Liontown Resources has come back onto our radar after a sharp pullback, although the recent weakness has not been without cause. The stock was hit hard following a disappointing 4Q update and softer FY27 guidance, which forced meaningful downgrades to earnings, costs and valuation assumptions across the market.
We exited LTR from the Emerging Companies Portfolio earlier this year after a strong run, but with the stock now materially lower, we think the risk/reward is again becoming interesting.
The 4Q numbers out last month were weak:
- Spodumene production of 103kt, around 14% below JPMorgan expectations.
- Sales of 108kt, around 16% below expectations.
- Realised pricing of US$1,880/t SC6e, around 10% below JPMorgan’s forecast.
- Revenue of around A$235 million, materially below the A$350 million JPMorgan had expected.
- Operating costs of A$995/t, around 17% above JPMorgan forecasts.
- Cash finished the period at around A$561 million.
The FY27 outlook also disappointed. Production guidance of 390–440kt was below expectations, while unit operating cost guidance of A$1,050–1,250/t was materially higher than the market had anticipated. Capex guidance of A$320–370 million was another surprise, reflecting higher sustaining spend, mine infrastructure, optimisation work and early expansion expenditure.
Those changes are particularly important because LTR has significant operating leverage. JPMorgan cut its FY27 adjusted profit forecast by more than 50% and reduced its NPV by around 38% after lowering long-term recoveries, lifting cost assumptions and incorporating materially higher capex. Their price target was cut from A$2.30 to A$1.50.
That said, the stock has already absorbed a lot of bad news. LTR is down around 30% year-to-date, while spodumene prices are higher over the same period, creating an interesting disconnect. JPMorgan now values the stock at around 0.76x P/NPV, and while they acknowledge the result disappointed even weak expectations, they still retain an Overweight rating on the basis that sentiment is already close to maximum bearishness.
This fits with our broader view.
Liontown remains one of the cleaner and more leveraged ways to gain exposure to a recovery in lithium prices through Kathleen Valley. Unlike diversified miners, there are fewer moving parts here — if lithium prices recover and Kathleen Valley executes, earnings can move very quickly.
The flip side is equally important. LTR is still a relatively high-cost, single-asset producer, so weak execution or another leg lower in lithium prices would hurt more than it would for lower-cost peers such as PLS.
There is also the expansion to consider. Management is targeting a September FID for the Kathleen Valley expansion, which JPMorgan now assumes could bring first production forward to FY29. That provides meaningful upside if execution is sound, but it also adds another layer of capex and delivery risk at a time when the existing operation is still ramping.
And then there is the Gina Rinehart wildcard, with Hancock Prospecting owning roughly 15% of the company. We would not own LTR purely on M&A optionality, but her presence on the register remains strategically interesting.
Overall, the 4Q result and FY27 guidance were disappointing, and the downgrades were justified. Costs are higher, capex is heavier and the ramp-up remains a key execution risk. However, after the scale of the share-price correction, we think the market may now be discounting a fairly pessimistic outcome. We don’t currently own LTR, but we like it post-pullback as a leveraged play on a lithium recovery.
- Our preference remains to build exposure into weakness rather than chase rallies, but around current levels the risk/reward is starting to look attractive as an ‘accumulation’ candidate.
MM views LTR as an accumulate around $1.20
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