Liontown scrambles for funding after Rinehart stymies $6.6bn lithium deal
Albemarle’s Liontown deal is dead, but that doesn’t mean the company’s Australian lithium hunt is over.
Liontown Resources is scrambling to lock down its final funding package for the company’s Kathleen Valley lithium project after Gina Rinehart’s intervention dashed Liontown’s hopes of a $6.6bn takeover by Albemarle, thwarting lithium’s latest major consolidation play.
The global lithium giant walked away from its $6.6bn takeover offer for Liontown on Monday, citing the “growing complexities associated with the proposed transaction”.
Chief among those is the 19.9 per cent stake in Liontown now held by Mrs Rinehart’s Hancock Prospecting, which effectively stymies the prospect of a friendly deal being cut if Hancock were to oppose a scheme of arrangement.
Albemarle’s decision to abandoned its long-running talks with Liontown closed one avenue for the company to source debt funding to cover its shortfall in Kathleen Valley’s rising capital costs, and – along with the uncertainty around Mrs Rinehart’s intentions over the company – is also believed to have forced Liontown’s need to accelerate its plans to land the capital needed to lock down the mine’s construction funding.
After flagging a further 6 per cent blowout in the cost of building Kathleen Valley in late September, taking the cost of the underground lithium development to $951m, Liontown needs to land a debt package of at least $450m to fully fund the mine’s development, including the $152m needed to cover working capital and corporate costs until the mine starts making money.
But the company is also believed to have put on UBS to run an equity raising in parallel with the closing of its debt negotiations – a decision likely to pose an immediate test of Hancock’s support for Liontown, as well as easing any concerns held by banks and other lenders about the rising construction costs and the impact of recent instability.
Term sheets are not expected to be floated to investors until details of the debt deal are locked down, analysts suggested on Monday Liontown could be looking to raise $100m to $250m to end any funding uncertainty.
In August, Liontown said it had received offers of up to $300m in debt funding from Australian, Korean and US export credit facilities, as well as expressions of interest from commercial and bank lenders – which, at the time, were conducting due diligence investigations on Kathleen Valley.
Liontown already has offtake deals with LG Energy Solutions, Tesla and Ford, and said in August it was also talking to other potential customers to lock in additional funding in exchange for offtake deals.
Although Liontown has said it preferred to retain the option to sell uncommitted tonnes into the open market, Albemarle is believed to have been one of the companies in talks with Liontown over a funding for offtake deal.
Critically for Liontown, Liontown said on Monday Albemarle had indicated its “favourable view” of Kathleen Valley – and the company’s management – after concluding its due diligence investigations.
Hancock made no comment on the Albemarle withdrawal on Monday, and the mining major is not believed to have yet made any direct funding offer to Liontown.
Hancock’s last public comment on its Liontown stake was made on October 11, when the company reached a 19.9 per cent holding in the WA lithium developer.
“Hancock now looks forward to having a prominent influence on Liontown’s future, as its largest shareholder,” the company said.
Market sources suggest Albemarle’s withdrawal from the Liontown deal could see it look to other Australian lithium project developers slightly further down the production horizon, given the global major has now lost a major expansion option.
Albemarle noted on Monday it remained one of Australia’s biggest lithium investors, given its half-share of the Greenbushes and Wodgina mines, and its ownership of a lithium hydroxide refinery in the south of WA.
The company owns Greenbushes with China’s Tianqi and ASX-listed IGO, and Wodgina with Chris Ellison’s Mineral Resources. Both mines have expansion plans on foot to meet future lithium demand, but Albemarle has direct control of neither.
That limits Albemarle’s ability to both flex production to meet market conditions – and control over the output from its mines, seen as a key factor in Albemarle’s move on Liontown as the global major looks for ways to increase control over the material supplied to its lithium refineries and conversion plants.
Albemarle chief executive Jerry Masters told analysts in August the need to integrate resource development into its refining plans was a key part of its strategy, with the global major particularly hunting for assets that could potentially deliver new lithium supply after 2030 – the point at which the bulk of Liontown’s existing offtake agreements expire.
Liontown shares are in a trading halt as it completes funding negotiations, with its shares last trading at $2.79.
More Coverage
