Lithium rebound refocuses attention on Tier-1 assets like Kathleen Valley, says Bridge Street

The recent release of a DFS progress update by Liontown Resources (ASX: LTR) reinforces the view that its flagship Kathleen Valley project in WA is set to become “one of the next world-scale hard rock lithium projects
23rd April 2021
Resources Rising Stars

The recent release of a DFS progress update by Liontown Resources (ASX: LTR) reinforces the view that its flagship Kathleen Valley project in WA is set to become “one of the next world-scale hard rock lithium projects to supply the world’s insatiable demand for lithium products.”

This is the view of leading Sydney-based broking and advisory firm Bridge Street Capital Partners in an updated research note triggered by the DFS update and recent sharp upward moves in the prices for lithium raw materials.

“What a different 12 months makes,” wrote experienced Bridge Street analyst and former fund manager, Dr Chris Baker, who recently upped his valuation for Liontown to 90c-a-share, well north of its recent trading price of around 42c.

He was referring to the sharp rally in spodumene prices from around US$450/t – a price which saw much of the WA hard rock industry struggling – to US$660/t recently, with the price for the hard rock source material lagging significantly the recovery in final lithium products, carbonate and hydroxide.

“Demand is being driven by (amongst numerous other applications), China’s strong growth in EV’s,” Baker wrote.

“Recent forecasts estimate EV sales in China will increase by over 50% this year but will still be under 5% of total passenger car sales,” he continued.

“With changes to the environmental agenda in the post-Trump US, it’s anyone’s guess as to the trajectory of EV sales in the world’s largest economy.”

Bridge Street believes that the DFS update for Kathleen Valley demonstrate that underground mining rates could potentially be well above the PFS rates of 2Mtpa, with the project increasingly looking like it will be a 100% underground operation, at least in the early years.

“Geotechnical studies have demonstrated excellent potential mining conditions for an initial 2Mtpa underground operation,” the note says.

“Given the geometry of the KV pegmatites (long strike, good width) this to us presents an excellent outcome.

“Ongoing metallurgical testwork suggests that concentrate grades of over 6% Li2O can be achieved at or above the 75% recoveries suggested from the PFS,” the report also notes.

Bridge Street’s fully-funded, un-risked valuation of the Kathleen Valley project of around $2.6 billion translates to a fully-funded LTR valuation of 90c per share.

“This assumes a battery-grade lithium hydroxide price of US$12,000/t (CIF) now the current spot price in North Asia.”

Liontown’s new Managing Director, former senior BHP executive Tony Ottaviano, commences with the Company next month.

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