Thank you for standing by, and welcome to the Liontown Resources Investor Briefing. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. Tony Ottaviano, Managing Director and CEO. Please go ahead.
Thank you, Darcy, and good morning, ladies and gentlemen. I'm here with my CFO, Jon Latto. You would have seen our announcement this morning. Today's presentation is really to provide some further context around the salient points in regards to that announcement. I wanna start by providing the audience with a project update. The Kathleen Valley project continues to be on schedule and on budget. We plan to have first production midway through this year, and we're starting commissioning works as early as March this year. So from a base case perspective, the project is traveling well. Liontown has advised the market in the past around its strategy of accelerated growth.
With that accelerated growth meant that we wanted to bring more capacity into a market that was very strong, and the pricing signals were very appealing for us to put in more volume into this market. We've seen over the passage of the last 12 months, a significant reduction in the lithium price to the tune of over 90%, to the point where today we're facing a spot price in the order of $875, whereas the start of last year it was close to $7,000 a ton. Now, as a company, we have a view as to what we think the medium to long-term view is of the price, and while our view differs, the majority of the forecasters see it differently.
So when we look at the forecasts that have come out in recent times, there has been a sharp deterioration to the tune of up to 60% reduction. So on that basis, when we announced our debt facility on October last year, we had a view by an independent pricing forecaster of what the medium-term outlook would look like in terms of the spodumene price. That view has changed. Changed to such an extent that the commitment letter provided to us by the banks could not be supported, and therefore we had to terminate. We have a very supportive banking group. All eight lenders have advised us that they will continue to work with us and work through a smaller and more nimble funding package for us to go forward. I think it's important to note that, as I said, our base case remains the same.
We are progressing towards our 3 million ton run rate. We have AUD 515 million in cash in the bank as of the end of December, and we've got sufficient funds to complete construction. We want to use this time to work with our banking syndicate and work through a more prudent and fit-for-purpose debt facility. As a consequence, we will review that accelerated growth strategy and design something that we both feel strongly about. I also want to mention that we are building a very strong team in order to finalize this execution. The market remains challenging, but we have confidence that over the passage of time, we will see an improvement. That's basically what I wanted to add today. I'll now turn to Darcy to open the line up for questions.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Hugo Nicolaci from Goldman Sachs. Please go ahead.
Morning, Tony and Jon. Thanks for the update this morning. Maybe just a couple of questions from me, but maybe most firstly, a clarification. Can you just now confirm you're no longer repaying and closing that forward debt facility?
Yes. At the moment, the forward facility stays on foot.
Okay, great. So in that case, then, it's probably fair to assume that part of the lender reassessment around debt capacity, that total debt capacity to come back. So simplistically, you know, before you take out the pricing adjustments, that lending syndicate should have probably come back from AUD 760 million to AUD 460 million if you're keeping the forward debt. So then just can you talk to maybe the ballpark of available debt you're talking to with that syndicate at the moment? What the composition and timing of that might look like? And then is there any risk that with lithium prices still falling, you might not actually have certainty around a funding package there for another couple of months? Thanks.
Thanks, Hugo. Your spread math was correct. So based on the AUD 760 we announced previously, you take off the forward debt, that will stay on book. So the fresh debt, if you want to call it that, was the AUD 460. What we're aiming to do in the next coming weeks and months, as we've indicated on, is to look at what the resized debt facility will look like, and it will be lower than the AUD 460. In terms of the lithium prices and potentially lithium prices going forward, the price forecast that we use as part of our banking syndicate arrangement is the WoodMac forecast. And the WoodMac's January update has indicated a significant reduction in the medium-term price, to the tune that we're seeing in years 2027 and 2028, and 2029, about $950 CIF spodumene price.
So to me, you know, is there a risk that the price goes fuller? I think, I'm not here to sort of speculate, but, that is a very, very low price.
Thanks for that, Tony. So then maybe just jumping from funding across to how you're thinking about the projects. Maybe if you could just elaborate around some of the review options you've touched on in the release, around what the further cost optimizations you're looking at are, and just around the mine sequencing and changing that. Understand that that had already been changed, so what other flexibility you have, and what you're expecting the impacts around, you know, ramp up head grade and recovery impacts could be if you do change that sequencing?
Yeah, that's a very good point. So let me elaborate. In our October announcement, we said that we're bringing forward the 4 million ton development work to now, so that we can provide ourselves that insurance and risk mitigation around delivering the three and then ramping up to the four. So when we brought forward that development work, we brought forward capital. Now, with the market outlook as being predicted by the independent experts on forecasting, we're sort of questioning whether or not do we really want to bring additional supply into the market when they're forecasting an oversupply? So what we're going to target is whether or not it's prudent for us to spend that upfront capital on accelerating the 4 million ton underground.
Now, the 4 million ton capital cost to build and expand the plant will also, as a consequence, potentially be deferred, so there's some saving there. Then on the resequencing, if we look at ramp-up schedules, and with us now slowing down or potentially eliminating the accelerated development at Northwest, there may be some tons and grade benefits, but we need to work that through in the coming weeks and months.
Great. Thanks, Tony. And just one last one I'll just squeeze in. What is your total CapEx around the 4 million ton development expectation at the moment in terms of mine and, and processing? And, you know, what did you think that going to 4 million tons could potentially reduce your unit cost by?
Yes. So, the capital cost for the process plant upgrade was AUD 70 million, approximately. The development work for the 4 million ton, the additional cost of that development work, I don't have that figure on... AUD 36 million, Jon tells me. Right? And in terms of, you know, potentially, what does that do to our, operating costs, the volume, benefit that you get from the extra tons, I couldn't tell you, but, offhand.
No worries. I'll probably ask more of my share. I'll round back. Thanks, Tony.
Yeah.
Thank you. Your next question comes from Alex Papineau from Citi. Please go ahead.
Hi, Alex.
Hi, Tony and Jon. Have you had any discussions with existing strategic shareholders or offtake partners to provide alternative funding solutions?
Alex, it's been relatively... All of this has been relatively fresh. So, you know, we've, we will now commence a discussion, primarily with our banking syndicate initially, given how strong their support has been in terms of finalizing the debt facility. We have ongoing discussions with customers around our downstream and potentially we may open a discussion up with our customers around this as well. But in terms of strategic investors, we will talk to major shareholders following this discussion so that we can give them an update as well.
Great. Okay. And just onto the project, now that you've started underground development, has there been anything different than what you initially expected, such as ground conditions or development rates so far?
Actually, Alex, that's a good news story. We are spot on budget, both on cost and development for the underground works. As of December, we had done 290 meters underground development, and the ground conditions are spot on. So, Byrnecut, our contractor, is going hell for leather, and we're very, very happy with the progress of the underground.
Just great to hear. Well, that's it for me. I'll pass it on.
Thank you. Your next question comes from Levi Spry from UBS. Please go ahead.
Hi, Levi.
Good morning, yeah, good day. Good day, Tony. Good day, Jon. Just a couple of quick ones on, I guess, the use of funds sort of update we got back in October, I think it was. So the $788, how do we compare that to what you've seen post this quarter? What elements can sort of get reduced in that?
Okay. So if we and I'll refer to Jon, when I exhaust my limit of knowledge on this. But if we take the announcement of use of funds, there was the refinancing of the Ford debt, so you take that out, then there was AUD 460 million. But there was a portion of that debt, which was the cost overrun facility, which was to the tune of about AUD 110 million. And then there was the capital reserve amount of about 150 that we wanted to have as our minimum balance as part of the ramp-up. And then the balance was working capital effectively that we needed for the ramp-up period. Now, it's that figure that's as a result of the changes that we need to review. So, Jon?
Yeah. So Levi, if you're asking about the AUD 352 million buffer that we that we announced to the market back in October, you know, obviously, as part of the, I guess, the termination of the current debt discussions that we've had, you know, that buffer included the AUD 110 million cost overrun structure. So if you deduct that off the 352, you're down at about 240. Now, clearly, we obviously need a prudent minimum cash balance as we move forward, and in operations, that might be 100 million, say, but in ramp-up, you'd obviously prudently want a little bit more than that. So if you say that that was 150, that then brings the buffer down to circa 90 million.
Obviously, as a result of this Q4 forecast that's come out, a fair amount of that 90 would have been removed by virtue of the significant decrease in lithium price forecast.
Yeah. Okay. Thank you. I might come back to you on some of the capital lines. And just confirming, like, so Woodmac, it's just one independent price forecaster that all of these banks were relying on?
Yeah. So as part of our long-form documentation, we agree on a price forecaster. The one the banks felt comfortable with is, and we felt comfortable with, was Woodmac, 'cause given that we've used Woodmac through PFS, DFS, and now. And there was optionality under our lending facility to potentially consider an alternative benchmark, and an alternative price forecast or a basket, but at the moment it is Woodmac.
Okay. Thank you. Thanks. Thanks. Thanks for your time.
Thank you. Your next question comes from Lyndon Fagan, from JP Morgan. Please go ahead.
Good morning, guys. Just to clarify, how much is left to spend to get this project up and running?
Yeah. So we've mentioned that, the AUD 515 is what we've got cash in the bank, so you can safely assume that that's sufficient to complete construction.
Then you're saying you need obviously AUD 150 million for a cash balance during ramp-up, so I'm just trying to figure out what... Is there any gap here? Is it, you know, what, can you just spell it out again for us, please, in terms of what you need?
Well-
'Cause obviously the CapEx is coming down with not doing the expansion. That's the bit that's-
And that's-
a little confusing.
Yeah. So we're gonna. We've got to do the work, Lyndon, to revise. All this is fresh. We've got to do the work to see what amount of capital we need, based on not accelerating the growth of the 4 million tons. And once we've done that piece of work, we then can understand the size of the debt that we need. But as I mentioned to Hugo, the previous announcement, basically we needed AUD 460 million of fresh debt. Right? We had AUD 760 million. We take away the AUD 300 million from Ford. We need AUD 460 million back then to conclude and ramp up the project to first tons and beyond. What we're saying today is we've got to look at reducing that AUD 460 million to another figure. Right?
Which we've got to do the work around.
Got it. And, can you give us an update on what the mining cost is, please?
We put out to the market in October that our mining cost was AUD 8.73 a ton. That's where we stand at the moment. Jon, is that-
Yeah, I mean, that's right. We, so we obviously put out some ten-year guidance of, you know, $650 a ton. Obviously, as Tony's alluded to, you know, there's a bunch of optimization work going on at the moment, and we need to take a little bit of time to assess what that means, and, you know, we'll relook at those calculations.
Yeah, but the cash cost that we put out in October of $73 a ton, you know, I'm still confident in that number. Byrnecut, as I mentioned earlier on, is progressing to schedule on budget, and we're not seeing anything untoward in the work they've done to date.
... So under a smaller configuration, you're still comfortable in the unit cost guidance that was previously provided?
I think so, because we've mentioned in our announcement that not only are we looking at capital reduction, the gain here is to reduce our all-in sustaining costs, but given the material change of the revenue side. So it's not only the sustaining capital and the development capital, but we'll also take this opportunity to look at the C1 cost.
Yeah. And so in terms of modeling it now, is it just the 2.5 million tons of processing that you would advise us to do, or is there a sort of-
No, it's the three.
Efficiency gains on top? Three, sorry. Yep.
Three.
Okay. All right. And then as far as valuing the expansion optionality, I mean, at this stage, if you were to repay the debt, from your initial comments, but you sound as though you're more bullish than Woodmac on your numbers, or your price outlook, I should say. Does that mean that if you weren't inhibited by that, you would be pressing ahead with the expansion?
Yeah, that's a good question. You know, the house view, you're correct, is we're stronger than what we're seeing with a number of the forecasters, including Woodmac. But the reality is, it's not the house view that goes into the banking model. The banks require an independent forecaster, so we're gonna live by the independent forecaster's view. So that's the reality, Lyndon.
Well, I guess what I'm saying is that if there was an alternative means of funding the expansion, I mean, there's a lot of valuation that gets wiped out with this expansion coming out potentially for years and years. If, if there was an alternative to get funding-
I would look at it.
that didn't rely on this banking conduit.
I would look at it. Yes, I would look at it.
Got it. Yeah. Okay. That, that's it from me. Thanks, guys.
Thank you. Your next question comes from Jon Bishop, from Jarden Group. Please go ahead.
Morning, Tony and Jon. Thanks for taking my question. Just in terms of assessing, I guess, the working capital requirement, which is what I'm assuming you're solving for at the moment, can I understand what sort of work is going into some of the ramp-up assumptions? I mean, are you relying solely on your DFS work back in November of 2021 around recovery rates, I guess, ramp up to processing throughputs, et cetera, or are you doing some stress testing around that as well, please?
Yeah. So our assumptions that we put into the DFS have matured substantially, Jon, since... I mean, the DFS is over two years old now. And we've got our own team working on that post the publishing of the DFS. And I think we've mentioned in previous announcements that we've used things like the McNulty curves in order to determine the ramp-ups. We've also learned from other startups, the lithium startups around recovery. So we've taken a very conservative view on initial recoveries that we will get from the ramp-up. So I think we're quite strong in that regard. I think they're conservative enough. We've also taken a view during ramp-up, that the quality of our product won't potentially be as good as we would in steady state. So we've taken a conservative view on revenue as well. So I don't think those...
I'll look at them, but I don't think we'll challenge overly our current assumptions in that-
Okay
period, because I think we've given it a good scrub. It's been challenged by the banking technical experts that they've brought in, and they've held strong.
Okay. Have you actually provided those sort of revised internal estimates to the market? I may have missed them, but I guess I'm still somewhat anchored to the DFS ultimate recoveries, et cetera, but,
Yeah.
So-
Yeah. So the short answer is no. We were going to do that as we get closer to first production. And I think the ultimate recovery of 78%, I think you should still hold. The question that we'll provide, or the answers we'll provide when we get closer into production, is when do we anticipate hitting that 78?
Yep. No, that's fair. Just on that, those DFS inputs then, can I just clarify in terms of your unit cost assumptions that you provided with, I think it was the October update with the Byrnecut contract. They seem to imply, because I think you did it on a concentrate basis rather than on a unit of ore or rock basis. Were they also anchored to the original DFS assumptions on steady state in terms of, you know, 70%, 78% recoveries and 6% concentrates?
Yes.
Okay. And then just my third question is just around this refinancing process. Assuming the banks are obviously still supportive, are you looking to perhaps re-engender a corporate process to introduce some competitive tension? I mean, there's obviously been significant corporate interest in the last 12 months. Is a formal process part of your consideration?
No.
Okay. Thank you.
Thank you. Your next question comes from Sam Catalano from Wilsons Advisory. Please go ahead.
Yeah, good day, Tony and Jon. If I can just push you a bit. Obviously, there's been a few questions trying to get to your cash requirements, particularly over the next 12 months. So if I understand correctly, so you're saying AUD 515 gets you to production and probably another AUD 150 working capital as you ramp up. Just in terms of timeframe, when on your sort of base case, current assumptions, I know this is being reviewed, but when do you imagine the operation will be cash flow positive? Because obviously we're all focused on commissioning mid-year. I don't imagine you're going to be positive cash flow from day one. So what's your current expectations with the current pricing environment?
Yeah. So, yes, that's what I was gonna say, Sam. We had a view as to what our point is for cash flow positive, based on a quarter three forecast by Woodmac. The new forecast materially, given the revenue line's just been chopped by 60%, up to 60%, we're recutting those numbers now. But unless Jon has a more fresh number?
I don't have a specific number, but what I can say was, you know, we were under the Q3 forecast, we were predicted to turn cash flow positive in late 2024. As Tony's alluded to, that will be pushed out, and we're currently still assessing, you know, how far out that will be. But clearly, we also need to take into account all of the various changes that Tony has discussed this morning.
Yeah. The key will be the balance, Sam, between how much can we take out of our capital requirements to make sure that we can bring that cash flow positive point back to where we're comfortable with, which was, you know, as soon as possible.
Okay. Great. Thanks, gents.
Thank you. Your next question comes from Glyn Lawcock from Barrenjoey. Please go ahead.
Morning, Tony. Happy New Year. Obviously not a happy one for you. I'm just trying to understand the debt facilities. You've got the ECA facility, which was AUD 200 million, and then you've got the commercial lenders who are on the hook for the rest, the AUD 560. Have you lost everything, the commercial lenders as well as the ECA facility, or is the ECA facility still on foot?
No, they're all a part of this. There's 8 banks in the syndicate. One of the 8 banks is EFA. Another one of those is Clean Energy Finance Corporation. Between them, there's about AUD 300 million, and the balance is the commercial banks. So they act as a syndicate, so the whole syndicate, yes.
Is it one that's gone, or are they all gone? I mean, this feels like this has happened pretty quickly to you, being blindsided, yet you keep trying to tell us that the banking facility are very supportive and they're very strong towards you, but it feels like they've just left you. I would have thought something that was done three months ago, is this basically the financial covenants being triggered by, I guess, your debt service coverage ratio with the Woodmac forecast, and everyone's... Is it one bank in particular, or are they all nervous?
Perhaps I can answer that, Glyn. No, we've, we've had, you know, we've had confirmation from all of the eight banks that they, they remain highly supportive of the project. When we put the announcement out in October, we did say that, you know, we were, it, it was subject to all of the necessary things that you would need to do to get to financial close. This Q4 forecast has come out in the middle of that, and clearly, you know, clearly, we're, we are adjusting and dealing with that now. I, I can absolutely assure you that all of the eight banks remain highly supportive of this project.
Just to further explain, just to be specific, Glyn, I mean, a 60%, up to 60% reduction in price in the short to medium term, I mean, a $950 CIF number for at least three years. When we put it through the model, it would show that our debt service coverage ratio was under stress. So that's what's triggered this review.
Okay. I'm just sorry to labor the point, Tony, but under the slide you put in the deck in October, the ECA facility looks separate because it's EFA is providing that, and then the commercial banks are doing the-
Yep
... commercial lending facility and the cost overrun. I would have thought all the commercial are different.
No, it's one facility. It's under one loan facility.
Mm-hmm.
The difference between the EFA and the Clean Energy Fund is the tenor, right?
Okay.
So-
Yep.
They were 10 years versus the commercial banks was 7.
Okay, but everyone-
And because the-
Yeah.
Sorry?
Sorry, you keep going. Sorry, Tony.
Yeah, and because of the longer tenor, there was a slightly higher margin for the EFA and CEFC.
Yeah, but it feels like this has just been dumped on you. It feels like, because you don't have a revised debt facility to come with. So they've said, "Okay, we don't want to lend you AUD 760 million. We'll consider something else." But they didn't. You've now got to spend time trying to sort that out, and now the equity market's reeling on the back of today's announcement... So I don't sort of find them all that supportive.
Well, it's triggered by the Woodmac price forecast. And then as a result of that, and we were testing it, the banks advised us late Friday evening that they couldn't extend the commitment letter. So yeah, that's the facts.
Okay. But they are in discussion to maybe lend you something less than AUD 75?
Yes. Very, very much so. Very much so.
You were talking to Ford about, you know, an extension or increased debt with Ford. Is that something that you could potentially pursue and basically walk away from these banks, given they don't seem to be that supportive?
Look, we'll talk to our customers. The Ford debt facility is... You know, in order to get the more money from the debt facility from Ford, we'd have to consider further offtake or some other condition for Ford, but we haven't had those discussions yet. So we'll put that in the mix as well as everything else.
Yeah. No, appreciate it. It's- I'm sure it was a tough weekend for you. Just on the ramp up then, in the AUD 650 cost base, you know, like, assuming, we- are we still thinking a 12-month ramp up? And you say you should exit middle of 2025 at a AUD 650 cost base.
The AUD 650 cost base was an average over the 10-year period.
Okay.
and we also said at the time that the first few years it will be higher, C1 cost, because we're not at full capacity and, you know, the amortization of your fixed cost base. So, you know, we'll review that as part of this next piece.
Yeah. Just remind me of the sustaining capital then. Are we talking something like, you know, AUD 50 million a year to keep the business going on top of the AUD 650?
I think the sustaining capital that we announced previously was circa $171 a ton. You know, obviously, as Tony's mentioned, you know, that that will now be reviewed basis there the changes that we're looking to put in place.
All right. That's great. Thanks very much.
Thank you. Your final question comes from Stuart Howe, from Bell Potter. Please go ahead.
Tony and Jon, just a little bit more around the banking syndicate. Can you talk a bit about, you know, who makes that up in terms of even just sort of high-level commercial banks versus, you know, domestic versus global, and perhaps if some of those are also lending to your offtakers?
Yes. So, the eight syndicate banks are the four domestic banks, EFA and Clean Energy Fund, and two international banks in SocGen and HSBC.
You mentioned earlier that the Woodmac numbers are different from the house view. Perhaps again, at a very high level, you know, what's the big difference? Is it, are they expecting more supply to come online, or is it on the demand side? Perhaps just some comments around that.
From what we can glean, reading their quarterly report, they're expecting significant supply to come on from Africa, and the lepidolite supply in China to stay sticky, and therefore creating this. And there's all this organic growth coming from existing players. Now, our view is, the pricing signals that they're forecasting, by definition, would mean that some of that supply just will not come on. That's why we differ in our perspective. But, you know, Wood Mackenzie has a different view.
And then finally, just talk around your engagement with offtakers, how that's going. Obviously, they'll be aware of this, and does that change anything from their perspective?
No, because, as I mentioned when we kicked off, Stu, the 3 million-ton ramp up and first tons milestone is what we're targeting. So, our offtake was always predicated on the first stage of expansion to 3 million, so, you know, up to 450 thousand tons of concentrate. So that still holds.
All right. Thanks, Tony.
I will make one other point just to cover off in the final summary. I mean, there was the question from Hugo as to potentially the savings. I don't want people to get the impression that it's, you know, it's the AUD 70 million. You know, we're targeting a change in the overall debt facility, and a meaningful change. So that's the focus. And finally, you know, we all have experience in the commodity cycle, right? And what we're experiencing now is just one of those cycles. So I don't want to be flat-footed for when the market turns. So there's a judgment call that we'll make as a board and as an executive around what levers we pull, because I've been in this game a long time, and I can see when the market turns, the market will turn strongly.
We've seen where there's always these overcorrections, and potentially we're seeing an overcorrection now. So that's why there is no change to the base case. And as I think it was Lyndon that pointed out, if the market turns and it turns strongly, and we have potentially access to additional funds, then we will review our strategy and bring back what we need to bring back in terms of our 4 million ton case. All right? So thank you everyone, for the, for listening in and, and the questions from the various analyst community. I'll now conclude the presentation. Have a, have a great day.
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.