..in life and business, sometimes timing can determine success...

..in life and business, sometimes timing can determine success or failure.

..when in comes to timing, perhaps unfortunately for LTR, the recent lithium price downturn comes at a time when it is poised to finalise its base case financial model (BCFM) to the satisfaction of its lenders to make its first drawdown of its $550m loan package. The submission to the bankers would also include an independent price forecast. Had the submission been made in March 2024 when lithium price upward movement inspired hope for a 2H price recovery, the submission to the lenders would have been more convincing. In recent past months, not only has lithium price re-commenced its downtrend, we also had broker downgrades on the sector and adverse developments such as US/EU tariff imposition on Chinese EVs which do not augur well in any case supporting a price recovery soon. The term of the $550m loan includes a once off full bullet repayment by end of October 2025. If the lenders aren't convinced that the BCFM can stack up with lower SC6 pricing over the coming 12-15 months based on near term cashflows, the lenders may require a re-negotiation and a restructure of the loan package that can be supportive of cashflows under new pricing conditions. In accordance with the term sheet, a submission of the BCFM along with independent price forecast will be required no later than 31 July 2024, which is just a month away.

$300m of the $550m is required to re-finance the Ford facility and as at 31 March, LTR had $358m in cash. If LTR does not get its facility drawdown which it said it needs by early Q3 2024 (which is next month), it would be down to $58m after repaying the Ford facility. Perhaps too over the 2 months after 31 March 2024, it would have utilised a large portion of that $58m. Alternatively, LTR may not need to immediately repay Ford until the drawdown of the $550m.  

Australian banks can be quite skittish in financing resource projects. The level of conservatism and wariness in their lending can be seen in their watering down of an earlier approved $760m facility with 3-10 year repayment tenure to just $550m with full repayment in just over 1 year. It is possible LTR could reach out to the Federal Govt for financial support and/or guarantee for the facility should the lenders feel uncomfortable, but that would be using taxpayers money for a guarantee, but I am not across information of any direct financial support.

If I were the lenders, I would seek a restructure of the loan package to be a mix of additional capital raising and a reduced loan value for lenders to share risk with shareholders. A reduction in debt/equity ratio would provide the buffer LTR needs should its forward operating cashflows be insufficient to cover the loan covenant ratios. And I think this is something that instos and holders would have to consider as the spectre of a discounted CR cannot be entirely discounted.

I have also looked at their March quarterly which provides no details of quarterly spending and forward quarter needs other than just indicating the level of cash that they have. Ford also expects to be paid their $300mil. We had no inkling why the Ford facility is so short, presumably just a bridging finance, just as we have no privy to nuances of their offtake agreements with Tesla/Ford/LG on binding conditions.

Once again it is about timing. Unfortunately for LTR, if it had to do a discounted CR due to the above, it could have done it closer to $1.50 in mid May instead of -40% lower now at 90c. But of course the turn of events against lithium happened so quickly over the past month. Now it faces the daunting task of having to address its near term cash needs with possible need to make a discounted CR after a large share price beating.  

A period of silence when it said it would provide an update in Q2 2024 is also IMO not assuring - it probably suggest that they are working earnestly to get it done but has not been able to cement the drawdown approval just yet. It is quite possible their production plans could be delayed until this is finalised.  

What do you think the instos would do if they believe this could be a possible outcome? Sell first and subscribe the discounted CR when it happens.

Everything above is conjecture and opinion of course; the longer we hear nothing, it does not bode well.
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Details from 4C and Term Sheet

Cash Position The Company’s cash balance as at 31 March 2024 was A$358.1 million. The finance facility with Ford remains fully drawn

The Debt Facility provides financial certainty and sufficient time for Liontown to complete the previously announced review of Kathleen Valley’s 4Mtpa expansion4 , including opex and capital requirements, on which the Company will provide a market update in Q2 CY2024.

Liontown does not currently anticipate needing to drawdown on the Debt Facility until early in Q3 CY2024.

Customary for a debt facility of this nature, and also including:
• demonstrating compliance with customary tests;
• providing a Base Case Financial Model (“BCFM” based off, amongst other things, independent price forecasts and management forecasts of production, capital and operating costs, and which demonstrates compliance with financial ratios; and
• entry into key project tripartite agreements.


by no later than 31 July 2024, the delivery of an updated mine plan and BCFM, based off amongst other things, independent price forecasts and forecasts of production and capital and operating costs approved by an independent technical expert, and which demonstrates the Project is sufficiently funded for the term of the Debt Facility and has the capacity to support a subsequent long term financing package