Liontown in talks on funding shortfall as Albemarle, Rinehart circle

Brad ThompsonReporter

Sep 29, 2023 – 1.53pm

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Liontown Resources says it has managed to keep a lid on cost blowouts associated with building its flagship Kathleen Valley lithium project but needs to lock in more than $450 million in additional finance within the next three months to keep going.

The Tony Ottaviano-led Liontown said capital costs associated with Kathleen Valley had increased to $951 million, up 6 per cent on the $895 million estimate from January.

Liontown chief executive Tony Ottaviano at the part-built Kathleen Valley mine in August. Evan Collis

Mine operating costs per tonne have also risen but by less than most analysts were predicting, and Kathleen Valley remains on schedule, in a rebuff to Gina Rinehart’s claims about risks hanging over the project.

However, Liontown has shelved plans to generate early cash flow through the sale of unprocessed lithium-bearing ore because of soft prices.

The company delivered its update on Friday as $6.6 billion takeover suitor Albemarle remains close to completing due diligence.

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The takeover bid has been complicated by Mrs Rinehart’s Hancock Prospecting taking a big stake in Liontown – potentially about 13 per cent after $100 million-plus share raids on Monday and Tuesday.

Hancock has cast doubt on Liontown’s ability to deliver and operate the Kathleen Valley mine and is pressing its case for a role in both tasks.

Talks with banks

Liontown said it was in talks with a syndicate of commercial banks and government credit agencies to meet a funding shortfall of at least $450 million as it looks to have Kathleen Valley in production by mid-2024.

The company expects to have the funding needed to meet capital and other costs in place by the end of the calendar year.

Liontown flagged that it could seek to increase the size of the debt funding to provide an additional liquidity buffer and reserve.

The update came on the same day Liontown released its annual report and financial accounts. Auditor Deloitte has pointed to “material uncertainty” over the pre-revenue company’s capacity to continue as a going concern without additional funding.

In terms of scheduling and capital costs, the Liontown update compares favourably with one from established lithium producer Allkem this week. Allkem signalled delays and a $640 million cost blowout across three big lithium projects in Canada and South America.

Mr Ottaviano defended the higher capital and operating cost estimates on Kathleen Valley and backed underground mining contractor Byrnecut to deliver on plans to accelerate a rise in production to 4 million tonnes a year.

“Notwithstanding one of the toughest markets to construct and operate seen in recent years, our capital costs are materially in line with our previous forecast,” he said.

“Our operating costs are based on contracted market prices and have received a tremendous amount of review and benchmarking, both internally and by third parties.”

Liontown forecasts operating costs of $73 a tonne in mining and $651 a tonne in producing 6 per cent spodumene concentrate.

Its chairman, Tim Goyder, said in the annual report that the average price for spodumene concentrate was $US6482 ($10,044) a tonne across 2022-23 but it finished the year at a 12-month low of $US3750 per tonne.

“Despite this short-term softness, the consensus is that we are entering an extended period of elevated pricing for lithium products as demand from the clean energy sector continues to grow and supply deficits widen,” he said.

Binding offer

Mr Goyder reiterated that the board intended to unanimously recommend that shareholders vote in favour if Albemarle made a binding takeover offer at $3 a share and there was no superior proposal.

Hancock has questioned whether Kathleen Valley can be delivered on time and budget, and operated successfully without its help.

“In line with that long-term approach, Hancock can provide Liontown with the opportunity to manage its project execution and operational ramp-up risks where it is of value, and particularly in light of the inflationary market pressures that are creating challenges for project delivery across Australia,” it said on Monday.

“Liontown’s indicated production rate of 3 million tonnes per annum (increasing to 4 million tonnes per annum) at its Kathleen Valley project is significant for an underground operation and carries commensurate production and operating cost risks, with its target recovery rate (modelled at 78 per cent) also exceeding the recoveries achieved by most existing and planned lithium producers in WA.”

Liontown said on Friday it could bring forward to 2027 plans to hit an ore processing rate of 4 million tonnes a year under new mine plans that might allow it to “sell additional tonnes into the spot market, enter incremental off-take arrangements, or direct this material into a potential downstream lithium hydroxide refinery”.

Liontown has 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.

Albemarle boss Kent Masters has said those agreements will be honoured if the takeover is successful but was keen to find out more details as part of due diligence.

Liontown’s confidence that it can quickly move from a 3 million tonnes-a-year processing rate to 4 million tonnes is based in part on Byrnecut’s performance at the Prominent Hill copper mine now owned by BHP.

The underground mining operations and volumes at Prominent Hill are considered similar to what will be required at Kathleen Valley.