Liontown emerges from lithium winter as Kathleen Valley ramps up

Liontown Resources (ASX: LTR) has emerged from one of the toughest periods the lithium industry has faced in years, with Kathleen Valley now fully underground and the company preparing to invest again.

CEO Tony Ottaviano says strong operating cash flow and EBITDA were among the key financial takeaways from FY26, while operationally the company completed its transition from open-pit mining and continued ramping up underground production at Kathleen Valley.

The shift comes as the backdrop for lithium has changed dramatically. After spodumene prices fell to around US$600 a tonne during the downturn, prices have since recovered to more than US$2,000 a tonne.

For Ottaviano, the important question is whether this recovery has staying power.

“Inventory levels of one of the largest lithium chemicals, being lithium carbonate, are at an all-time low. We haven't seen levels like this since the back end of 2024.”

Please note, this interview was recorded Monday 30 August, 2026

In the interview above, Ottaviano explains why he believes the lithium recovery could run for another 12–18 months or longer, why Liontown’s costs remain elevated despite the Kathleen Valley ramp-up, and why he believes underground mining will ultimately give the company a competitive advantage.

Why this lithium recovery could have further to run

Twelve months ago, Liontown and much of the lithium industry were focused firmly on survival.

Liontown responded by putting a plan in place in November 2024 centred on preserving cash. But as conditions improved midway through FY26, management changed tack and began reinvesting in the business.

Ottaviano believes two factors make the current recovery particularly important.

The first is inventory. Lithium carbonate inventories have fallen sharply, which he sees as evidence of stronger demand and refiners searching for material.

The second is what happened to investment during the downturn.

“During this lithium winter, for want of a better word, investment stopped. There is nothing better than a mining company in terms of turning off capital, and we saw that.”

Exploration and study work were wound back across the industry, potentially lengthening the time required for new supply to respond to higher prices.

Some previously shuttered operations have restarted, but Ottaviano describes that as “marginal production”, while underlying demand has continued to grow. As a result, he's quite bullish in the near-to-medium term. 

“We're seeing a very strong 12 to 18 months or longer.”

Why costs aren't falling yet

Normally, a mining operation ramping towards full production should benefit from operating leverage as fixed costs are spread across more tonnes.

Kathleen Valley is moving towards steady-state production of 2.8 million tonnes per annum by the end of FY27, but Liontown is simultaneously spending on its next phase of growth.

That includes bringing equipment forward for expansion work and restarting development of Northwest Flats, an orebody previously placed into care and maintenance.

According to Ottaviano, that investment is currently masking some of the economies of scale investors might otherwise expect to see from higher production.

“As we progressively move up the ramp-up curve to our steady-state production of 2.8 million, which we expect at the end of this financial year, we should theoretically see fixed costs being defrayed as you get more and more tonnes.”

Liontown expects those benefits to become more apparent towards the end of FY27 and into FY28.

Why FY27 production growth looks modest

There is another apparent contradiction in Liontown’s FY27 outlook.

Kathleen Valley is ramping from around 1.5 million tonnes towards annualised production of 2.8 million tonnes, yet FY27 spodumene production guidance implies relatively modest year-on-year growth.

According to Ottaviano, there are two reasons. First, the 2.8 million tonne target represents the expected run rate at the end of FY27 rather than production across the entire year.

Second, Liontown is expanding an operating processing plant, requiring additional shutdowns as new infrastructure is connected.

“We've had to factor in the expansion tie-in work. So with us expanding an operating plant, we have to incur more shutdowns in order to tie in the expansion work.”

Those shutdowns have been incorporated into FY27 production guidance.

The case for going underground

Liontown’s decision to develop Kathleen Valley as an underground mine has attracted scrutiny, particularly around the higher sustaining capital required over the medium term.

Ottaviano argues investors should look beyond the upfront cost. He believes underground mining can deliver better “ore hygiene”, allowing Liontown to mine cleaner ore and potentially improve recovery through the processing plant.

“The lithium producers know that ore hygiene is number one when it comes to recovery performance. And that's what you get by definition.”

There are other potential advantages. Underground mining reduces the surface footprint and therefore potentially the rehabilitation burden over the longer term. More importantly, Ottaviano argues it gives management greater flexibility during difficult markets.

An open-pit operation must continue removing material above the orebody to access the ore underneath. Underground, Liontown can choose where it develops and mines.

“In underground, we've got 360-degree options.”

The trade-off is higher upfront sustaining capital. Development of new underground levels needs to occur six to 12 months before production, while grade-control drilling is also completed in advance to give Liontown a detailed understanding of the orebody.

Ottaviano expects that sustaining capital intensity to decline once Kathleen Valley reaches its main production zones.

The area Liontown needs to improve

Despite the progress at Kathleen Valley and an improving lithium market, Ottaviano was clear about where Liontown fell short in FY26: safety.

“We've been clear and upfront that our safety performance is not where it should be. And that is a big focus. I mean a big focus from the board to the front line. It involves me. It starts with me.”

Liontown is increasing its focus on frontline leadership and understanding operational risks, with Ottaviano describing safety improvement as a priority for FY27.

Labour has been another challenge. Western Australia's gold boom has increased competition for skilled underground workers, forcing Liontown to work harder to retain and attract staff.

Ottaviano acknowledges the company may have been “a bit slow to start with”, but believes its position has improved.

For investors, FY27 therefore shapes as a year in which several moving pieces need to come together: Kathleen Valley must continue its underground ramp-up, expansion work needs to progress without overly disrupting production, costs need to begin benefiting from greater scale, and Liontown needs to execute against a lithium market that suddenly looks considerably healthier than it did 12 months ago.