‘Liondown’ as inflationary pressures hit lithium’s rising star
Peter KerResources reporterNov 11, 2021 – 4.37pmAustralia’s next big lithium mine will cost 45 per cent more than previously expected because of inflationary pressures in the resources sector, but the proponent Liontown Resources said the $473 million spend would deliver a bigger project that was producing sooner to take advantage of an earlier lithium shortage.
An option to build a $1.5 billion refinery to make battery-grade lithium at the same Western Australian site will also cost 37 per cent more than was expected last year, and concerns over how the pre-revenue company would fund its $2 billion plans triggered a 12 per cent share price slump on Thursday.
Liontown shares had risen 27-fold over the 20 months prior to Thursday’s feasibility study amid surging enthusiasm for lithium’s role in powering electric vehicles, and the former BHP vice-president in charge of the company, Tony Ottaviano, said Thursday’s sell-down would prove to be a “short-term blip”.
Demand for lithium to produce electric vehicle batteries has seen the value of lithium producers such as Liontown skyrocket.
The sell-down was a sober end to an extraordinary week for Liontown chairman Tim Goyder, who briefly became a paper billionaire on Wednesday after the value of his other major company Chalice Mining rocketed after publishing full details of its mineral discovery near Perth.
Liontown expects to be producing lithium-rich spodumene concentrate at Western Australia’s Kathleen Valley before June 2024 and, based on the larger model adopted on Thursday, will own Australia’s third-biggest lithium mine, capable of producing 511,000 tonnes of concentrate per year.
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Mr Ottaviano said mainstream banks were now more willing to lend to lithium projects than they were between 2015 and 2020, when the first wave of Australian lithium miners had to rely on customer pre-payments and equity to build their projects.
“We have seen a completely different dynamic today. The traditional project financiers are much more developed in their thinking around lithium projects, so we are seeing very strong interest from a number of tier one domestic and international banks,” he said.
“We are constantly engaging with them now, we have got indicative term sheets ... so the debt element seems very compelling at the moment.
“We have got the equity option and the markets are strong at the moment, but we have also got alternative options, customer prepayments, streaming opportunities, green loans, there is flexibility and optionality on the funding side.”
The period of time between outlining the scope of a project – as Liontown did on Thursday – and securing funds for construction has historically proved difficult for pre-revenue, single-asset companies developing what appears to be a major resources project.
Companies such as graphite miner Syrah Resources and lithium upstarts Pilbara Minerals, Galaxy Resources and Orocobre all had their market darling status reversed in the period between 2017 and 2020 as they tried to fund and establish their large battery minerals projects.
The need to conduct dilutive equity raisings made those companies lucrative targets for short-sellers between 2017 and 2020.
“I think where listed equity markets get a lot harder are really that mid-cap level where you have got a world-class project which needs hundreds of millions of dollars of funding,” veteran resources industry banker Richard Phillips said during a speech in 2019.
Liontown may also seek to sell a stake in the Kathleen Valley project to help fund it, but Mr Goyder struck a defiant note on Thursday, saying shareholders like him were not focused on simply selling their interests and instead wanted to create “another Fortescue”.
Mr Goyder owns just over 17 per cent of Liontown.
Peter Ker covers resource companies, based in Melbourne. Connect with Peter on Twitter. Email Peter at pker@copyright link
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