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Liontown Resources faces funding challenges amidst emergency capital raising

According to media reports this morning, Liontown Resources (ASX:LTR) is in some trouble with funding, as evidenced by discussions of “emergency” equity and debt raises.

The Australian Financial Review reported today that “UBS began wall crossing fund managers for lithium developer Liontown Resources’ emergency capital raising on Wednesday evening, seeking $400 million from equity capital markets to go alongside $760 million in debt.”

This $1.1 billion is far more than many analysts had thought the developer of the Kathleen Valley mine in WA would need after Albemarle pulled its non-binding $3 a share offer and walked away.

The AFR reported that the government agency Export Finance Australia was being mentioned as one of the lenders. This situation also indicates the company’s lack of confidence in where its share price might end up once a trading halt is lifted, which could be Friday at worst but early next week at best. This would give it time to have a convincing finance deal in place and limit the slump in the price of the shares.

The shares closed at $2.79 last Friday, and trading was first halted on Monday, then suspended on Wednesday to allow a funding package to be arranged.

The AFR story claimed shares were being offered in the range of $2.20 to $2.60 in the equity raising, compared to the $1.52 a share they were at before Albemarle appeared waving a $2.50 a share offer price.

The lower the price, the more shares (and the greater the dilution for existing shareholders, including chair Tim Goyder and Gina Rinehart’s Hancock Prospecting), unless they contribute new equity to maintain their positions. There’s no talk of Gina Rinehart’s Hancock Prospecting, the 19.9% spoiler in the Albemarle $6.6 billion bid story, making a funding contribution. The AFR says Liontown chair Tim Goyder (who owns almost 15%) is said to be looking at putting in around $10 million, a far cry from the nearly $1 billion figure he would have received from the Albemarle $3 a share offer.

Liontown had announced at the Diggers and Dealers conference in early August that it had “received a joint Letter of Support from the international Export Credit Agencies (ECAs) of Australia, South Korea, and the U.S. The letter accompanies three individual Letters of Support/Interest, indicating total non-binding and conditional finance interest for up to A$300 million to support the delivery of the Kathleen Valley Project.”

“Any financial support is subject to the eligibility criteria and credit and risk requirements outlined in the individual Letters,” Liontown said.

It also talked about plans for the early mining and shipment of what’s called DSO (direct shipping ore) “as an early source of revenue.” However, that idea was abandoned when Albemarle upped its offer price to $3 a share.

Liontown had around $300 million or so in cash at the end of June (we don’t know how much now), an updated cost for Kathleen Valley of $951 million (up 6% since January), and a finish date of 2024. Now, Liontown is scrambling to find enough money to finish the project and remain the owner.

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