Lithium

Is the bottom in for Liontown Resources?

Wed 22 Jan 25, 10:55am (AEDT)
mining truck

Key Points

  • Liontown shares rallied 11.9% on Tuesday after exceeding production forecasts for the second quarter of FY25
  • Q2 FY25 spodumene production rose 215% quarter-on-quarter to 88,683 tonnes
  • Despite strong quarterly results, Goldman Sachs remain cautious due to the lack of valuation appeal and priced-in ramp up forecasts

A strong quarterly production report sent Liontown Resources (ASX: LTR) soaring 11.9% on Tuesday – its biggest single-day gain since October 2024.

The lithium miner's shares are mounting a comeback, up 34% year-to-date to a two-month high, buoyed by production ramp-up that's exceeding analyst expectations and stabilizing lithium prices.

Yet this rebound offers little consolation for long-term investors. The stock remains down 34% over the past twelve months and has shed around 76% from its all-time highs.

While Liontown inches back towards its former glory and works to fulfill its promise as one of Australia's future lithium powerhouses, the key question remains: Has the stock finally found its bottom?

December Quarter Highlights

“Liontown has continued to make strong progress at Kathleen Valley during the December 2024 quarter, with the ramp-up of production continuing to meet and in some areas exceed expectations," said Managing Director Tony Ottaviano.

 

Q2 FY25

Q1 FY25

% Chg

Spodumene production (dmt)

88,683

28,171

215%

Spodumene sales (dmt)

81,341

10,831

651%

Realised price (US$/dmt SC6e)

806

846

-5%

Revenue (A$m)

89.9

11.6

674%

Cash (A$m)

192.9

263.1

-27%

Source: Liontown Resources

Goldman's Take

The below table compares Liontown's second-quarter FY25 results with Goldman Sachs forecasts.

 

Q2 FY25

GSe

% Dif

Spodumene sold (kt)

81

55

47.2%

Realised spodumene price (US$t SC6)

806

711

13.3%

Cash costs (A$t SC6)

1,000

900

-10%

Cash (A$m)

192

158

21.5%

Source: Goldman Sachs

December quarter: Second quarter production was "well ahead" of estimates, largely driven by higher feed grades (~1.3%) and recoveries (~55% and reaching ~59% in December). Realised pricing softened quarter-on-quarter but outperformed expectations at US$806/t SC6, with the first shipment to LG Energy Solution under the long-term offtake agreement. Liontown also commenced commercial production for Tesla's long-term agreement in January 2025. The company notes "ongoing inbounds for their product," signaling robust interest. Strong sales underpinned positive operating cash flow of ~A$11 million, broadly meeting Goldman’s expectations on an adjusted basis.

2H25 Guidance: Liontown reaffirmed its 2H25 guidance for improving operational performance with higher spodumene production of 170-185kt SC6. This is expected to drive lower unit costs and AISC of A$775-855/t and A$1,170-1,290/t SC6 respectively (~US$510-565/t and ~US$770-850/t). Goldman Sachs has tempered its 2H25 expectations, forecasting production at the lower end of guidance and costs at the higher end.

Longer-term outlook: Unit costs and AISC are projected to decrease below 2H FY25 guidance levels starting FY27, after rising through FY26 as LTR transitions from open-pit to full underground mining.

Balance sheet: LTR ended the December 2024 quarter with A$192 million in cash and net debt of ~A$550 million, including ~A$37 million in capitalized interest from Ford and LG facilities. Goldman Sachs made modest upgrades to its FY25 free cash flow (FCF) outlook after LTR's strong quarter. Despite factoring in a conservative production ramp-up, the company is expected to turn EBITDA positive by mid-to-late CY25 and FCF positive in CY26. This outlook is supported by current lithium and spodumene price forecasts, with deleveraging anticipated from FY27.

Bottom Line

Goldman Sachs retained a Neutral rating and kept its target price unchanged at 71 cents. The cautious stance is attributed to several factors:

  • LTR is trading at ~1x net asset value (in-line with peers)

  • LTR is trading at an implied spodumene price of US$1,180 a tonne (in-line with peers)

  • Ramp up estimates are increasingly priced in

  • Goldman's valuation includes the planned expansion from 2030 and additional resource conversion for mine life extension

Overall, analysts find Liontown's current valuation unimpressive, with much of the production outlook already reflected in their models. However, they highlight that by FY29, once Kathleen Valley ramps up production to over 550,000 tonnes per annum, it is expected to achieve competitive scale, leveraging its large and high-quality resource base.

 

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.

Get the latest news and insights direct to your inbox

Subscribe free