The CEO who took Liontown from a bargain to an ASX lithium force
Tony Ottaviano needs to deliver his flagship lithium mine. A spurned $5.5 billion takeover offer and dip in prices for the battery metal have upped the pressure.
Liontown Resources’ future could have been sealed before it shipped a single tonne of spodumene from its Kathleen Valley lithium project about 680 kilometres north-east of Perth.
The homegrown critical minerals hopeful boldly turned down a $5.5 billion offer from Albemarle, a global lithium giant, in March.
Liontown chief executive Tony Ottaviano is aware as the company gets on with the job of building its first mine against a backdrop of rising costs in the Australian mining industry that the New York-listed predator hasn’t gone far. But to truly vindicate staring down Albemarle’s riches, he has to deliver what Liontown promised: taking Kathleen Valley into production by mid-2024.
Ottaviano, who will be one of the big name speakers at Kalgoorlie’s Diggers & Dealers mining conference on Monday, is a veteran of M&A who has been most places in mining.
He’s had highs and terrible lows over his career after starting out as a mechanical engineer.He is the Perth-born product of a wave of immigration in the 1960s that helped build a lot of the infrastructure that supports WA and its resources-based economy. Building Liontown to the cusp of production has required the same bold choices.
Ottaviano speaks with a sense of urgency and a force that makes people want to listen. Growing up in Perth, he would often act as an interpreter for his Italian-speaking parents and other family members. As the oldest child, he has spoken of the weight of expectation and feeling the need to set an example.
When Ottaviano, 59, told The Australian Financial Review Mining Summit in Perth in May that the Albemarle bid was “ballparks away” from winning over Liontown, he was channelling former Rio Tinto boss Tom Albanese.
In fact, Ottaviano played a leading role for BHP in its doomed $160 billion scrip bid for Rio that Albanese dismissed as “two ballparks” short of fair value in 2008.
If Liontown does get the chance to hunt for more lithium projects, it is unlikely to find a bargain like the one that was struck for Kathleen Valley.
Liontown announced the purchase of Kathleen Valley from gold miner Ramelius Resources on August 4 seven years ago.
In return, Liontown handed over 25 million of its shares, then worth 1.8¢, and a royalty stream that Ramelius later sold back to Liontown for $30 million.
That deal was done before Ottaviano arrived on the scene, but he’s one of the band of Tim Goyder associates who have made millions out of the stock.
Liontown chairman Goyder, with his 15 per cent, and the group that includes Ottaviano are estimated to hold a combined 30 per cent to 40 per cent.
Ottaviano, who holds almost 5 million shares through a family trust and has millions more in the form of short- and long-term performance rights, is carefully weighing up the merits of a move downstream as other ASX miners try their luck. He’s also keeping a close eye on the cost of building Kathleen Valley, where the price tag sits at $895 million.
Downstreaming dead ends
Even though WA is rich in spodumene and has three lithium hydroxide plants either built or under construction, there is not enough capacity to process all the spodumene into the sophisticated lithium derivatives that go into batteries needed for decarbonisation. Most of this precise and technically challenging work happens in China, while the rest of the world tries to catch up.
“Conventional mining has always taken the view that the maximum margin should reside at the point of first saleable product so that’s why miners very rarely go downstream,” Ottaviano says.
He points to BHP abandoning steel making as a downstream dead end.
Pilbara Minerals and IGO have headed downstream, while Chris Ellison’s Mineral Resources is still holding to the idea after a couple of false starts.
Albemarle has taken a pragmatic approach, rewriting its lithium deals (with MinRes) and playing a waiting game since Liontown spurned its takeover offer pitched at $2.50 a share.
“I’ve got to ask myself the question: if I’ve got a spare $1.2 billion, do I build a refinery? Or do I invest that in more spodumene mines? There’s a threshold question there that we are trying to answer now. Is downstream the value maximising pathway? Or should we just stay as a raw materials producer?” Ottaviano says.
“I have a gut feel as to what that [answer] is, or a pretty good feel. But I just don’t want to assume going downstream is the right decision because everyone else is doing it.
“Those little voices are in my head, and so I owe it to my board, I owe it to my shareholders to answer that threshold question first.”
From four staff to ASX 200
Liontown has made a lot of right moves since Goyder welcomed Ottaviano on board as managing director in May 2021 when the share price was about 40¢.
In about 15 months, Liontown went from a junior explorer with four full-time employees to well inside the ASX 200 and got working on its project at Kathleen Valley.
It signed binding offtake agreements with South Korea’s LG Chem, Elon Musk’s Tesla and Ford that account for 450,000 tonnes a year, or 90 per cent, of the spodumene concentrate Kathleen Valley is slated to produce from mid-2024.
The Ford deal came with a $300 million debt facility to help get the mine built. That is Ottaviano’s priority now, but on Friday afternoons he pauses to consider what competitors are doing and the latest in the lithium market.
He’s not worried about the sharp fall in lithium prices since Liontown rebuffed Albemarle’s takeover offer and as some pessimistic price forecasts emerge.
“I have visits on a daily basis from customers seeking product,” he says. “We’ve got product, almost 90 per cent of it, sold for the first five years. I’m seeking existing and new customers coming to talk to us about the second five years and locking up long-term supply from a tier-one jurisdiction that hasn’t got the challenges of other parts of the world.”
Liontown has the advantage of owning one of the biggest lithium assets in Australia free of any link to China, which sets it up to capture the full benefits of US and European incentive schemes.
It calculates the Biden administration’s Inflation Reduction Act includes credits of $US7500 per electric vehicle produced through non-China battery mineral supply chains.
The credits apply to lithium mined and processed in countries with free trade agreements with the US, but not if a “foreign entity of concern” holds more than a 25 per cent stake in the mine or processing facilities.
Ottaviano says Liontown product will be fully compliant in the US and the equivalent in Europe, which is a huge attraction to car and battery makers.
“So while we see short-term [price] movements and short-term pessimism and all the rest of it, as a CEO I’ve got to look through that because I’ve got to make decisions, spend lots of capital today to bring production on into the future. If I took a 30-day or a quarterly view like most of the funds, then I wouldn’t invest anything,” he says.
Index questions
Liontown says the customers-in-waiting can sign long-term price-indexed supply contracts tomorrow if they are put on the table.
Like other miners and downstream players, Ottaviano has been waiting for the “real price index to please stand up”.
When Liontown first approached the market with offtake, it was offered indices all allocated in China, and Ottaviano never felt comfortable betting the entire revenue line on those.
Liontown has now settled on the Fastmarkets index supported by the London Metal Exchange that it believes has a transparent and auditable pricing process, and traction with original equipment manufacturers (OEMs).
If Liontown does move downstream in Australia, it is likely to aim to produce an immediate lithium sulphate for export to a battery chemical finishing plant in one of those non-China jurisdictions offering huge incentives.
On that front, it is being equally tempted by the grants and incentives rolled out by Japan and South Korea. Japan is offering a 50 per cent refund on capital investment.
The midstream strategy has been embraced by Pilbara Minerals through its partnership with Calix. MinRes, which has a partnership with Neometals, has come around too after previously championing building a lithium hydroxide plant in WA.
The industry has watched the first two lithium hydroxide plants built in WA – and the first in the world outside China – struggle to hit production targets after delays and huge cost blowouts.
Ottaviano sees a way to balance the risks if it does take the downstream plunge.
“The reason I like an intermediate product like a lithium sulphate is that part of a refinery is more in the wheelhouse of expertise of a miner. The back end is a complex chemical set,” he says.
Liontown has just signed a contract with Qube to cart the 6 per cent lithium spodumene concentrate it will produce at Kathleen Valley about 650 kilometres by road to the port of Geraldton.
Ottaviano says a sulphate product would be more like 40 per cent lithium, so Liontown would not have to cart and ship so much waste material.
Another advantage is that sulphate doesn’t have the same shelf-life and contamination issues of lithium hydroxide.
“You satisfy the value-adding commitment you want to make to Australia and then potentially you build these finishing plants where you convert the sulphate to final chemical in jurisdictions like Europe, Japan, Korea, North America, and attract the subsidies or the incentives on that finishing plant,” he says.
Battle scars
Starting with a clean slate was one of the attractions for Ottaviano when he took the Liontown job. He told Goyder and the rest of the board he wanted to build a company, not just Kathleen Valley.
“There’s no bigger way to disrespect a frontline worker than by giving them documentation that’s out of date, documentation they can’t find or documentation that’s full of mistakes,” he says.
Ottaviano has served a long apprenticeship and has the battle scars of projects in Africa and South America with Rio and BHP.
The darkest days came after the Samarco dam disaster in Brazil, which killed 19 people and destroyed several towns in November 2015.
Ottaviano had been on the board of Samarco, a joint venture between BHP and Vale, for just three months when tragedy struck. He was one of the BHP executives charged with qualified homicide. The charges were later dropped.
He received the call to say he had been charged on his birthday. It was a tough period that has stayed with him.
“Running the incident management for BHP on that catastrophe and tragedy was an eye-opener. There were a lot of lessons I learnt from that,” he says.
“People you think can handle the situation end up not handling the situation. People that you’ve underestimated under stress actually deliver.”
Liontown’s near neighbours at Kathleen Valley include Bellevue Gold and BHP Nickel West, whereas its Buldania project is in WA’s Eastern Goldfields and sits close to the Mount Marion lithium mine owned by MinRes and China’s Ganfeng.
It is also close to the Bald Hills mine that could be up for grabs after Treasurer Jim Chalmers, acting on advice from the Foreign Investment Review Board, blocked its sale to a buyer with Chinese links.
The region also takes in Global Lithium’s Manna project and the Pioneer Dome project being snapped up by Bill Beament’s Develop Global as part of the acquisition of Essential Metals. MinRes has a stake in Global Lithium and is backing Develop on the Essential Metals deal.
And Paul Graves, the boss-in-waiting of the New York-listed lithium giant set to emerge from the tie-up of Allkem and Livent, has also said he wants to increase a footprint in WA beyond Allkem’s Mount Cattlin mine.
For now, Ottaviano says Liontown will build Kathleen Valley and continue to study the potential of Buldania. And if there are acquisitions beyond that, his preference is to stay in a jurisdiction he knows and trusts.
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