Liontown investors to take a bath on raise, as Albemarle shelves $6.6bn bid

Liontown Resources chairman Tim Goyder.

There’s been chatter for some time in the market that an equity raising could be inevitable for Liontown if it didn’t end up getting bought by Albemarle.

But even so, some in the market are still surprised it is tapping the market through UBS, and particularly over the timing.

Apparently, Liontown was telling participants in the market only weeks ago that it had secured itself a sensational debt package to fund its flagship Kathleen Valley project, in what was a strong indication that a raise wasn’t going to be necessary.

Yet now it remains in a halt pending an announcement about securing capital from the market on the same day it said that the world’s largest lithium provider had walked away from its $3 per share offer.

Expectations are that the discount of the raise to the last traded price will be severe – perhaps even as much as half the price its shares were at before Albemarle turned up with its $3 per share buyout proposal in September, with the lithium price substantially lower than it was three months ago.

Shares in the business were halted at $2.79, and the latest developments will see hedge funds head for the door.

The dilemma now for 19 per cent shareholder, billionaire Gina Rinehart, is that if she does want to bid for Liontown, under buyout rules, she would have to offer the $3 price that she bought shares at to amass her stake, or the equivalent price at theoretical ex-rights price.

Yet, most believe her game plan was to win a seat at the table.

The discussion around the market is that Albemarle became gun shy when Mrs Rinehart emerged on the register in such a meaningful way, perhaps backing out before they even got talking.

Albemarle has worked with Australian resources billionaires before, namely Chris Ellison of Mineral Resources, and the understanding is that it has not been an easy experience.

The pair have partnered on the MinRes Wodgina lithium project in the Pilbara.

Yet it’s a bit unclear why Albemarle had an extra week of due diligence on its $6.6bn offer for Liontown if there were no talks with the maverick kingmaker, and it had already decided the deal wasn’t worth the challenges.

Liontown made it clear that Albemarle remained impressed with the Kathleen Valley project and its own management.

UBS and Greenhill are advising Liontown, which is chaired by 15 per cent shareholder Tim Goyder.

The latest development will no doubt be a crushing blow for Barrenjoey and JPMorgan in a year when big ticket deal flow has been limited due to the market volatility.

While Rio Tinto or Pilbara Minerals could become suitors, most suspect it is unlikely.

DataRoom reported in August that at the Diggers and Dealers conference, chief executive Tony Ottaviano said he did not want to ramp up the Kathleen Valley project without enough working capital.

While the group said it has a number of funding options, a capital raising could not 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.

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.

Its 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.

The group had 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 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.

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.