Liontown:Last week’s reference to Macquarie’s call that the...

Liontown:

Last week’s reference to Macquarie’s call that the lithium market faced perpetual deficit in the long term has been followed up by the firm initiating coverage of Liontown Resources (LTR).

The stock was mentioned here back on February 12 when it was trading at 42.5c. It has more than doubled since, hitting 86c on Thursday for a market cap of $1.5 billion.

Macquarie reckons the run up in the stock is not over, as might be expected when lithium stock calls are based on a “perpetual deficit’’ premise. It has a 12-month target on the stock of $1.05.

“Working through the development phases and securing funding for the project (Kathleen Valley in WA) present as key catalysts for Liontown over the next two years and we are initiating coverage with an outperform rating,” Macquarie said.

As mentioned previously, Kathleen Valley has Tier-1 credentials. It is one of the biggest undeveloped lithium deposits globally, it’s in a Tier 1 jurisdiction and importantly given the unfolding scramble for future lithium supplies, it is independent of any offtake or strategic alliance restrictions.

As noted by Macquarie, a PFS into Kathleen Valley landed in October last year. It outlined a $335m development that could deliver 350,000tpa of spodumene production with a mine life of 40 years, with a doubling of capacity under consideration in further study work.

In line with work by Liontown on the subject, Macquarie also included a lithium hydroxide refinery in its forecasts, with a modelled 50,000tpa capacity and supplied with spodumene from the second stage expansion of the mine.

Costs pressures in the WA mining market have created a point of difference between the company and Macquarie. A scoping study into the downstream project arrived at a capital cost of $1.1 billion. Macquarie reckons $1.6b is more likely.

But when you’re talking perpetual deficit in supply, the difference doesn’t matter much.

While Kathleen Valley is being marshalled up to the starting gate, there is a nice little diversion for the stock in the form of a demerger, with an in-specie distribution to shareholders and an IPO of the non-lithium assets.

The key non-lithium assets are the Moora and Koojan (a joint venture with Lachlan Star), located in the same geological terrain as Chalice’s (CHN) world-class Julimar PGE—nickel-copper-gold discovery some 90km to the south.

Exploration is in its early stages but Liontown has reported some ore-grade hits at Moora and is busily following up. The spin-off is planned for the fourth quarter.

https://www.livewiremarkets.com/wires/blackrock-soaks-up-bellevue-ahead-of-study-on-increased-production-profile