Liontown shares soar as Albemarle upsizes bid to $3.00 a share

Shares in Liontown Resources (ASX: LTR) rallied 9% as the market opened on Monday after Albemarle returned with its fourth takeover offer in less than twelve months.

Unlike the previous three, Liontown is taking the $3.00 per share offer very seriously, granting Albemarle access to exclusive due diligence to put forward a binding proposal.

The revised proposal statement says “the intention of the Liontown Board is to unanimously recommend shareholders vote in favour of the proposal in the absence of a superior proposal.”

The story so far

Liontown has rejected three unsolicited and non-binding proposals from Albemarle to date.

• $2.20 per share on 20 October 2022 (20% premium to previous close)
• $2.35 per share on 3 March 2023 (63% premium)
• $2.50 per share on 28 March 2023 (64% premium)

In response to the March offers, the Board noted “the opportunistic timing of Albemarle’s Indicative Proposal, coinciding with recent softness in companies exposed to the lithium sector and the pre-production status of the Kathleen Valley Project.”

Why the change of mind

The lithium and battery metals sector has faced a number of headwinds in 2023. During this period, Liontown (+119% year-to-date) has far outperformed its peers such as Pilbara Minerals (ASX: PLS ) and Allkem (ASX: AKE), up a respective 27.5% and 26.4%.

The $3.00 per share bid might offer peace of mind amid uncertainties such as:

#1 Volatile spot prices

Chinese lithium carbonate prices have more than halved from November 2022 peaks of almost 600,000 yuan to 201,500 yuan a tonne in September. The price environment has become increasingly volatile amid signs of low demand from key battery manufacturers and the lack of Chinese government-led subsidies.

#2 Lack of price visibility

It’s difficult to forecast where lithium prices will land in the medium-to-long term.

You don’t want to see a scenario like Chalice Mining (ASX: CHN) – Where its long-awaited scoping study was based on lofty commodity price assumptions such as US$2,000 an ounce for palladium (compared to current levels of US$1,250 an ounce).

#3 A risky capex environment

There’s a long list of miners that have been hit by higher-than-expected capex this reporting season. Whether you’re an up-and-comer or a well-established producer – Nobody is safe.

Large cap examples that come to mind include:

• Pilbara Minerals (ASX: PLS): FY23 results guided to total FY24 capex of $875-975 million vs. prior Macquarie estimates of $557 million. This triggered an 11% selloff between 27-28 August.
• Lynas Rare Earths (ASX: LYC): FY23 results forecasted a project budget of approximately $730 million, up from $575 million guidance in February 2023. Lynas shares were relatively unfazed by the revised capex, up 3.1% on results day.

Even Liontown had to raise its capital estimate to $895 million back in January 2023 from a prior estimate of $473 million (2021 DFS). 

ASX lithium stocks open higher

The takeover bid has helped prop up lithium stocks on Monday, with most names up between 1-10% (prices as at 10:40 am AEST):

• Patriot Battery Metals (ASX: PMT) +7.7%
• Sayona Mining (ASX: SYA) +4.4%
• Winsome Resources (ASX: WR1) +3.7%
• Allkem (ASX: AKE) +3.0%
• Core Lithium (ASX: CXO) +2.5%
• Pilbara Minerals (ASX: PLS) +1.8%

The Bottom Line

Albemarle has raised its takeover bid by 36% (from $2.20 to $3.00) in less than twelve months, which stresses the strategic nature of globally significant resources such as Kathleen Valley.

If the takeover goes through, then we say goodbye to a project that’s expected to produce between 500-700,000 tonnes per annum of spodumene.