Liontown Resources Ltd (ASX: LTR) shares won't be going anywhere on Tuesday.
That's because the lithium developer has entered a trading halt this morning.
Image Source: Getty Images
Why are Liontown shares in a trading halt?
Liontown requested the trading halt as it prepares to make an announcement relating to the funding of the Kathleen Valley Lithium Project in Western Australia. Its request states:
The trading halt is requested pending an announcement by the Company in connection with funding arrangements. Liontown considers that the trading halt is necessary to ensure the Company can manage its continuous disclosure obligations.
As things stand, Liontown's shares are expected to be offline until the commencement of trading on Thursday 4 July.
What is happening?
It remains unclear what its funding arrangements involve. But shareholders certainly will be hoping that it includes debt and not equity.
As covered here, Liontown shares were the worst performers on the ASX 200 index in the last financial year. During the 12 months, the lithium developer's shares lost approximately 70% of their value. So, this really would not be a good time to raise money and dilute its shareholders materially.
But debt financing is easier said than done. Earlier this year, Liontown warned that weak lithium prices were causing issues when it came to financing the Kathleen Valley Lithium Project.
However, it then entered into a A$550 million debt facility agreement in March with a syndicate of lenders. This includes Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB), and Export Finance Australia.
The company didn't expect to need to draw down on the debt facility until early in third quarter of 2024 (i.e. now). However, before then, there were remaining conditions that needed to be satisfied.
And as we have had no update since this announcement about the conditions being satisfied, it seems probable that this trading halt relates to this facility. These conditions include:
[D]emonstrating compliance with customary tests; providing a Base Case Financial Model (BCFM) based off, amongst other things, independent price forecasts and management forecasts of production, capital and operating costs, and which demonstrates compliance with financial ratios; and, entry into key project tripartite agreements.
Since the agreement was signed, lithium prices have continued to weaken. Furthermore, analysts are now predicting that prices remain at these levels for the foreseeable future. It will be interesting to see how this impacts its BCFM and thus its eligibility for the debt facility.
All being well, everything will be running smoothly and this is just a routine halt. We will find out if that is the case later this week when Liontown shares return to trade.
