Liontown has ‘further re-rating potential’, says Bridge Street, as it lifts valuation to 90c

Leading Sydney-based equity capital markets group Bridge Street Capital has upgraded its outlook for lithium developer Liontown Resources (ASX: LTR), saying it still has further “re-rating potential” despite a strong recent trading performance.
26th February 2021
Resources Rising Stars

Leading Sydney-based equity capital markets group Bridge Street Capital has upgraded its outlook for lithium developer Liontown Resources (ASX: LTR), saying it still has further “re-rating potential” despite a strong recent trading performance.

Liontown is now trading in line with the Bridge Street’s earlier 43c valuation but could go a lot higher, according to a new research report by the Sydney-based firm, making it one of its strongest recommendations in the lithium sector.

“The stock has performed strongly and we continue to hear from investors that at a market cap of approximately $750 million, the stock is looking expensive,” wrote Bridge Street’s seasoned analyst, Dr Chris Baker.

However, this valuation was based solely on a 2Mtpa mine and concentrator, and Baker has since had the opportunity to review Liontown’s downstream strategy and measure the value of the company against several of its pre-development peers – including Piedmont Lithium, AVZ Minerals and Core Lithium.

This has resulted in a substantial upgrade to its valuation, to 90c per share (more than double the recent trading price).

Dr Baker is a former fund manager with 29 years’ experience in wholesale capital markets including working as a mining analyst and portfolio manager with Colonial First State and Caledonia Investments.

“We have undertaken a high-level review of a fully integrated model for the production of battery grade lithium hydroxide monohydrate (LHM) from hard rock (spodumene or SC6) feedstock, as proposed by LTR in last year’s scoping study,” Baker wrote.

“We conclude that if this option can be financed and engineered, it is clearly in the best interest of shareholders,” he continued.

“Spodumene appears to be the lowest cost route to the production of lithium hydroxide, a feature which should underpin strong growth in the sector for many years.

“We conclude that the emergence of a series of fully integrated hard rock operations in WA, Canada and the US will be highly disruptive to the current high-cost Chinese-dominated upstream (or merchant) operators.”

Bridge Street is also upbeat on the recent appointment of a new CEO for Liontown in Tony Ottaviano, a former senior BHP executive, which Bridge Street says shows the Company is serious about advancing the Kathleen Valley Project and potentially moving downstream into the production of LHM.

“We take our hats off to the departing CEO, David Richards, who not only targeted KV as a worthy exploration opportunity, but also managed the delineation of a true Tier 1 spodumene deposit. Mr Richards remains with the company as Technical Director.”
“Incorporating results from the recent scoping study for an integrated mine/processor/refinery at KV, our 100%-owned, fully financed conceptual valuation (50% debt/capex) moves up to 90c/share.

“We have adopted very conservative capex and opex estimates in our project model (+27% and 10% respectively over the LTR/Lycopodium estimates).

 

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