Why is Liontown Ltd (ASX: LTR) down more than 10%?
Liontown Resources (ASX: LTR) has fallen ~11% to a fresh 52-week low after the $389m price tag for its Kathleen Valley expansion came in above expectations, prompting a wave of broker downgrades. The board has approved the expansion, which will be funded entirely from existing cash and operating cash flow, importantly, without an equity raising, additional offtake or government support, but the higher capital requirement has taken some gloss off what a significant step in is otherwise ramping up the operation.
- We aren’t considering buying back into LTR despite having sold ~20% higher last month.
The market’s concern is primarily around capital intensity and returns. Citi highlighted the higher-than-expected expansion cost, while Morgans, Barrenjoey, Bell Potter and Macquarie all cut their price targets overnight, with new targets ranging from A$0.95 to A$1.70 – still well above todays ~80c.
- Although self-funding the project demonstrates improving operational maturity, committing another $389m inevitably reduces financial flexibility and increases the importance of successfully delivering the expansion and generating the expected cash flows.
Today’s weakness is on the combination of the above-mentioned costs blowout, a weak lithium sector and overall soft ASX.
