Lending Association

Liontown Resources faces funding woes

In another ‘bloody Monday’ news release, Liontown Resources (ASX:LTR) has joined the project review queue, resulting in the loss of a massive funding package aimed at completing the Kathleen Valley project. This news caused the company’s shares to plummet by 26% in a matter of minutes, further exposing significant losses for major shareholder Gina Rinehart and her company, Hancock Prospecting.

Rinehart’s Hancock group acquired a 19.9% stake in Liontown for approximately $1.2 billion, with most shares purchased around $3. However, after Liontown’s share price collapse, that stake was worth approximately $400 million on Monday.

Albemarle, which had announced substantial cuts in spending and projects, sold its 3.97% stake for $A121 million after Hancock acquired what was considered a blocking stake at $3 a share or $6.6 billion. This move likely saved Albemarle from a costly takeover offer.

Media reports revealed that JPMorgan ran the sale at a price range of $A1.26 to $1.32 per share. However, Liontown shares fell to 88.5 cents on Monday morning, approximately 30% below that price range. By 11 am, the shares had only recovered to 98 cents, still down 18%.

Liontown’s share plunge came as the company disclosed in a Monday morning update that its debt funders had cold feet regarding a $760 million package. The company cited reduced lithium prices and, especially, the price of hard rock spodumene ore as factors affecting the debt package.

Liontown stated, “The finalization of the debt package has been impacted by recent reductions in the independent forecast pricing for spodumene upon which the lenders’ credit approvals were based.” Consequently, discussions on a revised, smaller debt facility reflecting the project review have commenced.

The company pledged to provide an update on its funding status by the end of the current quarter, while still aiming for first production from its Kathleen Valley lithium project by the middle of the year, remaining focused on delivering the project on schedule and on budget.

However, investors remained concerned about the debt revamp and the company’s review of the planned expansion and associated ramp-up of Kathleen Valley to conserve capital and reduce near-term funding requirements. The project review involves exploring options to defer the timing of the previously announced 4 million tonne per annum underground development work, sequencing adjustments to the mine plan, and potential cost optimizations. Liontown assured that there would be no change to the 3 million tonne per annum plant capacity design currently under construction.

Regarding the debt revamp, the company stated, “The finalization of the debt package has been impacted by recent reductions in the independent forecast pricing for spodumene upon which the lenders’ credit approvals were based.” Consequently, the commitment letter announced on October 19, 2023, will terminate.

As of the end of December, Liontown reported having around $515 million in cash, having fully drawn the $300 million project funding package secured from Ford, which is expected to fund construction activities required for first production in the middle of 2024.