Liontown stares down ‘killer’ prices to etch its place in WA lithium’s future

Managing director Tony Ottaviano and chair Tim Goyder are adamant the mine will not be mothballed despite facing increasing challenges.

Underground at Liontown's Kathleen Valley mine in WA.

Liontown Resources says ‘mine killer’ pricing poses a threat to the entire Australian lithium industry, not just its Kathleen Valley operation which is determined to be one of the last mines standing.

Managing director Tony Ottaviano and chair Tim Goyder are adamant the mine will not be mothballed despite facing increasing challenges just 11 months after it started production.

“The last quarter has been bloody tough because we’ve got a pricing environment that’s sitting at $US600-odd dollars (a tonne of spodueme),” Mr Ottaviano said on Thursday. “We will manage the business accordingly around that low-cost environment.”

Liontown’s revenue dropped 30 per cent in the June quarter mirroring the falling commodity price.

Other West Australian lithium mines, including Bald Hill, owned by Mineral Resources, and Mt Cattlin, owned by Rio Tinto, are on ice.

Mr Ottaviano is certain Kathleen Valley will be the last lithium mine to open in Australia for many years.

Short covering speculated behind lithium price rally.

The mine has produced 300,000 tonnes of spodumene and now employs about 500 workers and contractors. It sits about 60 kilometres from Leinster in WA’s northern Goldfields close to where BHP and IGO have mothballed nickel mines.

The Mr Goyder-led board memorably rejected several takeover offers from New York-listed Albemarle in 2023 before accepting a $3 a share offer valuing the company at $6.6bn.

Gina Rinehart, Australia’s richest person, acquired a 19.9 per cent stake and Albemarle backed off.

Liontown chief commercial officer Grant Donald said that at current prices, the numbers didn’t stack up for anyone, including more efficient brine producers in South America.

“Even the existing producers struggle at this price. This is not a hard rock lithium question. This is like an industry question,” he said.

“I know that Rio Tinto has also put money into Argentina to keep their assets afloat. If you’re not in the Atacama in Chile, which is a kind of geological unicorn a bit like Greenbushes in WA, then you’re not making money, or you’re struggling to break even.”

Mr Donald said the spike in lithium stocks like Albemarle and PLS late last week came after spodumene prices jumped to about $US660 a tonne from $US615 a tonne on one lithium index.

“There’s lots of different rumours going around in the market, but it seems like a large, short position on the GFX (Guangzhou Futures Exchange) is being unwound, so they’re having to buy it back. And that’s been supporting the market,” he said.

“I think everyone knew that the price level was unsustainable. It was just a question of when it moved. Equally, I think we still got some way to go to get back to the kind of $US800 mark where people think producers were broadly able to break even, and which means that you’re not actually killing mines.”

19.9 per cent Liontown shareholder Gina Rinehart. Picture: Phil Gostelow

Kathleen Valley’s dramas continued last year with Australia’s big four banks withdrawing a $760m financing package barely three months after it was offered.

Korean battery-making conglomerate LG Energy Solution came to Liontown’s rescue.

Mr Ottaviano also had to deal with Mrs Rinehart’s Hancock Prospecting casting doubt on whether Kathleen Valley could be delivered on time and budget, and operated successfully without its help.

Mr Ottaviano said the relationship with Hancock is “sensational” and that Hancock chief executive Garry Korte was a late withdrawal from the belated official opening of Kathleen Valley on Thursday.

“The word that comes to mind is resilience,” he said.

Mr Donald said there was still a lot of misinformation circulating in the lithium industry.

“You have to be cognisant of who’s saying what and what their book is, the broader book,” he said. “We continually hear stuff from the commentators that the production out of Africa is very low cost. The actual producers, when I speak to them, tell me they’re all losing money.”

Benchmark Mineral Intelligence director for lithium, Cameron Perks, is cautious about claims the market has hit bottom.

“There is still pretty low-cost material still coming out of Africa and China itself, which is giving the Chinese buyers a perception that prices could be a little bit lower if only the Western market tried a bit harder to get their costs down,” he said.

“It’s a mixed bag, but I still think there’s a lot of pain left to go. This is not like a bottom where we’re going to go back up now. It’s probably going to be another 6-12 months of lowish prices.”

Lithium ore falls from a chute. Picture: Bloomberg

Most Australian producers sell product below the 6 per cent purity benchmark and cop a discount.

“Maybe $US800 a tonne is when companies are OK, kind of scraping by and there’s no reason to shut down. At these prices today, you have the boardroom seriously considering in six months time shutting down,” Dr Perks said.

He agreed it would be a long time before any new lithium mines opened in Australia.

“Some projects will open in the next few years despite these prices, but not in Australia,” he said.

The analyst said some projects were slightly better placed; the struggles of French company Eramet in Argentina using a direct lithium extraction technology showed some of the challenges ahead for Rio.

Benchmark’s latest lithium outlook report contemplates a scenario where supply from Australia is cut by 100,000 tonnes. It notes the price fetched for Australian spodumene fell to $US590 a tonne in the March quarter, averaging $US723/t from $US826 a tonne.

“At current prices … 58 per cent of Australian production is below cost,” Benchmark said.

The author travelled to Kathleen Valley as a guest of Liontown

Originally published as Liontown stares down ‘killer’ prices to etch its place in WA lithium’s future