Liontown Resources shares: where next after $6.6 billion Albemarle deal collapses?

A month ago, Liontown Resources (ASX: LTR) shares were changing hands for $3 per share, reflecting shareholder anticipation that Albemarle's $3 per share bid for the entire company that it made on 4 September was likely to succeed. That deal fell through on 16 October — and the stock has since fallen to just $1.80 per share.

Albemarle advised Liontown that its decision to withdraw was ‘was due to the growing complexities associated with executing the transaction,’ though Albemarle also ‘confirmed to Liontown its favourable view of the flagship Kathleen Valley project and Liontown’s management.’

Arguably, these ‘complexities’ are entirely Gina Rinehart’s growing shareholding.

Where next for Liontown shares?

On 19 October, Liontown found it necessary to announce a full funding package to bring flagship Kathleen Valley to first production and also refinance existing Ford debt — comprising a debt financing package and fully underwritten equity raising.

This included a significant $760 million commitment letter and approved term sheet with a syndicate of leading commercial banks and government credit agencies on ‘very attractive terms.’ These terms include an Export Credit Agency facility, a commercial facility, and an optional cost overrun facility.

However, LTR also conducted a $376 million equity raising. This included a fully underwritten institutional placement to raise $365 million, plus a non-underwritten conditional placement to Chairman Timothy Goyder for 6 million shares — equivalent to $10.8 million — and the opportunity for existing shareholders to subscribe to a further $45 million.

Managing Director and CEO Tony Ottaviano enthused that these fundraisings represent ‘critical achievements in de-risking the development of the Kathleen Valley Project. These initiatives ensure we are funded to first production and beyond. We have assembled a syndicate of lenders that can only be described as high calibre.’

He further noted that ‘the significant involvement of both Export Finance Australia and the Clean Energy Finance Corporation is another big endorsement for the Project and speaks to its global importance. The potential remains for other international export credit agencies that have expressed their joint interest to join the lending syndicate to do so in the future.’

Where next for Liontown shares?

Only a few hours after Albemarle withdrew, Gina Rinehart was setting up a new investing vehicle for her pivot into critical minerals — Hanrine Future Metals — a new company wholly owned by Rinehart’s flagship company Hancock Prospecting.

Many investors consider that Liontown will simply use its newly capitalised position to simply build the mine and start producing — though others consider the next bid for the company will come soon. For context, Rinehart has spent circa $1.3 billion on acquiring a 19.9% holding in LTR shares since early April — and most of these were at prices close to $3 per share.

Importantly, Rinehart can’t launch a takeover bid imminently due to the ‘minimum bid price rule’ which states that any takeover bid must match or exceed the highest price paid by the bidder for the stock within the previous four months.

This rule is designed to regulate market volatility and means the billionaire would have to wait until February to make a bid below that $3 per share range. However, speculation is swirling that Mineral Resources founder Chris Ellison, who has a close relationship with Rinehart through a variety of ventures — could itself make a bid.

MIN has interests in multiple ASX lithium assets and companies, and it would not be bound by the minimum price rule. On the other hand, MIN and Albemarle jointly own Wodgina and have other relationships through the recently amended MARBL Lithium JV — which could make an offer diplomatically difficult.

Of course, the other key issue is the lithium price. JP Morgan is predicting that spodumene prices will average $US1950/tonne in 2024 and $US1800/tonne in 2025, before falling to just $US1551/tonne by 2027 as lithium supply increases.

This general expectation is starting to weigh on many of the popular ASX lithium stocks — though it’s worth noting that not every analyst agrees, and further, that the investment bank’s prediction is based on assumptions that may not be entirely balanced.

Longer-term, the US Energy Transitions Commission argues that large supply gaps in key critical minerals including lithium could delay the 2050 net zero goal. The commission argues that ‘in some key minerals - particularly lithium and copper - it will be challenging to scale up supply fast enough over the next decade to keep pace with rapidly rising demand.’

Over the longer-term, LTR’s current share price weakness may be an opportunity for higher risk investors.

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