Liontown is our preferred lithium play: Macquarie

Tue 22 Mar 22, 3:06pm (AEDT)
Lithium 4

Key Points

  • Liontown Resources and Pilbara Minerals are Macquarie's preferred lithium plays
  • Downstream lithium hydroxide production could be a long-term growth lever
  • Macquarie analysts haven't considered Liontown's second lithium project, Buldania

Liontown Resources (ASX: LTR) has been one of many local lithium stocks upgraded by analysts from Macquarie.

Macquarie is bullish on lithium as the narrative of strong electric vehicle demand and supply-tight conditions continues to gather momentum. 

The investment bank viewed Pilbara Minerals (ASX: PLS) and Liontown as its preferred lithium plays, according to a note earlier this month. 

The world-class Kathleen Valley

Macquarie is Outperform rated on Liontown with a $2.50 target price.

The note observed the development of Kathleen Valley and the signing of offtake agreements with two key partners -  LG Energy Solution and Tesla.

For the uninitiated, the two recent offtake agreements are:

  • 12 Jan: LG Energy Solution to buy up to 150,000 dry metric tonnes (dmt) per annum of spodumene concentrate

  • 16 Feb: Tesla to purchase 100,000 dmt in the first year, increasing to 150,000 dmt per year in subsequent years 

"The company is essentially fully funded to bring Kathleen Valley into production, with an initial production target of 500ktpa of spodumene concentrate," the note said.

This means that the two offtake agreements cover 50-60% of Kathleen Valley's initial production, which is expected to come online in the second-quarter of 2024.

Downstream processing opportunity 

“Longer term, the development of an integrated lithium hydroxide facility could boost spodumene production to +700ktpa,” said Macquarie analysts.

Liontown Spodumene Production
Source: Macquarie Research, March 2021

According to Liontown, the option for a downstream opportunity will be considered from 2029 onwards, subject to market conditions.

What isn't accounted for

Interestingly, there was no mention of Liontown’s second hard-rock lithium project, Buldania.

Drilling by Liontown has identified a maiden Mineral Resource Estimate of 15m tonnes at grades of 1.0%.

While in its early days, the project is considered highly prospective and ongoing drilling will look to grow its existing mineral resource.

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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