‘Tell ’em they’re dreaming’: Liontown CEO weighs in on lithium supply

13th January 2022

The mining chief driving Western Australia’s next major lithium project has shot down the prospect of soaring prices spurring an oversupply, arguing several challenges exist in getting new mines up overseas, while COVID-19 is hitting productivity and lifting wages (reports The Australian Financial Review).

Perth-based Liontown Resources – which is chaired by Timothy Goyder, the cousin of high-profile businessman Richard – on Wednesday unveiled a binding offtake agreement with LG Energy Solution for lithium spodumene concentrate from its $473 million Kathleen Valley project. Shares in the $3.4 billion miner jumped 5 per cent to $1.63.

Chief executive Tony Ottaviano hailed the deal as a major milestone following last month’s $450 million equity capital raising and the release of a definitive feasibility study in November that revealed a higher price tag to get the project off the ground but greater output.

Broker Euroz Hartleys described it at the time as “one of the largest undeveloped conventional lithium projects” with “significant strategic value”.

Construction is set to begin in the second quarter of 2022 and first production two years later, initially delivering 2.5 million tonnes a year of spodumene concentrate. It would be WA’s next major lithium mine following Wesfarmers’ Mount Holland project, which is being built.

Mr Ottaviano, a former long-time BHP Billiton executive, said that while he expected COVID-19 border and supply chain impacts to have “washed through” by the time Kathleen Valley gets under way, the market was factoring in too much supply from new projects in coming years.

In the previous lithium boom, prices crashed amid fears of a looming supply glut. But in the past 18 months, demand has soared and brokers have continued to raise their price forecasts, with Macquarie analysts in late December increasing their 2023 to 2025 bets for regional prices by 12 to 22 per cent.

Mr Ottaviano said recent opposition in major producer Chile to project developments and land exploration sales, plus major logistical challenges of unlocking promising lithium deposits in Africa, were headwinds to greenfield supply. Locally, he said raw materials and wages inflation had driven Liontown’s increased capital expenditure estimate for Kathleen Valley – and it was not alone in feeling the pressure.

“And then there’s productivity loss,” he said. “Because ... the tool time in construction has reduced significantly (because of) the COVID restrictions and given the shortage of labour ... people that are not familiar with the industry are being brought into the industry.

“I keep telling people, firstly, it is harder to bring online (supply) than people think.

“The average time in a normal world from discovery to first tonnes is five to seven years. So, if you’re not turning soil by June this year, there is no way, not even if you’re China Inc, given the supply chain issues and all the rest of it, will you be in production earlier than 2024. No way.

“So all these people predicting tonnes from central Africa in 2023, there’s a classic line in the movie The Castle (‘tell ’em they’re dreaming’).”

Mr Ottaviano said Kathleen Valley had the “ultimate validation” following the agreement with LG Energy Solution, the South Korean lithium-ion battery maker spun out of consumer products giant LG in 2020.

Under the five-year deal starting in 2024, LGES will buy 100,000 dry metric tonnes of spodumene in the first year before ramping up to 150,000 DMT in subsequent years, with pricing determined by a “formula-based mechanism” based off market prices for lithium hydroxide monohydrate.

He said the agreement made conversations with debt providers “completely different”, and validated the company’s strategy of trying to be close to the original equipment manufacturers before making any decisions on which product to refine. Talks for further offtake deals were “well advanced”.

“When you look at the learnings from the first generation lithium producers, the quality of the counterparties, the position on the value chain are critical enablers,” he said.

“I want to be as close as possible to where the technology is being adopted and formulated ... [that] helps me be better prepared and more agile to ensure I make the right strategic decisions at the raw material level.”

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