Liontown shares soar as Albemarle upsizes bid to $3.00 a share

Shares in Liontown Resources (ASX: LTR) rallied 9% as the market opened on Monday after Albemarle returned with its fourth takeover offer in less than twelve months.

Unlike the previous three, Liontown is taking the $3.00 per share offer very seriously, granting Albemarle access to exclusive due diligence to put forward a binding proposal.

The revised proposal statement says “the intention of the Liontown Board is to unanimously recommend shareholders vote in favour of the proposal in the absence of a superior proposal.”

The story so far

Liontown has rejected three unsolicited and non-binding proposals from Albemarle to date.

• $2.20 per share on 20 October 2022 (20% premium to previous close)

• $2.35 per share on 3 March 2023 (63% premium)

• $2.50 per share on 28 March 2023 (64% premium)

Liontown Resources 12-month price chart (Source: Market Index)

In response to the March offers, the Board noted “the opportunistic timing of Albemarle’s Indicative Proposal, coinciding with recent softness in companies exposed to the lithium sector and the pre-production status of the Kathleen Valley Project.”

Why the change of mind

The lithium and battery metals sector has faced a number of headwinds in 2023. During this period, Liontown (+119% year-to-date) has far outperformed its peers such as Pilbara Minerals (ASX: PLS) and Allkem (ASX: AKE), up a respective 27.5% and 26.4%.

The $3.00 per share bid might offer peace of mind amid uncertainties such as:

#1 Volatile spot prices

Chinese lithium carbonate prices have more than halved from November 2022 peaks of almost 600,000 yuan to 201,500 yuan a tonne in September. The price environment has become increasingly volatile amid signs of low demand from key battery manufacturers and the lack of Chinese government-led subsidies.

#2 Lack of price visibility

It’s difficult to forecast where lithium prices will land in the medium-to-long term.

You don’t want to see a scenario like Chalice Mining (ASX: CHN) – Where its long-awaited scoping study was based on lofty commodity price assumptions such as US$2,000 an ounce for palladium (compared to current levels of US$1,250 an ounce).

#3 A risky capex environment

There’s a long list of miners that have been hit by higher-than-expected capex this reporting season. Whether you’re an up-and-comer or a well-established producer – Nobody is safe.

Large cap examples that come to mind include:

• Pilbara Minerals (ASX: PLS): FY23 results guided to total FY24 capex of $875-975 million vs. prior Macquarie estimates of $557 million. This triggered an 11% selloff between 27-28 August.

• Lynas Rare Earths (ASX: LYC): FY23 results forecasted a project budget of approximately $730 million, up from $575 million guidance in February 2023. Lynas shares were relatively unfazed by the revised capex, up 3.1% on results day.

Even Liontown had to raise its capital estimate to $895 million back in January 2023 from a prior estimate of $473 million (2021 DFS). 

ASX lithium stocks open higher

The takeover bid has helped prop up lithium stocks on Monday, with most names up between 1-10% (prices as at 10:40 am AEST):

• Patriot Battery Metals (ASX: PMT) +7.7%

• Sayona Mining (ASX: SYA) +4.4%

• Winsome Resources (ASX: WR1) +3.7%

• Allkem (ASX: AKE) +3.0%

• Core Lithium (ASX: CXO) +2.5%

• Pilbara Minerals (ASX: PLS) +1.8%

The Bottom Line

Albemarle has raised its takeover bid by 36% (from $2.20 to $3.00) in less than twelve months, which stresses the strategic nature of globally significant resources such as Kathleen Valley.

If the takeover goes through, then we say goodbye to a project that’s expected to produce between 500-700,000 tonnes per annum of spodumene.

This article was originally published for Livewire Markets on Monday, 4 September 2023.