Liontown Resources (LTR AU) - Macquarie Australia Conference...

Liontown Resources (LTR AU) - Macquarie Australia Conference 2022: Key take-aways04 May 2022

Recommendation: Outperform Price target A$2.50 12-month TSR+77.3%

Key points
LTR is set to secure one more offtake partner for the Stage 1 production from Kathleen Valley before a Final Investment Decision.The company plans to adopt the underground mining method at Kathleen Valley to target higher grade ores with a smaller footprintStage 1 Kathleen Valley will deliver spodumene capacity of 500ktpa with first production scheduled for the 2HFY24. EventTony Ottaviano, Managing Director and CEO of Liontown Resources, presented at the Macquarie Australia Conference.ImpactOne more spodumene offtake agreement expected: Over the past six months, LTR has secured key offtake agreements with Tesla and LG Energy Solutions. LTR signed the final full form agreement with LG Energy Solutions early this week. We anticipate a detailed definitive agreement with Tesla by the end of May 2022. LTR has commented that it is negotiating another offtake agreement which would take total offtake volumes to ~85% of the forecast production from Stage 1 of Kathleen Valley. Kathleen Valley FID imminent: Work on the Kathleen Valley project is progressing with a Final Investment Decision expected in 4QFY22. According to LTR’s timeline, detailed engineering work has already commenced. Project construction completion is expected in 4QCY23 and production targeted in 2QCY24.An underground miner with ESG consideration: LTR plans to adopt the underground mining method at Kathleen Valley to target higher grade ores with a smaller footprint (vs. open cut). The operation is also targeting ~60% renewable energy at the start of the KV operation with higher renewable penetration over the longer term.Earnings and target price revisionNo change.

Price catalyst· 12-month price target: A$2.50 based on a Sum-of-the-parts NPV methodology.Catalyst: Updates on the progress of Kathleen Valley and further offtake agreements present key near-term catalysts for LTR.Action and recommendationMaintain Outperform: LTR is set to secure one more offtake partner for the Stage 1 production from Kathleen Valley before the Final Investment Decision is made in 4QFY22. The company is well funded to bring Stage 1 into production with A$466m in cash at the end of March. First production from Kathleen Valley is expected to occur in early FY25, ramping up to 500ktpa by FY26. Work on the Downstream Pre-Feasibility, that is assessing an integrated Hydroxide refinery, is ongoing