, Ottaviano had little incentive to stitch together a longer-date debt package.
He’ll be hoping that within a year, his hand is much stronger.
[
Unfortunately the timing has been terrible for Tony, because lithium price sagged just about the time he needs to make the drawdown and his share price has been beaten up that a capital raise is also just about at the wrong time. YET they need the $$ over the next month or two and they're running out of time. Gina would be ready with her war chest but management will have to pay a price for her 'rescue' and she would have an opportunity to average down her buying price]Kathleen Valley’s 3 million tonne mine will be in production, giving investors more confidence in the quality of Liontown’s model. The debt deal also buys time for Ottaviano to complete the strategic review of Kathleen Valley, which should be presented to the lending syndicate by the end of June.
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The long awaited review is yet to be announced. Shareholders are on the edge as the FY end has now gone]
That will help determine whether Liontown pushes ahead with the mine’s eventual 4 million-tonne-per-year expansion, scales it back in some way, or puts it on ice completely.
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Expansion won't happen, at least not in 2025, they would have to generate enough cashflows first]Ottaviano will also hope his next debt deal is negotiated against a backdrop of improved lithium prices as supply drops out of the market.
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When the article was written, there was some hope of a price recovery, not any more]
That appears to be happening. Morgan Stanley says about 6 per cent of global production has been removed from the market since the start of 2024 by either deliberate production cuts or delays, and demand from Chinese electric vehicle makers is holding up.
“The market is likely still in a surplus for 2024 on our estimates, but if current supply cuts persist and more supply cuts continue to come through, we could be closer to finding a floor,” says the bank’s strategist, Amy Gower.
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Two months is a long time in determining a forecast. The banks are not relying on what others are saying, their own in-house research is indicating no recovery for >1 year, so the $550m loan package would likely be back on the drawing board or could be not approved in whole or in part]
