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The equity conundrum, according to Liontown

Liontown Resources

Taking a mining project from discovery to production alone is difficult for mining companies these days, with Liontown Resources set to be a rare case at its Kathleen Valley lithium project in Western Australia.

With major miners’ increasing appetite to gain greater exposure to minerals critical to the energy transition, and their rising hunger to do it through mergers and acquisitions (M&A) rather than organic growth, it poses questions about the equity landscape and the ability for emerging companies to self-fund project development.

Liontown chief commercial officer Grant Donald shed some light on the mining sector’s current funding difficulties during a panel discussion at the International Mining and Resources Conference (IMARC).

“Given the activity you’re seeing right now in Australia, particularly around some of our earlier-stage peers who are trying to find deposits and develop them, I don’t think you’re going to see people fund them themselves and become producers. It’s a pretty rare feat – usually they get bought by a major,” he said.

“There is access to capital. It’s not always easy – we’ve certainly had access to capital. It maybe delayed us a little bit as we tried to do it alone and during COVID, but I think everyone was in that boat.”

In financing its Kathleen Valley lithium project, Liontown raised $450 million in December 2021 through a fully underwritten placement at $1.65 per share – a 14.1 per cent discount from Liontown’s closing price of $1.92 on November 30 of that year.

In October this year, Liontown launched a $365 million capital raise at $1.80 – a 35.5 per cent discount from the company’s last closing price of $2.79 on Friday October 13.

This was supported by a $760 million debt funding package, supported by a syndicate of domestic and international lenders such as ANZ, Commonwealth Bank, HSBC and Société Générale.

But not all mining and exploration companies have been able to raise such large funds through equity and debt avenues.

Donald said some investors are still skittish about financing mining companies and their projects.

“One of the big things in the critical minerals space is a lot of the sophisticated investors and institutions, they’re still sitting on the sidelines,” he said.

Donald spoke about how some investors are concerned about a perceived boom-and-bust mining cycle.

“We don’t have that long-term view on value – that’s pretty rare still,” he said.

“Our register, until recently, was very heavily retail. The reality is the big money, the big institutions are talking about ESG (environmental, social and governance) but we’re not actually seeing that sophistication come into registers and actually funding these projects through to completion.”

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