Everything you need to know about Liontown's selloff and Gina Rinehart's silence

Mon 22 Jan 24, 4:53pm (AEST)
Red hills outback Western Australia WA
Source: iStock

Key Points

  • Liontown shares fell as much as 25.9% after announcing a review of its Kathleen Valley project on Monday
  • It was just last week that Albemarle sold its 4% stake at a substantial discount
  • Rinehart has yet to make any moves since October 2023. Has she lost interest or patiently waiting to get a better bargin?

Every Liontown (ASX: LTR) shareholder must be hating Gina Rinehart right now. The stock fell as much as 25.9% on Monday, to its lowest level since June 2022, after announcing a review of its Kathleen Valley project.

Today's brief low of 88 cents marks a 70% drop from Albemarle's best and final offer of $3.00 cash per share.

With its eyes on production in mid 2024, Liontown was supposed to take its place among major producers like Pilbara Minerals (ASX: PLS) and Mineral Resources (ASX: MIN). But its downward spiral makes you wonder – Is this thing closer to becoming a major or a Core Lithium (ASX: CXO)? Here's a recap of recent major developments and one major catalyst to watch.

Albemarle's Timely Exit

Albemarle sold its 4% stake in Liontown after market close on Wednesday 17 January, according to the AFR.

JPMorgan was tasked with finding buyers for the $120 million stake and fund managers were willing to pay between $1.26 to $1.32 per share. That's a 3.1% to 7.3% discount to the last close.

Why is a discount offered? There isn't enough liquidity for Albemarle to sell $120 million shares in one go. A discount is offered to attract buyers. A price range below the last closing price is used to gauge demand.

The trade was done at the floor price of $1.26 – Indicating poor demand for the discounted shares. Liontown shares finished the next session down 10.7% to $1.22.

Kathleen Valley's Review

Now we know why Albemarle was keen to offload its Liontown stake.

"The Project Review includes examining options to defer the timing of the previously announced 4 million tonne per annum underground development work, sequencing adjustments to the mine plan, and scope for additional cost optimisations," the company said in a statement, adding that "there is no change to the 3 million tonne per annum plant capacity design which the Company is currently constructing."

The announcement also noted the termination of a signed commitment letter and credit approved term sheet with a syndicate of lenders for a $760 million debt funding package.

"The finalisation of the debt package has been impacted by recent reductions in the independent forecast pricing for spodumene upon which the lenders' credit approvals were based," said Liontown. Does this imply bankers are walking away due to the changes in the project's financials and credit risk?

Nevertheless, Liontown said it has approximately $515 million cash at bank and expects this to fund construction activities through to first production in mid-2024.

Eyes on Post February

We haven't heard a squeak from Rinehart since 11 October 2023, when she added another 33.9 million shares to bring her stake up to 19.9 per cent. There was no mention of anything Rinehart-related in both:

  • Liontown's $376 million capital raising on 19 October 2023

  • The $120 million or $1.26 per share block trade by Albemarle last week

"Mrs Rinehart is prevented from mounting a fresh takeover bid for Liontown at less than $3 per share until February 11," according to the AFR.

Rinehart's silence on Liontown leaves room for your own interpretation: Is she genuinely losing interest? Or is she patiently waiting to get a better bargain? Or will she make a lowball offer in an environment where lithium prices continue to overshoot towards the downside?

Based on Rinehart's history of strong negotiation, the latter seems more likely. Otherwise, why would she have bought this much of the company in the first place. In any event, time will tell.

For shareholders, the $3.00 cash offer from Albemarle was a 'get out of jail free card'.

Written By

Kerry Sun

Content Strategist

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

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