Monsters of Rock: Liontown bags ‘premium price’ on first lithium sales, and Rio entertains in Canada

Liontown Resources rises as it reports ‘premium price’ on maiden spodumene sale
Rio Tinto sees small RBC upgrade after North American site visits, with Champion Iron also entertaining the sell-side in Canada
Canberra analysts, again, forecast sliding prices, but China stimulus sends iron ore back to US$110/t

It’s been a rough time for lithium, but today’s glimmer of hope comes from Liontown Resources (ASX:LTR), which nabbed a ‘premium’ price on the first shipment of spodumene from its Kathleen Valley lithium mine.

It’s squeaky bum time for LTR, which spent ~$1bn building the Kathleen Valley mine in a tumultuous build that came in on time but went through a number of cost blowouts, an aborted $6.6 billion takeover by America’s Albemarle (scotched by an interloping Gina Rinehart) and recut finance packages.

Tim Goyder-chaired Liontown eventually dumped its banking syndicate, some of whom pulled out when Wood Mackenzie went pessimistic on lithium prices, predicting market surpluses to later this decade, peaking at 26% of demand in 2026.

Instead it went to customers, who are still keen on high quality Aussie spodumene, to bankroll the final stages of construction, with Korea’s LG tipping in US$250m ($379m) in convertible note funding in exchange for a 10-year offtake contract extension.

Today’s first 10,000t shipment of 5.2% Li2O concentrate from the +500,000tpa Kathleen Valley, located near the town of Leinster in WA, will go to a Singapore-based trader at a 6% equivalent price of US$802/t.

That’s at a premium to the US$784/t quoted by Fastmarkets on Friday. LTR is keen to enhance ‘price transparency’ by reporting transaction costs.

Few lithium sales terms have been made available publicly outside of sleuthing by price reporting agencies and a handful of miner-led auctions which have dried up this year as companies have failed to draw significant premiums from them.

Expected to begin supplying LG, Tesla and Ford in the coming months, LTR MD Tony Ottaviano said demand from customers for high-quality Australian lithium remained solid.

“The successful shipment of concentrate from Kathleen Valley is a pivotal moment for the Company. Over the past six years, Liontown has focused on developing and constructing a world-class tier-1 lithium operation, and now we announce the beginning of generating revenue and cash flow, as we see our plans come to fruition,” he said.

“Within two months of first production at Kathleen Valley, we have not only successfully produced and now shipped concentrate, with a weighted average Li2O content of 5.2%, 6 but we have also achieved a sale on the spot market, realising a premium sales price in the current market conditions, and demonstrating the consistent demand for high-grade battery products.

“This achievement underscores the strong planning capabilities and operational excellence of our team but also the support from our Tier 1 logistics partner Qube.”

RBC raises on Rio

It’s always worth having a sceptical approach to broker upgrades when they follow site visits, where analysts have been wined, dined and schmoozed by the top brass of their covered miners.

But they’re also instructive, bringing investors inside a world they don’t normally get to see themselves.

Today it’s RBC upping its price target on Rio Tinto (ASX:RIO) by $2 to $127 a share, though its stock has already run past that level, lifting over 15% in the past week due to the expected impacts of China’s renewed stimulus push on iron ore and to a lesser extent copper.

RBC analysts led by Kaan Peker were up in the north visiting Rio’s aluminium and titanium dioxide processing operations in Quebec.

Absent of commodity price changes, Peker et. al. say Rio will grow EBITDA and return on capital employed by 5% by 2030 in thew aluminium business.

That will see capex lift from US$1.4bn to US$1.7bn according to RBC estimates, with Rio chasing reductions in operating costs. RBC thinks the Pacific Aluminium assets in Queensland are higher in cost, modelling third quartile against Rio’s guidance of second quartile.

But it sees the Canadian assets, powered by hydropower and moving to ‘sector-leading’ smelting technology called AP60 and Elysis, as world class.

The TiO2 assets are targeting to increase ROCE by 9 percentage points to around 15%, though RBC expects it will only rise to 11% by 2030 with production to return to historic levels of 1.2Mtpa by 2027, helped by an FID on a higher grade South African mineral sands deposit called Zulti South next year. Aluminium makes up 18% of group NAV and 15-18% of EBITDA on RBC’s assessments, with TiO2 contributing 3% to each, both dwarfed by its iron ore and copper assets.

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