Gina Rinehart’s Hancock Prospecting has successfully sent US chemicals giant Albemarle packing after a seven-month battle for Liontown Resources, leaving questions over the lithium hopeful’s next moves and the potential fallout for WA’s burgeoning lithium industry.
Investor and analyst focus has immediately turned to what life looks like for Liontown without a $6.6 billion offer on the table as the Tim Goyder-chaired company hunts for funds to develop its flagship Kathleen Valley project.
Liontown on Monday swiftly went into a trading halt “for the finalisation of funding” just minutes after announcing Albemarle pulled the pin on a takeover deal.
According to Liontown’s most recent quarterly cashflow report, the company had cash of $305.4 million and $181.2m of undrawn debt under its facility with Ford as at June 30.
Based on Liontown’s most recent project cost estimate of $951m, this would leave a funding gap of approximately $464m.
The actual figure of the funding gap has almost certainly grown — the company burned through about $110m of cash for mine development and corporate costs in the June quarter — and it is yet to release its cashflow report for the September quarter.
Sources close to Hancock Prospecting have told The West Australian that Hancock will likely participate in an equity raising to retain its 19.9 per cent stake as Liontown’s major shareholder.
The West Australian understands the funding package will also encompass a major debt portion, with commercial banking facilities and a loan from Export Finance Australia at the top of the list of potential options.
With all eyes on Liontown, other lithium hopefuls may be concerned the competition for investor dollars just got a lot more intense. But Euroz Hartleys resources analyst Michael Scantlebury believes there is plenty of money sloshing around for lithium plays.
“I don’t foresee any issues for other lithium hopefuls securing funds, there’s no shortage of capital around for lithium at the moment and the recent Azure Minerals raising is a good example of that,” Mr Scantlebury said.
Mr Scantlebury also believes the supply-demand dynamic is shifting favourably for WA producers after lithium carbonate and hydroxide spot prices both plunged by more than 50 per cent over the past year.
“The recent fall in lithium prices has made it difficult for high-cost producers, largely in located in China, and for direct-shipped ore operations to get off the ground,” he said.
“It feels like we’re towards the bottom of the pricing cycle and we should see stronger spot prices in the medium term.”
The Kathleen Valley project is set to come online in the medium term, with Liontown heading towards first production of lithium spodumene from Kathleen Valley — one of the world’s largest and highest-grade hard rock lithium deposits — by mid-2024. But concerns are swirling over the cost to develop the company’s flagship project after the company told the market late last month the project’s would balloon to $951m.
That’s compared to its January 2023 forecast of $895m and multiples higher than its December 2019 projection of $240m.
Mrs Rinehart’s Hancock has said it believes the costs to develop the project could surpass $1b, previously noting Kathleen Valley faces “significant execution, operational ramp-up and market risks”.
After hovering around the $3 mark through the course of Albemarle’s takeover offer, Liontown shares began to slide from last Wednesday. Its shares last traded at $2.79 on Friday.
Its shares last traded at $2.79 on Friday.
The $3 offer amounts to a premium of almost 100 per cent on Liontown’s share price before Albemarle’s takeover interest was made public in March.
Despite the waning share price, stockbroker Wilsons has retained a $2.90 share price target on Liontown in a research note released on Monday, suggesting a takeover from another suitor is still on the cards.
“We believe that the stock will continue to be considered as a key consolidation target even in the absence of an explicit bid at this time,” the research note stated.
“We particularly reference our comments around the culture of the business which we believe management has been building, and the inherent fit this might present to a major global corporate.”