Liontown Resources' boss Tony Ottaviano says the state government’s lithium support package is a "broader menu to select from" but his first choice was always royalty relief.
Liontown Resources' boss Tony Ottaviano says the state government’s lithium support package is a "broader menu to select from" but his first choice was always royalty relief.
As a year defined by critical minerals sector mine closures and scale-backs nears an end, the state government has stepped in to offer a rescue package to grappling lithium miners.
The $50 million interest-free loans and waived port and tenement fees has been offered to both ramp up and downstream lithium players, with direct royalty relief now off the table.
Like the relief rolled out for the flailing nickel sector earlier this year, lithium sector royalty relief would have likely been in the style of the 50 per cent rebate during the last lithium winter in 2020.
Leading the chorus calling for royalty relief was Liontown chief executive Mr Ottaviano, who had reportedly been locked in discussion with the state government in recent months.
Today’s support package was announced while Liontown shareholders were engrossed in the newly minted Kathleen Valley producer’s annual general meeting in Perth.
Speaking at the same time across town, Mines Minister David Michael singled out Liontown and Covalent Lithium – both in the ramp up phase – saying he expected them to put their hands up for support.
When asked whether Liontown would take up the support, Mr Ottaviano implied it was likely. He said they would undertake a comprehensive review now the proposal was in front of them.
Mr Ottaviano praised the “well balanced” and “pragmatic” support package but reiterated the miner’s position in that royalty relief was its first choice in negotiations.
“Given the precedent that was set previously, our entry point has always been around royalty relief,” Mr Ottaviano said speaking on the sidelines of the AGM.
“The fact the government has given us a broader menu to select from reinforces they've given some thought and they've taken into consideration our position, and Covalent Lithium for that matter, as they're ramping up to get some assistance.”
Mineral Resources and Pilbara Minerals have been among the lithium miners to mothball or slow production in response to weak prices.
When asked whether the lifeline was too little, too late, Mr Michael insisted this was a “good time to provide support to the lithium industry”.
“In the past, governments have done a royalty rebate, which is a repayable 50 per cent of the royalty rebate, which is the nickel scheme at the moment," he said.
“This is a way that lithium miners can access a loan facility without having to wait to incur royalties.
"They might be able to get the money quicker, rather than waiting for the royalties to be accrued over the next couple of years.”
Downstream lithium processors like Albemarle, IGO and Tianqi would be eligible for having their government fees cut over the support period.
The package is on offer for two years reflecting the state government’s expectation around when the languished lithium price will start to rebound.
The loans will need to be repaid over two years after the price hits US$1,100 per tonne for two successive quarters, or by the end of June 2026 if that fails to occur.
Goldman Sachs is predicting spodumene prices won't surpass US$1,155/t before 2027.
Australian spodumene concentrate at 6 per cent is currently fetching about US$857.5/t, according to data from the Shanghai Metals Market.
Liontown remains bullish on the price recovering in the medium term, describing current prices as unsustainable and pointing to forecasted electric vehicle demand.
“We are strong in our view that the current prices are not sustainable,” Mr Ottaviano said.
“Now, when is that recovery going to happen? Well, we believe it's not that far away.
“The situation is demand is growing, and no supply is coming on, in fact, supply is being taken out.
“There's going to be a rebalance and when it rebalances, it will rebalance strong.”
Production at Liontown’s flagship mine - which came into production mid-year - has been pared back as the miner looks to realise $100 million in cost cuts.
Under a revised mine plan, Liontown is scaling back production from the initial ramp up target of 3 million tonnes per annum to 2.8mtpa from financial year 2027.
Mr Ottaviano unveiled that slowed mine plan after pouring cold water over speculation they might mothball Kathleen Valley, and just days after MinRes shelved Bald Hill.
MinRes said its decision to move the mine to care and maintenance – which impacted 300 jobs – could be reversed in a four-to-six-week ramp-up period if prices improve.
Mr Ottaviano predicts a more conservative ramp-up period for Kathleen Valley.
“There will be a lag to get up to full production should the market turn,” he said.
“Firstly, as a board, we need to make the decision that we want to invest and that the uptick is sustainable and permanent. It's not uptick for a month and then down again. We can look at the fundamentals to make sure that we reassure ourselves.
“Then if we need to get back up to 3 million and 3 million quickly, it'll probably take a six-to-12-month period.
“That's why these care and maintenance… and people saying that they can bring a mine back on in four weeks.
“It's taken us 18 months to recruit 320 people. To think that they can let go of 300 or 400 people, then bring them back in four weeks? Not sure.”
Liontown chair Tim Goyder used his address to reassure shareholders and reiterate his confidence in the demand and supply balance levelling out over the medium term.
“We've got it under control, folks,” he told the room.
“So don't worry, don't read all that crap in the paper.
“We're working 24 hours a day, and we're ahead of the curve.
“We don't want to go broke and we won't go broke.”:
That statement was met with a round of applause from shareholders.
Shareholders voted in favour of all resolutions, including the remuneration report and appointment of independent non-executive director Ian Well, ex-Fortescue chief executive.
Liontown's share price closed down 0.64 per cent to 77.5 cents apiece.
