Ground Breakers: Liontown puts new $951mn pricetag on Kathleen Valley lithium as Albemarle runs DD, Rinehart circles

Albemarle is over two weeks into a month-long due diligence expedition at Liontown Resources (ASX:LTR), whose cards are now fully on the table after issuing its last cost estimate on its half-finished Kathleen Valley lithium mine.

Originally forecast to cost $473 million in a DFS back in late 2021, inflation and scope increases since have seen capital estimates on the project lift substantially.

From $895 million earlier this year, the new cost update comes in at $951 million, around 6.3% higher in a matter of eight months but below the more than $1 billion price tag floated by some analysts.

LTR says the mine, Australia and the world’s first underground lithium development set to be mined at an initial rate of 3Mtpa by Byrnecut, will produce SC6 spod at a C1 cash cost of $651/t over its first decade of production.

Around $63 million of costs sit outside the capex bill, including $26m for early mine development to accelerate a planned expansion to 4Mtpa from 2029 to 2027, and $37m associated with building a 567,000t ROM stockpile to be accounted as operating costs once Liontown starts shipping concentrate to customers.

It sets up the company to secure debt to meet its final funding requirements post the end of 2023, estimated at $450m to fund capital costs, early mine developent, ROM stockpiles, corporate costs and working capital.

Liontown announced a letter of support from the government export credit agencies of Australia, South Korea and the US at Diggers and Dealers, giving up to $300m of non-binding and conditional finance to the firm.

It could all be immaterial if Albemarle goes through with its $6.6 billion, $3 per share offer to buy out the lithium developer and Kathleen Valley, the only new mine in WA currently under construction and one of a handful globally with a planned production rate in excess of 500,000tpa.

Rinehart lingers

But Hancock Prospecting and Gina Rinehart are lingering after building a blocking stake in Liontown in excess of 10% at the start of this week.

Monday’s purchase, which took Hancock’s stake to 10.69%, came wrapped in a warning label about project execution risks at Kathleen Valley.

“Hancock can provide Liontown with the opportunity to manage its project execution and operational ramp-up risks where it is of value — and particularly in light of the inflationary market pressures that are creating challenges for project delivery across Australia,” the iron ore powered mining giant said.

“Liontown’s indicated production rate of 3Mtpa (increasing to 4Mtpa) at its Kathleen Valley project is significant for an underground operation and carries commensurate production and operating cost risks, with its target recovery rate (modelled at 78%) also exceeding the recoveries achieved by most existing and planned lithium producers in West Australia.”

However, Liontown MD Tony Ottaviano today said its costs were ‘materially in line’ with its previous forecast.

“Notwithstanding one of the toughest markets to construct and operate seen in recent years, our Capital Costs are materially in line with our previous forecast,” he said.

“Our Operating Costs are based on contracted market prices and have received a tremendous amount of review and benchmarking, both internally and by third parties.

“I am very confident that the collective capability and multi-commodity experience of the team we have assembled will navigate these challenges and safely deliver this world-class project for our shareholders.

“In addition to our priority focus on project delivery, we continue to assist Albemarle with due diligence and to work through our funding options. Further updates on both these processes will be provided in due course.”

Liontown shares fell 1.51% this morning to $2.94.

Liontown Resources (ASX:LTR) share price today

And on the market

Get your yellowcake on your plate, uranium prices are pushing US$72/lb on spot and that has uranium explorers and developers in buying territory.

Boss Energy (ASX:BOE) ) and Paladin Energy (ASX:PDN) led the mid-tier players with 4.46% and 3.94% gains respectively.

But gold, iron ore, lithium and base metals stocks were also in buying territory, with commodities largely up on a weaker US dollar.

The materials sector rose 1.27% to dominate an otherwise tepid market, with South32 (ASX:S32) (+3.82%), IGO (ASX:IGO) (+3.79%) and Allkem (ASX:AKE) (+2.78%) the biggest gainers and BHP (ASX:BHP) 1.83% higher.