It was our sexiest lithium stock. Now it’s having major surgery
Liontown Resources has opted for a small-target strategy to try and survive lithium’s nuclear winter.
Nov 11, 2024 – 3.20pm
A week can be a long time in politics. In mining, a year can be an eternity.
Just ask Tony Ottaviano, the chief executive and talisman of lithium miner Liontown Resources.
Thirteen months ago, Liontown was the sexiest lithium stock on the ASX, and arguably in the world. US giant Albemarle had a $6.6 billion bid on the table for the group. Australia’s richest person, Gina Rinehart, was building a stake that would eventually get to just under 20 per cent. The company’s chairman, Tim Goyder, and his loyal band of fellow investors, were on the cusp of an epic payday.
But on Monday, Liontown, now with a market cap of $2.1 billion, unveiled a plan to help it survive lithium’s nuclear winter.
Its Kathleen Valley mine in Western Australia, which had an annual nameplate capacity of 5.4 million tonnes this time last year, will become a 2.6 million-tonne mine, under a new plan that will allow Liontown to extract the highest-quality ore at the lowest possible cost.
Ottaviano will also launch a business optimisation plan that seeks to save $100 million through cost reductions and investment deferrals, to give it breathing room while the lithium price remains in the toilet.
He’s not giving up on the big dream at Kathleen Valley: “Should the market change, should conditions improve, we can pivot back into our expansion strategy,” he declared on Monday. But he’s under no illusions that the game has changed for lithium, and Liontown needs to adapt.
“We need to demonstrate that we’re agile and ready to adapt,” he said.
The numbers say Ottaviano is dead right. After peaking in December 2022 at $US6400 a tonne, spodumene concentrate has fallen steadily and currently sits at about $US765 a tonne. Unprofitable, at least for now
Liontown shares have surged 40 per cent since early September on hopes that supply cuts in China, Australia and other places in the world might help rebalance the market, but analysts remain sceptical. Morgan Stanley analyst Amy Gower estimates that about 20 per cent of the global lithium supply remains unprofitable, and says more supply needs to come out to push prices back up. And even then, Gower argues that there is so much supply (particularly in China) that can be brought back relatively quickly, any price increases are likely to be short-lived.
For now, at least, Liontown is likely to be in that group of unprofitable mines; Jarden analyst Jon Bishop says Kathleen Valley needs a spodumene price of $US900 a tonne to break even.
Ottavaiano said Kathleen Valley’s all-in-sustaining unit costs would be between $1170 and $1290 a tonne in the six months to June 2025 (which equates to $US771 to $US850 a tonne) before eventually falling to $775 to $855 a tonne over time ($US510 to $US564 a tonne).
Asked on Monday when Kathleen Valley would be cash flow positive, Ottaviano quite rightly pointed out that the answer to this question depends very much on your view about where prices are heading.
But herein lies the conundrum for investors in lithium stocks, who need to triangulate several opaque factors: where electric vehicle demand is heading in a Trump 2.0 world; where global supply is heading and how much shuttered capacity is permanently out of the market; and the ability of individual miners to manage their projects in a high-cost world.
Unfortunately, the cure for low prices is more pain for lithium miners. Liontown has taken the brutal option of self-help.
