Liontown focus shifts from buyout to equity raising

Lithium is a critical ingredient required for rechargeable batteries.

The focus on Liontown seems to be shifting further away from a potential takeover of the $6bn lithium explorer to whether it launches an equity raising to fund its ambitious multibillion-dollar Kathleen Valley project.

The talk at the Diggers and Dealers conference in Kalgoorlie this week is that chairman and 15 per cent shareholder Tim Goyder is keen to retain Liontown, but is a willing seller of the $2bn Chalice Mining, of which he owns 9 per cent.

Some sceptics question whether this could be a tactic to urge suitor Albemarle to bid higher for the target.

Liontown earlier this year rebuffed the world’s largest lithium producer, US-based Albemale, which put forward a $2.50-a-share proposal to buy the company, taking its value to $5.5bn.

Based in Perth, Liontown controls two major lithium deposits in Western Australia – its major project Kathleen Valley in the northern goldfields and Buldania in the eastern goldfields.

At Diggers and Dealers, chief executive Tony Ottaviano said he did not want to ramp up the Kathleen Valley project without enough working capital.

While the group says it has a number of funding options, a capital raising cannot be ruled out, with sources suggesting that the development of Kathleen Valley lithium deposit is expected to cost 40 per cent more than initially anticipated.

The group has pointed out that available is more Export Credit Agency funding or additional bank debt and $300m out of direct shipping ore, but one market expert said he believed it was going to be “very tight”.

Liontown’s cost guidance for its Kathleen Valley project is two years old, and the market is factoring in a lift in the costs, which will only be truly known once a contractor is appointed.

Already it has secured $300m from US export credit agency Exim and K-Sure out of South Korea.

Appetite from commercial banks to lend to Liontown is strong.

Liontown expects to start direct shipping ore, which will release some early cashflow, from Kathleen Valley by the end of the year, bringing in $150m from the export of between 250,000 and 300,000 tonnes.

Offtake partners could also inject equity into the group, with vehicle manufacturer Ford already injecting about $120m into the business.

The initial cost of Kathleen Valley is $895m and will generate cashflow next year when production starts.

Estimates are the lucrative project could make somewhere between $2bn and $3bn in earnings before interest, tax, depreciation and amortisation from year one once it is fully commissioned and processing.

Shares in Liontown closed at $2.74.

Liontown’s market value has moved from about $200m three years ago to become a business valued at $3.4bn before the Albemarle offer emerged, as it has capitalised on more certainty around Kathleen Valley and the surging lithium commodity price.

On its website, Liontown says 145 million electric vehicles will have taken to the road by 2030 and that it is producing the resources needed to power the vehicles.

Liontown’s Kathleen Valley project will be one of the world’s largest lithium mines, supplying 500,000 tonnes of 6 per cent lithium oxide concentrate per year when it comes on stream in 2024.

It has a net present value of $4.2bn.

Final investment decision approval was given by the board in June last year after signing offtake agreements with Tesla, Ford and LG Energy Solution.