Western Australia-based lithium producer Liontown Resources [ASX:LTR] has seen its share price decrease by more than 13.5% today, taking the LTR share down to about $1.30 each.
Liontown has issued a warning that there’ll be a hike in costs for its Kathleen Valley project; in order to get the processing plant to first production, spending has been inflated to an estimated $895 million.
LTR’s share has already fallen more than 1.5% in 2023, and in the last 12 months, it’s dropped by more than 25%.
Lithium experienced massive corrections in 2022, further impacted by slowing demand in China. According to Goldman Sachs and Credit Suisse, these movements could be expected to carry out well into 2024.
Source: TradingView
Liontown’s rising costs comes as shock to investors
Today, the lithium explorer warned its shareholders that there would be some incoming higher costs associated with getting its 100% owned processing plant at Kathleen Valley underway to the tune of around $895 million in estimated expenditure, as the company states:
‘Ongoing optimisation has identified an opportunity to expand initial plant capacity, with an updated capital estimate reflecting scope changes and industry-wide cost escalation…
‘Optimisations and scope adjustments, coupled with continued macro-level and industry-wide cost escalation, have resulted in a revised capital estimate of $895m to first production (including $40m in contingency). Capital requirements will continue to be refined as remaining contracts are awarded and as part of the Company’s ongoing optimisation program.’
Such scope optimisation changes include a 20% increase in output capacity to 33Mtpa, a 60% increase in onsite accommodation capacity, design and engineering changes (i.e. location and number of wind turbines), and increased water and piping works to facilitate the 3Mtpa plant production rate.
A Final Investment Decision (FID) was declared in June 2022, and after receiving necessary approvals, Liontown commenced onsite construction activities by October.
The company expects the project to deliver first-production by mid-2024, with site works progressing rapidly.
Liontown has spent around $73 million on the project to date and has $685 million of remaining funds, including $385 million in cash reserves and $300 million in debt.
Interestingly, LTR does not anticipate the need for additional finances until the end of 2023, claiming ‘it is confident in the potential funding sources available and is progressing with a range of prospective funding providers’.
Liontown’s CEO, Tony Ottaviano, stated:
‘We have said from the outset that our overriding commitment is to deliver Kathleen Valley to its full potential.
‘The scope adjustments announced today will allow us to increase the initial project throughput by 20 per cent to 3Mtpa, bringing forward additional SC6.0 tonnes into a market which remains extremely short of lithium units and continues to see very strong pricing outcomes.
‘This, together with the exciting new DSO opportunity we have identified during project and mine schedule optimisation, opens up the potential for increased tonnages and revenues at an early stage in the mine life — an attractive opportunity given strong pricing and market conditions.’
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