Liontown Resources (ASX:LTR) has secured a $1.13 billion funding package to complete its flagship Kathleen Valley lithium project, following the collapse of a $6.6 billion deal with Albemarle, the world’s largest lithium group this week.
Liontown announced on Thursday after trading had ended that the new funds would come via a debt financing package and a fully underwritten equity raising at $1.80 a share to raise $376 million, with $760 million coming from debt and support from government agencies. This represents a significant discount of 55% to the closing price of $2.79 a week ago and a 60% reduction from Albemarle’s proposed $3 cash offer.
The lower issue price may result in a substantial paper loss of $600 to $700 million for Gina Rinehart’s Hancock Prospecting, which had recently acquired a 19.9% stake in Liontown at a cost of around $1.2 billion, seemingly in an effort to thwart Albemarle’s offer.
Albemarle walked away from the deal, leaving Liontown without an immediate source of funding to complete the Kathleen Valley mine. Now, funding will come from shareholders, banks, and export finance agencies from Australia, the US, and South Korea.
Analysts and investors will closely watch Hancock and Ms. Rinehart to see if they support the proposed funding deal, although it is uncertain if Hancock Prospecting will participate in the equity issue. Hancock may have to invest just over $75 million to maintain its position as the company’s largest shareholder.
The involvement of Ms. Rinehart and Hancock Prospecting may have played a role in Albemarle’s decision to withdraw, pushing Liontown to the brink of collapse. Albemarle cited “growing complexities” in its planned bid, likely referring to Hancock Prospecting’s stake.
Liontown stated that the capital raising will cover the remaining capital costs for Kathleen Valley, including early mine development and the construction of preproduction run-of-mine stockpiles. CEO Tony Ottaviano emphasized that this achievement de-risks the Kathleen Valley Project’s development.
The Kathleen Valley project remains on schedule to commence production in mid-2024.
The funding deal comprises several components, including a $376 million equity raising, a $365 million institutional placement, a $10.8 million conditional placement to Liontown Chair Timothy Goyder, and a non-underwritten share purchase plan to raise up to an additional $45 million.
Liontown has also secured a $760 million debt funding package with favorable terms from a syndicate of leading international and domestic commercial banks and government credit agencies. This debt will replace Liontown’s existing $300 million debt facility with Ford.
The lending syndicate includes ANZ, CBA, HSBC, NAB, Société Générale, Westpac, and Australia’s Clean Energy Finance Corporation.
Additionally, Export Finance Australia has committed to the Export Credit Agency Facility, with further support from Korea Trade Insurance Corporation (K-SURE) and Export-Import Bank of the United States (EXIM) under consideration.
In total, 209 million new shares will be issued in the equity raising, with 203 million sold to existing and new investors, resulting in a dilution factor of nearly 10% of the company’s 2.202 billion shares currently in circulation.