Tesla deal lights a fire under Liontown Resources stock

Mining tycoon Tim Goyder’s very public ambition to create the next Fortescue – by doing with lithium what Andrew Forrest did with iron ore – has moved one step closer to reality.

The world’s best known electric car company has inked a five-year deal with Tim Goyder’s Liontown Resources. Picture: Bloomberg

Mining tycoon Tim Goyder’s very public ambition to create the next Fortescue – by doing with lithium what Andrew Forrest did with iron ore – has moved one step closer to reality though a major deal with Tesla.

The world’s best known electric car company has inked a five-year deal with Mr Goyder’s Liontown Resources. The deal is a standout because it ties the promise of Australia’s unique position in lithium with the electric vehicle revolution.

Unlike some earlier EV deals this contract will involve local lithium dug out at Liontown’s Kathleen Valley lithium deposit in Western Australia.

Tesla chief executive Elon Musk is on the record saying that lithium supply is the fundamental constraint for the electric car industry – and that constraint has only been worsening in recent times as EV makers race to lock in what they need for future production.

Lithium prices are around eight times higher than they were in early 2021. As a Fitch report noted recently: “Australia is by far the world’s top producer of lithium and we expect the country to maintain its dominant position for years to come.”

As a stock that was worth 2c a share in 2019, Liontown may appear as just another lucky junior. But a closer look finds Mr Goyder (who is also linked with Chalice Resources) has been working on the project for 16 years already.

Mr Goyder holds around 17 per cent of the Liontown group – which jumped 18 per cent on the Tesla news and now has a valuation of around $3.6bn.

The Tesla deal puts the group alongside the major names in Australian lithium such as Galaxy, Vulcan, Mineral Resources and the Mount Holland consortium backed by Wesfarmers.

For investors the appeal of lithium is that this commodity is crucial to the EV revolution and its batteries. Copper, nickel and cobalt will all have a place, but the EV game hinges on what miners like to call white gold.

Though EVs might be having a difficult start in our own market, note that in the European Union, in the last quarter of 2021 the majority of cars sold were not petrol vehicles.

But the specific danger for EV makers such as Tesla is that they will not get the amount of lithium they want – the consensus is that the global economy will be at least 36,000 tonnes short in the coming year. Against that backdrop, there is going to be space in our local lithium sector for the “next Fortescue” and Liontown is clearly a contender for the title.

As Liontown’s hopes of becoming the next Fortescue gain traction, Fortescue – the iron ore upstart that became a global player – slipped 4 per cent on the market after reporting an interim profit one third down on last year.