Liontown to fast-track lithium project as Pilgangoora auction sparks bulls

Liontown Resources non-executive director Anthony Cipriano, CEO and Managing Director Tony Ottaviano, exploration manager Jamie Day and non-executive director Craig Williams inspect drill core at the Kathleen Valley lithium project in Western Australia. Source: Liontown Resources Ltd.

Three months after joining Liontown Resources Ltd. from BHP Group, CEO Tony Ottaviano is fast-tracking the Kathleen Valley project, buoyed by the supply shortage as evidenced in West Australian rival Pilbara Minerals Ltd.'s recent auction of spodumene concentrate from the Pilgangoora project.

Ottaviano started as Liontown CEO and Managing Director in May after over 17 years at BHP that included three vice president roles. The switch was a "simple" decision, the CEO said, once he did due diligence on the company.

He told the Diggers and Dealers conference in Kalgoorlie, Western Australia, on Aug. 4 that with Liontown "well and truly funded" beyond the definitive feasibility study due in the fourth quarter of 2021, it will now order some long-lead items to accelerate construction.

Ottaviano said Liontown is working on an "accelerated timeline" against the pre-feasibility study that flagged commissioning in the first quarter of 2025, as "it's clear that the supply deficit is coming sooner and sooner." The CEO said first production would now be in the second quarter of 2024.

While Liontown sees a structural supply gap in 2024, Ottaviano said some customers are saying the deficit is already here, adding that any new supply "will be harder than most people think to bring on."

Canaccord Genuity Institutional Sales Executive Director Digby Gilmour told conference attendees on Aug. 4 that investors who bought Liontown shares when they were 0.85 Australian cent apiece in August 2017 "would now be sitting on a 10,500% return. Clearly they've done something very right."

That 0.85-cent share price was about half of what it was when Liontown acquired Kathleen Valley in August 2016, Gilmour said. Liontown was trading at an all-time high of 98 cents Aug. 5.

A July 29 Deloitte note said that "lithium has returned to growth this year," naming Liontown, Piedmont Lithium Inc. and Chalice Mining Ltd. as the top three movers in the Western Australia Index top 20 of ASX-listed companies in terms of market capitalization for fiscal 2021.

Critical transparency

Ottaviano said he supports Pilbara Minerals' intent in establishing a Battery Material Exchange, which Pilbara Minerals CEO and Managing Director Ken Brinsden earlier told delegates had contributed to much-needed transparency in the lithium market.

"Transparency is super critical because at the moment the banks are learning their way through this commodity, and the opaqueness needs developers like us to lock away off-take arrangements with both a floor and a cap on our price to give surety to the banks," Ottaviano said.

"An open, traded index that's reliable and gives a forward-looking outlook" would spur more investment, he added.

Benchmark Mineral Intelligence said in an Aug. 4 note that the Battery Material Exchange auction settling at a record-high US$1,250 per tonne for a 10,000-tonne cargo was "well above" the prevailing market price.

"Exceptionally bullish sentiment in preceding months culminated in intense price competition" during the auction, Benchmark said.

"The results of the auction could set a precedent for spodumene pricing in coming months, with potential for further upside based on the current high, and rising, lithium hydroxide prices in China, which will still allow for converter profitability despite rising spodumene prices."

Project competition

While Brinsden had said the Pilgangoora project will "rival Greenbushes as the most important hard-rock lithium operation globally," Ottaviano showed that Kathleen Valley was ahead of Pilbara Minerals' project in terms of grade.

Presenting a chart of Australian hard-rock lithium operations and advanced projects by size and grade, Ottaviano said Kathleen Valley was only behind Greenbushes and Sociedad Química y Minera de Chile SA's and Wesfarmers Ltd.' Mt Holland in terms of grade.

He said Kathleen Valley also has over 350,000 tonnes available for off-take arrangements, compared to the 200,000 tonnes Brinsden cited as being "unencumbered with off-take" from Pilbara Minerals' recently acquired Ngungaju plant, which is due to be restarted by end-2021.

In securing off-takers, Ottaviano said Liontown is "starting at the original equipment manufacturers and working back, because, as part of this battery value chain, it's important to understand there are co-dependencies."

"As we expand our supply, there's an implicit assumption that converters will expand and cell manufacturers will expand in order to meet that strong demand signal coming from the electric vehicle market," Ottaviano said.