Commodities, Features, Lithium

Liontown: Mining’s next mega-city

Liontown

Under the leadership of Tim Goyder and Tony Ottaviano, Liontown Resources is in a strong position to elevate its Kathleen Valley lithium project into production.

It’s not easy to build a multi-billion-dollar company having not mined a single tonne of ore. But that is exactly what Liontown Resources has done.

At the beginning of September 2020, Liontown’s share price was hovering around the $0.10 mark. A year later, the company clocked $1.

And Liontown has steadily appreciated since then, as its flagship Kathleen Valley lithium project, approximately 680km north-east of Perth and 400km north of Kalgoorlie in WA, has grown sturdier by the day. 

At the time of writing, Liontown shares were trading at $1.60 and the company had a market capitalisation of $3.51 billion.

This calculated rise has been overseen by one of the best in the business, mining magnate and Liontown chair Tim Goyder.

Until November 2021, Goyder was also the chair of Chalice Mining, and many are aware of that company’s success. In some ways, Chalice’s story mimics that of Liontown: two explorers that became billion-dollar fortresses without making a cent from the pit.

Goyder may have the magic touch, yet there have been other wizards at work. 

Tony Ottaviano commenced as Liontown’s managing director and chief executive officer in May 2021 and has administered great growth. Liontown’s share price was hovering around the $0.40 mark when he began, meaning its stock has risen 300 per cent in less than a year of Ottaviano management.

Liontown has achieved many things during Ottaviano’s time. In July 2021, the company raised $52 million through a strongly supported placement at $0.76 per share.

In early August, Liontown terminated Ramelius Resources’ royalty over Kathleen Valley through a $30.25 million payout, and a few weeks later spun-out it’s non-lithium assets into demerged entity Minerals 260.

In November 2021, Liontown and the Tjiwarl Native Title Holders signed a native title agreement regarding Kathleen Valley following two-and-a-half years of collaboration between the lithium company and the Tjiwarl Aboriginal Corporation RNTBC (Tjiwarl AC).

To reduce the impact on cultural heritage sites, Liontown redesigned the Kathleen Valley mine plan in consultation with the Tjiwarl AC to be a predominantly underground operation instead of the originally planned open pit.

“One of the proudest moments so far in my tenure as managing director of Liontown was the signing of the native title agreement in November last year with the Tjiwarl,” Ottaviano told Australian Resources & Investment. “We’re very proud of the Traditional Owners, the Tjiwarl, and how they’ve helped us. They will continue to help us and we’ll continue to work as a partnership.

“We are the first native title agreement signed since Juukan Gorge and I’m telling you how significant that is given what happened.”

The current resource base supports a 23-year mine life at Kathleen Valley.

In May 2020, Rio Tinto conducted a blast as part of its extension of the Brockman 4 iron ore mine in WA, devastating Aboriginal heritage sites at Juukan Gorge, including two culturally and archeologically significant rock shelters. This occurred despite the Puutu Kunti Kurrama and Pinikura (PKKP) Traditional Owners repeatedly suggesting they wanted to protect the site.

The PKKP found out about the planned blast in mid-May and issued an urgent request to stop the detonation. The rock shelters were destroyed on May 23.

A week on from its native title agreement, Liontown released its definitive feasibility study (DFS) for Kathleen Valley, increasing the project’s initial production base from two million tonnes per annum (Mtpa), as set out in the PFS, to 2.5Mtpa.

A $450 million institutional placement followed in December 2021 and, by this point, the company was already a consistent $1.50-plus performer.

The company signed its first Kathleen Valley offtake agreement in January 2022, inking an initial five-year deal with South Korea battery maker LG Energy Solution for the supply of up to 150,000 dry metric tonnes per annum (dmtpa) of spodumene.

A month later, Liontown signed its second Kathleen Valley offtake agreement, linking up with Tesla for a similar five-year deal also involving the supply of up to 150,000dMtpa of spodumene.

Liontown had thus sewn up 60 per cent of Kathleen Valley’s initial production capacity in two deals. Both deals commence in 2024, when Liontown aims to commence production at Kathleen Valley.

But offtake agreements are a two-way street and Liontown has been incredibly judicious in the process.

“Our offtake strategy has three elements to it,” Ottaviano said. 

“Get customers that are diversified by geography; get customers that are diversified for position on the value chain; and then get diversity of contract type, be very smart in the way we construct the contracts. 

“So with geography, we want to be positioned globally so that we’re not reliant on one particular geography to sell into. And we’ve got North America, we’ve got Korea, and we’ll potentially look at maybe a couple of other jurisdictions. So good coverage there. 

“The second one is position on the value chain, which is arguably the most important, I believe. And the reason being is we want to be as close as possible to where the technology is being adopted, and where it’s being designed. 

“Because if I’m sitting back in the raw material area, and there’s changes in technology – and the battery world is changing constantly – I don’t want to be flat-footed. I want to know it before anyone else does. Then I can be agile and move my product suite accordingly.

“For example, if hydroxide doesn’t become the chemical of choice downstream and it moves to lithium sulphate, I’ll know that before. If I’m only dealing with a converter, I’m blind.”

Spodumene has typically been converted into lithium carbonate or lithium hydroxide before it is used to make batteries. However, advancements are always imminent in the ever-changing world of battery development. 

As Liontown continues to de-risk Kathleen Valley, the company has its sights set on the final investment decision (FID) expected in the second quarter of 2022.

“The critical milestone coming up now is the FID, which we’re planning to do in June of this year,” Ottaviano said. “Leading up to the FID the board needs to have comfort around a number of things. 

“Firstly, have we got offtakes in place? We’re working well in that regard. 

“The second thing we need to put in place is the funding. Have we got this project fully funded? We’ve raised $450 million – so we’ve done the equity piece – we’re now in discussions with the banks to provide our final debt funding. 

“The third thing we need to have across the line for the board is permitting.”

Liontown’s native title agreement with the Tjiwarl Native Title Holders has enabled the remaining Kathleen Valley permitting submissions to be finalised, which will occur ahead of the FID.

Following a positive FID, Liontown will ready itself to commence the Kathleen Valley build, with ambitions to complete construction by the December quarter of 2023. Commissioning would then take place in the March quarter of 2024, paving the way for first production in the June quarter of 2024.

Commencing Kathleen Valley construction in mid-2022 is critical to Liontown’s aspirations of beginning production in 2024, and the company has got important offtake agreements riding on it.

The electric vehicle (EV) market is riding on it, too. Leading data and analytics company GlobalData forecast annual EV output to jump from 3.4 million in 2020 to 12.7 million in 2024. This would result in lithium demand increasing from 47,300 tonnes in 2020 to 117,400 tonnes in 2024.

This suggests that as long as Liontown can tick all its development boxes, it’s a pretty safe investor bet moving forward. Ottaviano said there’s a trick for young players in understanding project timelines.

“The point I make quite often is this: if you’re going to bring on new capacity in 2023 or 2024, if you’re not constructing by middle of this year, there is no way you’re going to bring it on in 2024. That is the acid test,” he said.

“If I was an investor, I’ll be looking at all the lithium projects. Which ones are building midway through this year? They’re the ones I’m going to back because – all the rest? – they’re mining the market.”

Liontown is aiming for a final investment decision in the second quarter of 2022.

With 60 per cent of Kathleen Valley’s initial spodumene production already purchased by LG Energy Solution and Tesla, Liontown has already established a strong foundation for the project. But is there room for experimentation?

In March 2021, Pilbara Minerals launched its own digital sales platform, the Battery Material Exchange (BMX).

Created in collaboration with Perth technology company GLX Digital, BMX provides an avenue for interested parties to acquire current and future unallocated spodumene concentrate via a spot market.

Across the first three auctions, Pilbara Minerals’ spodumene concentrate drew highest bids of $US1250 ($1684.50)/dry metric tonne (dmt), $US2240 ($3088)/dmt and $US2350 ($3240)/dmt, respectively.

Attracting 25 bids online during a 45-minute auction window, the third auction saw a cargo of 10,000dmt sold at a target grade of 5.5 per cent lithia.

So what are Ottaviano’s thoughts of selling Kathleen Valley’s spodumene through a similar avenue?

“I like the intent that Pilbara is doing. I’m supportive of that. And, in fact, I’m dedicating 15 per cent of my production to the spot market,” he said. “Now, is the platform BMX? I’m not sure at this stage. I’ve got to 18 months to think about it.”

With Goyder and Ottaviano at the helm, Liontown has the expertise it needs to elevate Kathleen Valley into production. And with hungry EV manufacturers waiting in the wings, the company has every chance to become an Australian lithium kingpin.  

This feature appeared in the April issue of Australian Resources & Investment

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