Liontown Resources Ltd (ASX: LTR) shares were on fire on Tuesday.
The lithium developer's shares ended the day 7% higher at 95.5 cents.
The catalyst for this was news that the company has secured a US$250 million convertible note (CN) investment and 10-year offtake extension from foundational partner, LG Energy Solution.
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Broker reaction
Bell Potter was pleased with the news and highlights that the company is now funded to steady-state production. It said:
The CN increases LTR's cash liquidity by $129m; it replaces the $550m debt facility announced in March 2024, of which $300m was allocated to repay a debt facility with offtake partner Ford. LTR will now retain the $300m Ford debt facility which has a 5-year tenor and BBSW+1.5% rate. LTR reiterated that Kathleen Valley remains on schedule for first production by the end of July 2024. With the CN, LTR will have available cash of $501m and remaining capex of around $120m to first production. LTR expects the $381m balance to fund Kathleen Valley to steady-state production, even under current depressed lithium pricing.
The broker was pleased with the agreement and feels it was the right thing for management to do. Its analysts add:
The LG CN funding is a pragmatic solution to remove the onerous terms associated with traditional bank debt and increase the company's cash liquidity headroom. LTR's 100% owned Kathleen Valley lithium project remains highly strategic with initial production imminent, a long mine life and tier-one location. LTR has offtake contracts with top tier EV and battery OEMs (Ford, LG Energy Solution and Tesla). Under our modelled assumptions, we expect that LTR is fully funded to free cash flow.
Should you buy Liontown shares?
If you have a high tolerance for risk, then Bell Potter thinks you should be considering an investment in Liontown's shares. Especially if you are looking for exposure to the lithium industry.
In response to this update, the broker has reaffirmed its speculative buy rating and $1.85 price target on the lithium developer's shares. Based on its current share price of 95.5 cents, this implies potential upside of almost 95% for investors over the next 12 months.
To put that into context, a $5,000 investment could turn into approximately $9,750 by this time next year if Bell Potter is on the money with its recommendation.
Though, the broker warns: "LTR is an asset development company; our Speculative risk rating recognises this higher level of risk."
