Liontown shares slump, Crisis talks as critical minerals bust deepen

Monday’s slew of bad news continues a tough month for the critical minerals sector, which has already lost close to a thousand jobs on the back of mine closures at Savannah nickel, Core Lithium, Ravensthorpe nickel and the cancellation of a fourth processing facility at Albemarle’s Kemerton.

Ms King and WA Mines Minister David Michael will hold crisis talks with nickel and lithium producers this week to determine “how they can better compete with cheaper and lower grade product produced elsewhere”.

Australian lithium miners are facing competition from Chinese companies mining more complicated “lepidolite” minerals, while a carbon-intensive supply surge from Indonesia’s laterite geology has crushed nickel prices.

Ms King said the mining industry had always faced boom and bust cycles, but she expressed “great concern” that a prolonged slump could hamper Australia’s energy transition and local workforce.

The WA government offered royalty relief to lithium and iron ore miners during commodity price downturns in 2020 and 2015, and Liontown managing director Tony Ottaviano said the sector was struggling.

“There is genuine tough times out there amongst the critical minerals industry, and there has been historical precedent around royalty deferment that may get put back on the table,” he said.

‘Just need to get better at pricing’

Critical minerals prices have been extraordinarily volatile over the past decade because of the relatively small size of the commodity sectors and the opacity of pricing mechanisms.

Australian nickel miners want to be rewarded for their lower environmental impact compared with Indonesian rivals, while lithium miners are concerned about the impact that new Chinese futures prices are having on the sector.

Liontown Resources boss Tony Ottaviano says lithium may be going through an overcorrection.  Trevor Collens

“When the Chinese futures exchange came into being in June last year, the lithium price has just trended one way since then,” said Mr Ottaviano.

“We just need to get better at pricing this product.”

Prices for battery metals have slumped because of weaker than expected growth in electric vehicle sales, particularly in North America, where automakers such as Ford and General Motors have slowed production in the past four months.

Fastmarkets analyst William Adams told clients that Chinese EV sales growth of 25 per cent last year was “still strong”, but lagged the 84 per cent growth of 2022.

Benchmark Mineral Intelligence priced the spodumene concentrate exported by Australian lithium miners at $US955 a tonne last week; down almost 90 per cent from a year ago.

While new supply from Africa, China and the Americas has weighed on lithium prices, Mr Ottaviano said demand for electric vehicles was the biggest factor driving lithium prices lower.

“The heart of it is a demand-driven correction. We know corrections tend to be exaggerated one way or the other.”

A bearish forecast for lithium prices by commodities’ agency Wood Mackenzie was the catalyst for Liontown’s lending syndicate to withdraw its October offer for a $760 million loan.

Mr Ottaviano said Wood Mackenzie had predicted spodumene prices would remain about $US950 a tonne until 2029.

“That is a very, very low price,” he said. “We cannot believe how a forecast like that can support the supply that they are predicting will come on. It doesn’t make sense.

“Our view is the pricing signals they are forecasting, by definition, would mean that some of that supply just will not come on.”

Wood Mackenzie declined to share its price assumptions when approached by The Australian Financial Review.

Jarden analysts expect spodumene prices to average between $US1489 and $US1879 a tonne between now and 2030.

The involvement of Australia’s big four mainstream banks – Westpac, National Australia Bank, Commonwealth and ANZ – in Liontown’s lending syndicate shaped as a significant moment for the industry, given those banks had previously been reluctant to lend to the critical minerals sector.

They were joined in that syndicate by the taxpayer-funded Export Finance Australia and the Clean Energy Finance Corporation.

Despite Monday’s withdrawal of the loan offer, Mr Ottaviano said all eight lenders had expressed a desire to continue working with Liontown on a smaller loan, and he said securing debt was his “primary focus”.

Slump an ‘overcorrection’

Liontown had $515 million of cash on hand at December 31 after fully drawing down existing debt facilities.

The company said that $515 million should be enough to cover the cost of building Kathleen Valley, which is scheduled to start selling lithium in the middle of this year.

But if lithium prices remain around $US1000 a tonne over the next 18 months, the mine will likely have negative cash flows for about a year until volumes ramp up towards full capacity.

Shares in Liontown crashed by almost 22 per cent on Monday on fears that withdrawal of the loan may force the company to conduct a dilutive equity raising.

A veteran of BHP’s iron ore division, Mr Ottaviano said he was accustomed to the cyclical nature of commodity markets, and the slump in spodumene was possibly an “overcorrection”.

“When the market turns, the market will turn strongly,” he said.

Liontown had planned to mine about 4 million tonnes of ore per year at Kathleen Valley, but will scale that back to 3 million tonnes in a bid to reduce the cost of construction.

Mr Ottaviano said Liontown may return to a 4-million tonne mine when prices improved. “I don’t want to be flat-footed when the market turns,” he said.

Liontown tapped shareholders for $376 million of new equity in October at the same time as it struck the original $760 million loan agreement. The new shares were issued at $1.80 each.

Liontown shares closed at 94¢ on Monday, less than a third of the $3 price offered by Albemarle in September.

Albemarle abandoned the transaction when mining billionaire Gina Rinehart bought 19 per cent of Liontown at close to $3 per share and signalled she wanted influence over the mine’s future.

Mrs Rinehart is prevented from mounting a fresh takeover bid for Liontown at less than $3 per share until February 11. Beyond that date, she is free to pitch any offer below $3 per share.

Mr Ottaviano said discussions would be focused on Liontown’s lenders, but he would also update major shareholders. He said he did not plan to launch a sale process for the company.

Monday’s news will boost the short-sellers who have targeted the miner. About 5.3 per cent of Liontown shares were sold short on October 25 after the company sealed the $1.1 billion debt and equity package.

Short positions have risen to 8.48 per cent, as of January 15.

Lynas’ cash balance has declined by $216.5 million over the past three months as it spent on growth projects, conducted maintenance, and endured a 51 per cent slide in received prices.

Lynas said changes to its product mix were responsible for part of the price decline, but chief executive Amanda Lacaze said weak Chinese demand was the major factor in the price softness.

“When the market is feeling soft, it is easy for us to feel like having a little bit of a weep. But generally, we see this market continuing to be highly competitive. It is growing, it is important,” she said.

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