New mines aren’t cheap to build in the first place, but they are particularly expensive in today’s inflationary environment.
As part of the 2021 definitive feasibility study (DFS) for its Kathleen Valley lithium project in WA, Liontown Resources hoped to build the mine for $473 million.
That increased to $545 million in late June when a final investment decision (FID) was made on the project, and Liontown has just announced the capital estimate is now $895 million (including $40 million in contingency) before first production is achieved.
Liontown cited “optimisations and scope adjustments, coupled with continued macro-level and industry-wide cost escalation” as reasons for the cost jump.
The company has optimised its plant capacity design so it can support a 20 per cent increase in initial plant throughput from 2.5 million tonnes per annum (Mtpa) to 3Mtpa, supporting increased SC6.0 (spodumene concentrate at 6 per cent lithia) production to capitalise on strong short- and medium-term lithium pricing.
There is also scope to achieve early revenue through direct shipping ore (DSO) – another Liontown strategy to generate revenue as soon as possible.
Liontown said capital requirements would continue to be refined as part of the company’s ongoing optimisation program and as remaining contracts are awarded.
It’s important to highlight Liontown’s optimisation process. Greenfield lithium projects are difficult to build in the first place, let alone optimise to reduce early-stage operational hiccups.
Liontown indicated that as it prioritises time to market and the safe delivery of Kathleen Valley, the following scope additions have been included to further de-risk the project:
- Approximately 60 per cent increase in on-site accommodation capacity to support increased labour resources and de-risk schedule
- Bringing certain critical infrastructure in house (e.g. mine workshops, changerooms and administration facilities)
- Changing the location and increasing the number of wind turbines to optimise the contribution of wind in our renewables mix necessitating additional site works
- Increasing water exploration and piping works for plant water to meet the new 3Mtpa plant production rate
“We have said from the outset that our overriding commitment is to deliver Kathleen Valley to its full potential – safely, on time and fully optimised for early tonnes and long-term value,” Liontown managing director and chief executive officer Tony Ottaviano said.
“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.”
Ottaviano said the company was working hard to maintain cost control and discipline amidst a turbulent economic climate.
“The updated capital estimates provided today incorporate these important changes (the optimisations) as well as the macro reality of rapidly changing pricing and cost assumptions,” he said.
“Our team continues to do a fantastic job in working to mitigate these forces and maintain cost control and discipline across the organisation. However, we need to be realistic about what we can and can’t control – with the overriding objective of meeting our schedule while maintaining the highest possible standards of safety for our people.”
Liontown has spent approximately $73 million on Kathleen Valley to date, with approximately $685 million of remaining funds available comprising approximately $385 million in existing cash reserves and $300m in debt via a facility. The company said it was progressing other potential funding options as well.
The production timeline hasn’t changed for Kathleen Valley, with first tonnes from the processing plant expected in mid-2024.