Monsters of Rock: Korean finance to help Liontown roar… and Ramelius nabs German stake in Spartan

Liontown Resources dumps commercial banks for LG in bid to fund Kathleen Valley lithium ramp up and expansion
Amid weak prices LTR boss Tony Ottaviano says new entrants in the West need support to avoid coming shortages for the EV metal
Ramelius boosts stake in Spartan to almost 18% as German investor nets big payday

Liontown Resources (ASX:LTR) has put a future expansion of the Kathleen Valley lithium mine back on the table, inking a deal for a US$250 million ($379m) convertible note with Korea’s LG Energy Solutions.

It will be used to replace funding from commercial banks and Federal Government bodies, which Liontown says came with more restrictive covenants.

The deal with the major ex-China battery maker, which has a conversion price of $1.80 a pop and reference rate linked to the Federal Reserve Bank of New York’s overnight financing rate, will boost the company’s cash balance to $501m “providing balance sheet strength to fund Kathleen Valley ramp-up to 3Mtpa steady state production”.

Going the other way will be a 10-year offtake extension for LG, that will take its allocation from Kathleen Valley to 15 years.

The announcement had Liontown up almost 7%, picking its shares off a two-year low and giving a much needed boost to confidence in Aussie lithium producers.

The $1bn development was due to be in operation by the middle of 2024, but a dive in prices and bearish forecasts from analysts – notably Wood Mackenzie – saw the company lose a $760 million debt package in January.

It was replaced by a $550m package comprising of banks, the Clean Energy Finance Corporation and export credit agencies, but Liontown was forced to pause early works that would have prepared for a quick expansion of mining rates from an initial 3Mtpa to 4Mtpa.

The new package will allow early enabling works for the 4Mtpa expansion, which is being studied and optimised at the moment. LTR is targeting a 2027 timeframe for that one, with another US$100m potentially available from LG over the top of the announced finance.

Failed deal, a history

Tim Goyder-chaired Liontown was inches from a $6.6bn sale to US lithium giant Albemarle before Gina Rinehart’s Hancock Prospecting purchased a $1.3bn, ~20% blocking stake around the $3 per share offer price.

READ: Monsters of Rock: Albemarle came to play baseball at Liontown only to find Australia plays cricket

Despite speculation Rinehart would pounce on a weakened Liontown after nailing a $1.7bn 50-50 deal with SQM to buy out early stage lithium explorer Azure Minerals, a February trigger that enabled Hancock to go back in with a bid below the price she previously paid for her LTR stock passed with a whimper.

LTR says it will produce its first spodumene concentrate by the end of July. While spot prices rose as high as US$8000/t at one point during the mine’s construction, justifying the blowouts incurred through the build, they have since fallen to around US$1000/t due to oversupply of lithium raw materials and weakening economic conditions in China.

LTR boss Tony Ottaviano has been bullish about his plans to supply the market outside China through deals with EV and battery makers, with Elon Musk’s Tesla counted among its future customers.

The finance from LG also comes with a downstream collaboration agreement to study the feasibility of establishing a lithium refinery compliant with the US Inflation Reduction Act in a bid to supply North American EV producers.

“I am very pleased to announce that we have taken a major step forward in our strategic partnership with foundational customer LG Energy Solution, one of the world’s leading battery producers,” Ottaviano said.

“LG Energy Solution’s long-term investment in Liontown is a testament to the world-class quality of the Kathleen Valley Project and a tremendous endorsement of the capability of our team.

“The funding will be instrumental in supporting the production ramp up to 3Mtpa and early works necessary to preserve the potential 4Mtpa expansion case for Kathleen Valley.”

“In addition, I am pleased to announce that the strategic partnership with LG Energy Solution will also include entering into a new downstream collaboration agreement to investigate the establishment of an IRA compliant lithium refinery to process Kathleen Valley spodumene into battery-grade lithium chemicals.

“These developments pave the way for Liontown to pursue our long-term strategy to be a globally significant provider of battery minerals as the world transitions to a low-carbon future. We believe this partnership and investment will deliver substantial value to our stakeholders and position us at the forefront of the lithium
industry.”

Liontown says around $120m is still to be spent on construction and commissioning, with $381m in additional liquidity to support its balance sheet during the ramp even “if the lower current spot prices were to continue”.

LG will claim 100,000tpa of SC6 in the first year of operation, ramping up to 150,000tpa in years 2-5, 160,000tpa in years 6-10 and 140,000tpa from years 11-15.

Tesla will take 100,000dmt in year 1 and 150,000dmt from year 2-5, while Ford will take 75,000dmt in year 1, 125,000dmt in year 2 and 150,000dmt in year 3-5, give or take 10%.

Vision into the future

Liontown chief commercial officer Jon Latto said it was critical for downstream processing to be developed outside China, but made it clear current prices would not support a new refinery.

“Even my contracts in China say they’d struggle to build a refinery downstream in China at today’s prices,” he said on a conference call.

“This is a commitment and vision from LG and Liontown into the future, as we see ex-China supply chains being developed, it is absolutely critical that more downstream capacity is built outside of China.”

He said the Kathleen Valley mine could be big enough to support ‘mulitple’ refineries with a feasibility study along with Japan’s Sumitomo announced at Diggers and Dealers last year still being pursued.

“Kathleen Valley is a very large resource. We expect to be producing close to 100,000t of LC equivalent when we ramp up to the 4Mt case … that would underpin a number of refining downstream facilities,” Donald said.

“We don’t necessarily aim to convert all of it at this stage, given the continued uncertainty into the future around battery chemistries, etc., but our intent is to supply customers with the product they actually use, and that is lithium carbonate and lithium hydroxide.

“So the clear intent is that we move some of our book into lithium chemicals, and we do that in partnership where we can do it in a sensible way.

“The Sumitomo one is specifically related to Japan, which we continue to do that work. And actually we’re working at the moment to identify suitable locations within Japan, which you can appreciate as a small collection of islands is not necessarily that easy.”

The announcement came amid a tough run for lithium developers, with the market losing enthusiasm after a promised revival in spod and chemicals a couple months ago turned dead cat bounce. Ottaviano warned market participants needed to support new entrants in the West to avoid supply shortages down the track.

“It is very, very tough out there, and we’ve pushed this through. So the message I’m going to give the market is supply is harder to bring on than people think,” Ottaviano said.

“And if you think the world’s supply will be solved by bringing on African or Chinese lepidolite as the only source of lithium units, I think you’re going to be disappointed, because the world wants diversity of supply.”

Germans out, Aussies in as Ramelius grows Spartan stake

German resources bloodhound Wilhelm Zours has taken his second major win off the table in 2024, selling a mammoth stake in gold explorer du jour Spartan Resources (ASX:SPR) in a move that places ASX gold hunter Ramelius Resources (ASX:RMS) in pole position to shape the future of the Dalgaranga owner.

Ramelius now has almost 18% of the $945 million capped Mid West gold explorer, which has crafted a high grade resource of almost 1Moz at the Never Never discovery since early 2023, located incredibly just a step away from the processing plant at its misfiring, low grade Dalgaranga mine.

Since recapitalising early last year at 10c and dropping the cursed Gascoyne Resources name, Spartan has been on a tear, up 850%.

A tidy gain for German fund Delphi, whose sale was foreshadowed after its rep Hansjoerg Plaggemars left the Spartan board last Friday. It sold exactly 100 million shares at a tidy 92c a pop, netting $92m.

Those all went to Ramelius, which last week clocked up an 8.9% stake, largely by tapping fellow Spartan insto Tembo Capital to sell down its 15% holding to 9.99%.

Majority owned by Zours, Delphi’s record is spotty and it has backed some duds. But 2o24 has been a happy year, with the German money man also banking ~$180m from the sale of his stake in lithium success story Azure into a $1.7bn takeover by SQM and Hancock Prospecting.

Mine life concerns

Ramelius and Westgold Resources (ASX:WGX), which missed an opportunity to snare then Gascoyne Resources a few years ago and is butting heads with Mark Zeptner’s Ramelius over its merger with previous RMS target Karora Resources (TSE:KRR), have long been suggested as potential buyers for Spartan.

Each located in the Mid West and Ramelius in nearby Mt Magnet, each have concerns over the life and quality of their assets.

Ramelius has a couple good years ahead of it at Mt Magnet, thanks largely to ounces trucked from the ultra-high grade Penny mine, but that’s a sugar hit with reserves only forecast to last a few years.

The 280,000ozpa WA gold miner, capped at ~$2.1bn, had over $500m in the bank before splashing out on its Spartan stake, and recently approved the development of its Cue gold project to bolster the life of the Mt Magnet mill.

That project will last for three years via open pit methods from early 2025, producing 230,000oz, with underground production to follow.

Spartan’s discovery is of an altogether different scale to the scattered Cue deposits Ramelius acquired in its 2023 takeover of Musgrave Minerals.

Having recently raised $80 million from investors, SPR is well stocked to continue drilling at Never Never, which includes ~953,000oz at 5.74g/t and an exploration target of 1.6-1.9Moz at 5.8-6.7g/t, with additional high grade discoveries being made at the adjacent Pepper prospect.

In the broader market coal miners continued to surge as coking coal prices lifted on the fire that closed Anglo American’s Grosvenor mine in Queensland’s Bowen Basin, while West African Resources (ASX:WAF) entered a trading halt to raise cash following the release of a feasibility study and and ore reserve on its Kiaka mine in Burkina Faso.

WAF confirmed it will produce 190,000-210,000oz at all in sustaining costs of under US$1300/oz at its Sanbrado mine in 2024, with production to rise to 480,000ozpa from 2026 to 2031.

That would average out to 420,000ozpa from 2024 to 2033.

The materials sector closed down 0.46%.