Annual report reveals the hefty price Liontown Resources paid to swap out its debt funding
Australia’s newest lithium producer forked out $21.3 million to replace syndicated loans with a significantly smaller funding package.
Liontown Resources’ annual report lodged late on Friday revealed the financial sacrifice made to bin a $550m debt facility signed in March. Liontown needed the funds to get its Kathleen Valley mine in the Goldfields up and running.
This $550m debt facility, which was via a syndicate of commercial and Australian government borrowers, was cobbled together less than two months after a similar $760m debt deal had been torn up by the lenders due to global analytics firm Wood Mackenzie forecasting a grim lithium price environment over the next few years.
The $760m deal being yanked away from Liontown forced the size of Kathleen Valley to be scaled back.
Liontown then switched the $550m debt facility in early July to a $US250m ($379m) convertible notes agreement with battery manufacturer LG Energy Solution. This was on top of an existing $300m loan owed to car maker Ford.
“All costs related to the cancelled debt facilities have been expensed during the year,” Liontown stated in its annual report.
“The costs relating to these activities totalled approximately $21.3 million and covered commitment fees, advisory fees, legal fees and the accelerated amortisation of capitalised borrowing costs relating to the Ford debt facility.”
Convertible notes are essentially a low-interest type of debt that can be converted into shares.
The deal with LG included a 10-year offtake extension for Kathleen Valley’s product and a “collaboration agreement” to “explore” the feasibility of establishing a lithium refinery.
Liontown’s annual report also shows the company had $331.5 million of cash by the end of last month, compared to $317.9m of borrowings and $143m of lease liabilities by June 30.
The LG deal was announced two days after June 30 and the lease liabilities are for “various items of plant, machinery, vehicles and other equipment used in its operations”, Liontown says.
The price tag to build Kathleen Valley, which cranked out first spodumene concentrate on the final day of July, was last updated just over a year ago. It was increased from $895m to $951m, but the company’s largest shareholder — Gina Rinehart’s Hancock Prospecting — believed the ultimate cost could exceed $1 billion.
The Rinehart investment vehicle made that statement as it creeped up the Liontown register to eventually thwart a $3 per share bid from Albemarle in October.
“(Liontown) also incurred approximately $4 million in costs relating to the Albemarle offer which primarily relates to advisor fees,” the annual report reads.
Liontown was contacted for comment.
Since Albemarle walked away from a takeover Liontown has been battered by tumbling lithium prices — its shares last changed hands for 78¢.
Kathleen Valley is currently in the ramp up phase with production expected to reach full tilt next quarter.
The current spodumene concentrate price is about $US790 per tonne and Citi estimates Kathleen Valley will only make money if the price is above $US900/t.
If prices do not improve by the second half of next year Liontown admitted it could go under.
“Should the combination of spot prices for lithium chemicals and spodumene concentrate continue at their current levels (or lower) into financial year 2026, and the ramp-up of the (Kathleen Valley) project does not proceed as expected, the Group would further review and rationalise its mine plan and general cost structure, and may also need additional funding,” the annual report states.
“In these circumstances there is a material uncertainty that may cause significant doubt as to whether the Group will be able to continue as a going concern.”
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