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Date : 25/01/2023

Liontown Resources (ASX: LTR) shares tank as company looks to spend more on its Kathleen Valley Lithium Project

Liontown Resources Ltd (ASX: LTR) is an ASX-listed mining company primarily focused on the exploration and development of lithium and other minerals in Australia. It has several lithium projects in Western Australia and Queensland, including the Kathleen Valley Lithium Project, the Buldania Lithium Project, and the Avon Lithium Project.

LTR shares have dropped to $1.31, a decrease of over 13% from its all-time high. After the lithium developer raised its capital expenses estimate for the Kathleen Valley lithium project upward, investors began selling off their Liontown Resources ASX shares. There is concern that the expenses would exceed its cash and debt facilities, necessitating a capital raise.

Also read: Lithium Stocks ASX

 

LTR ASX: FY2022 Highlights

As Liontown looks to spend more on its Kathleen Valley Lithium Project, LTR shares tank by 10% to $1.38 when the company shared this update.  The current market cap of the company is $3.02 Billion.

Liontown Resources Shares Analysis

  1. Operating expenses were $52.21 million, increasing 347% YoY.
  2. Net income was $40.86 million, increasing 486% YoY.
  3. Its EBITDA was ($52.12) million, decreasing 347% YoY.
  4. Its cash and cash equivalents were $452.08 million, increasing 3,511% YoY.

LTR: What’s causing such a sudden decline in Liontown share price?

Last Friday, investors dumped off LTR shares after the business announced an update to its Kathleen Valley Lithium Project in Western Australia.

Because of this revision, it now looks that a capital raise may be necessary to cover the increased costs associated with building the project.

The capital expenditure for the project has been increased for the second time in recent months.

The company’s announcement claims that Kathleen Valley’s anticipated capital cost to first production from the process plant has risen to $895 million (including a $40 million contingency) due to rising scope and costs.

To put that in perspective, in June, Liontown Resources Limited increased its pre-production capital cost estimate to $545 million from $473 million.

Liontown said it had invested $73 million on the project, reducing the capital cost to $822 million, including contingency reserves. But it only has $685 million left, which is made up of $385 million in cash reserves and $300 million through a debt facility.

Liontown has informed us that it is actively pursuing many new financing possibilities. Still, it is not anticipated that more investment will be needed until 2023.

A Direct Shipping Ore (DSO) possibility to monetize material not originally planned to be processed is also mentioned as a potential source of income. Core Lithium Ltd (ASX: CXO) recently completed a financing round in which it raised over $14 million USD.

LTR: Production Growth

Despite the share price, investors in LTR shares weren’t given the entirely terrible news. The company’s management has announced that the plant’s initial throughput rate has been increased by 20%, to 3Mtpa, thanks to optimizations made to the plant’s capacity design (up from 2.5Mtpa).

As a result, the output of SC6.0 is anticipated to rise to take advantage of lithium’s optimistic short- and medium-term price outlook.

Lastly, it confirmed that the Kathleen Valley Project is still on track for the first production from the process plant to start in the middle of 2024. These changes were made early in the construction schedule to reduce risks and keep this schedule.

Conclusion

What are our experts’ latest analysis & forecast on LTR shares? Is ASX: LTR on the “to buy” list?

The news of the update in the budget caused a 10% drop in the LTR share price. The report revealed massive overspending on the company’s Kathleen Valley Lithium Project. The corporation has now revised its budget upwards for the second time. As a result of the unfavourable reaction from investors, Liontown share price (ASX-LTR) has dropped by 10%. It’s no surprise that LTR stock prices have declined.

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