Broker Upgrade: Canaccord bumps Liontown price target; Euroz clips Carnarvon

Canaccord bumps lithium limper Liontown’s price target after promising quarterly report
Broker lifts price targets on Aussie goldies
Euroz heavily cuts price target on ‘buy’ Carnarvon Energy after Dorado dismay

If you’ve been keeping tabs on lithium, you’ll know it’s been on a rough ride.

Prices have fallen off a cliff over the past two years, partly due to lower than expected electric vehicle demand growth and new lithium mines flooding the market.

Spodumene concentrate, the raw stuff used to make battery-grade lithium, has dropped from over US$8,000 a tonne to a measly US$900/t. Not exactly the kind of numbers that make miners want to pop the cork.

But Liontown Resources (ASX:LTR)’s Kathleen Valley project (900km northeast of Perth) has managed to weather the storm, generating over $16m in operating cash flow in the December quarter amid concerns it will need to raise more cash to weather the ramp up period at the operation which entered production last year in a deteriorating market.

That equated to a small but still impressive operating profit margin of about $20 per tonne of spodumene sold in the December quarter.

That has been helped by some fat-trimming. The miner cut a number of head office jobs last year, and dialled down its planned output back in November as it postponed expansion plans.

According to Liontown, its all in sustaining costs per tonne came in at US$763, or A$1170/t. Not exactly cheap, but still manageable when you’re selling spodumene at about US$800 a tonne. Costs are expected to fall further to A$775-855/dmt over the second half.

On the production side of things, the company said it mined ~88,700 dry metric tonnes of spodumene concentrate in the quarter, which is 14% more than analysts expected.

Sales shipments also came in 30% ahead of predictions at ~81,300/dmt.

All of this pushed the stock up by 11% on Tuesday.

Canaccord upgrades price target for LTR

As a result of this report, broker Canaccord has upgraded its price target for the company. The target has now been increased by 16%, up to 70c, from the previous 60c.

This revision, the broker said, is mainly due to updated cost assumptions and a revision of modelled concentrate grades to 5.2%.

Despite the upgrade, Canaccord is still sticking with a HOLD recommendation, citing that the implied spodumene concentrate prices in its model are still above the current market.

“We remain at HOLD on valuation, noting implied SC prices of >US$1400/t SC6 vs spot prices of ~US$800/t,” said Canaccord’s Reg Spencer.

“But Kathleen Valley ramp-up continues to exceed our (conservative…) expectations.”

“Strong sales also alleviate any near-term liquidity concerns, in our view, with our estimates suggesting LTR should be able to achieve operating breakeven or better over CY25.”

Canaccord’s second half FY25 guidance remains at 170-185,000t, noting that LTR is still assessing optimal concentrate grades.

Goldies get a lift

Liontown’s not the only stock seeing more enthusiasm from brokers this week. Canaccord’s Tom Prendiville maintained a buy rating and lifted Evolution Mining’s (ASX:EVN) price target from $5.75 to $6.15 after hitting guidance by producing 195,000oz of gold at all in sustaining costs or $1547/oz in the December quarter.

EVN is on track to hit FY25 guidance of 710,000-780,000oz at $1475-1575/oz, with Canaccord’s predicting 748,000oz at $1580/oz. Prendiville says its gearing will fall from 23% to 21% by the end of FY25, hitting a target level of 15% by the end of the year.

“We assume EVN reaches its optimal gearing level of ~15% by December 2025, at which point its capital management optionality increases,” he told clients.

“We continue to flag surplus cash generation potential in FY26, funded by ~$1.8b in OCF to cover growth and LT development capex of ~$570m, sustaining capex of ~$230m, debt repayments of ~$100m and dividends of ~$200m, leaving ~$700m surplus cash flow (i.e. for special dividends/buybacks, M&A, etc.).”

Canaccord thinks EVN’s free cash flow yield in FY25 and FY26 will outstrip big competitor Northern Star, and has also revised its model to increase EBITDA by 7% in FY25 and FY26 with a major development to expand the mill at the Mungari mine in WA nine months ahead of schedule and 6% below budget.

UK analyst Alex Bedwany lifted his price target from 17p to 19p on London-listed Greatland Gold, which is expected to list on the ASX this year, after announcing 30,000oz of gold and 1189t of copper production from its first month in charge of the Telfer mine gold mine after its US$475m purchase from Newmont.

That compared favourably to Canaccord’s estimates of 22,000oz and 915t.

Carnarvon pummelled

From the good to the very, very ugly, Carnarvon Energy (ASX:CVN) was hammered this week after the majority owner of the Dorado oil discovery of WA’s coast, Santos, indefinitely deferred a final investment decision originally due in 2025.

Santos decided not to purchase a floating production, storage and offloading vessel and deferred feed entry.

CVN holds 10% of the project and is sitting on $180m of cash, and has US$90m of free carry on Dorado.

But Euroz, which maintains a buy rating on the stock, slashed its price target heavily from 38c to 18c on the news.

Analyst Declan Bonnick told clients the Perth broker now thinks FID will only happen in 2026, modelling $230m of first year net EBITDA only in 2029. Dorado was touted as the largest oil discovery in WA’s North West Shelf in three decades when it was identified in 2018.

“We maintain our Buy recommendation on valuation grounds, however decrease our Price Target to $0.18/sh (from $0.38/sh) based on a further year delay to first oil in our DCF-derived Dorado development valuation, and an increased risking of CVN’s asset base, given the timing uncertainty,” Bonnick said.

“Our risked valuation is consistent with the value of the cash and the carry funding value, while the unrisked valuation is $0.44/sh, demonstrating the large potential future upside remaining when milestones, as listed below, are achieved.”

A strategic process which could lead to a potential takeover or asset divestment for CVN led by JP Morgan remains ongoing, Euroz noted. Its shares have nearly halved in value since that was revealed in May last year.

It’s brighter news for gold miners in the Euroz coverage universe. A strong December quarter from its Okvau mine saw the broker lift its PT on Emerald Resources (ASX:EMR) from $4.75 to $5.

The views, information, or opinions expressed in this article are solely those of the brokers and do not represent the views of Stockhead.

Stockhead has not provided, endorsed or otherwise assumed responsibility for any financial product advice contained in this article.