In a turbulent turn of events, Liontown Resources Ltd. suffered its most substantial share price decline in over eight years when trading resumed after Albemarle Corp., the U.S. conglomerate, abandoned its proposed acquisition. This unexpected twist has left Liontown Resources scrambling to secure alternative funding for its pivotal lithium project.
The company’s shares plummeted by as much as 35% at the opening bell in Sydney, eventually settling at A$1.875 per share by 11:23 a.m. in Sydney. This steep decline comes on the heels of Liontown’s announcement of additional funding through a share placement at A$1.80 per share, representing a 35% markdown from the company’s closing price prior to the trading halt last week.
Liontown’s initial plan involved securing A$1.1 billion ($694 million) through a combination of equity raising and debt financing to support its Kathleen Valley lithium project. Albemarle had initially appraised the company at A$3 per share before abruptly terminating its purchase plan on Monday. The share placement formed a critical part of this financial package.
Friday’s dramatic drop in Liontown’s share price underscores the rocky road the company has traveled in its pursuit of capitalizing on the increasing demand for lithium, a vital resource in the booming new-energy sector. Albemarle had persisted in pursuing the Perth-based firm for several months, aiming to leverage the Kathleen Valley deposit, one of Australia’s most promising lithium sources, scheduled to commence production next year.
In recent weeks, Albemarle encountered challenges from mining magnate Gina Rinehart, as her Hancock Prospecting Pty. acquired a 19.9% stake in Liontown, making her the largest single investor last week, with the potential to obstruct a shareholder vote on the deal. Consequently, the U.S. company scrapped the A$6.6 billion deal, citing “growing complexities associated with executing the transaction.”
Hebe Chen, an analyst at IG Markets Ltd., commented, “The withdrawal of the U.S. lithium giant is a double-shot disaster for Liontown. The ‘no-other-way-to-go’ new shares plan not only significantly discounts its share value but also exacerbates the financial turbulence that Liontown has endured throughout this year, which is disconcerting for its investors.”
Liontown successfully raised A$365 million through the share placement with institutional investors and an additional A$10.8 million from Chairman Timothy Goyder. Furthermore, Liontown secured commitment letters for a debt package of A$760 million from banks and government credit agencies, as disclosed on Thursday. The company is also planning to raise up to an extra A$45 million from its existing shareholders.
The funds generated through this dual approach, combining debt and equity, will be allocated to refinancing existing debt and managing the mounting costs of the Kathleen Valley project in Western Australia, which have been impacted by rising input prices. In September, Liontown had revealed that the project’s cost for commencing production would amount to A$951 million.
Chief Executive Officer Tony Ottaviano remarked, “We have ensured an appropriate financial buffer is in place to allow the company to successfully weather any unforeseen issues that may arise,” emphasizing the importance of these financial measures in reducing the project’s risk.
The future actions of Gina Rinehart remain uncertain, as her privately held Hancock Prospecting expressed its desire for a “prominent influence in Liontown’s future.”
While Liontown’s stock experienced its most significant drop since March 2015 on Friday, Citigroup Inc. analysts, led by Kate McCutcheon, expressed that this outcome was not entirely unexpected. They pointed out that the A$1.80 per share price represented a 40% discount to Albemarle’s withdrawn bid but was consistent with the trading range of other producers, given the 30% decrease in spodumene pricing over the quarter. They also upgraded the stock from “sell” to “neutral,” noting that Kathleen Valley had the potential to become a significant producer, and the company’s balance sheet concerns had been alleviated.
