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Liontown Resources’ backup plan amid Albemarle’s $3 cash offer

With Albemarle walking away from its $3 cash offer, Liontown Resources (ASX:LTR) had a Plan B in motion when trading resumed on Monday. It called for a halt in trading to secure additional capital and debt overnight and today.

Over the weekend, Albemarle informed the company that it would not convert its non-binding $6.6 billion offer into a binding one, which was expected to be revealed this Thursday, according to some reports.

The trading halt left Liontown shares at the $2.79 closing price from the previous Friday, making fundraising challenging as nobody knew the share price’s future trajectory.

Financial advisers faced a tough situation unless the new equity came from the new 19.9% shareholder, Hancock Prospecting, and its owner, Gina Rinehart.

On March 27, the shares closed at $1.53, just before Albemarle’s first non-binding offer of $2.50 a share.

There was a significant risk that the shares would have dropped back to that level, resulting in a substantial loss for Hancock Prospecting, which had invested approximately $1.2 billion in building up its stake.

To protect Liontown’s investment value, Ms. Rinehart might have to inject hundreds of millions of dollars in fresh capital and debt to ensure the completion of the Kathleen Valley mine by 2024 and maintain the share price as high as possible.

In a statement yesterday morning, Liontown expressed its commitment to its strategic plan and confidence in its ability to thrive independently. Liontown CEO Tony Ottaviano stated, “Our position to maintain momentum on our base plan has allowed us to keep line of sight of first production from the Kathleen Valley Project in mid-2024.”

Before Albemarle raised its offer to $3 per share in early September, Liontown had considered raising at least $300 million and initiating crude ore shipments to generate early cash flow. These plans, initially abandoned, are now being revisited.

The trading halt prevented a significant share price plunge and saved the rest of the lithium sector from a similar fate. While Albemarle’s news caused small declines in the share prices of leading lithium players like Pilbara Minerals (down 1.7%) and Mineral Resources (down 0.6%), speculative Core Lithium saw a 2.6% drop.

Lithium Power International, on the other hand, saw its shares rise ahead of news of a potential deal with Chilean copper giant, Codelco. LPI shares ended the day up 2.3% at 44.5 cents. A Bloomberg report last week suggested that the deal could be finalised at around 50 cents per LPI share.

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