Jarden downgrades Liontown after debt facility agreement
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The news: Jarden analysts have downgraded Liontown Resources to ‘underweight’ from ‘neutral’ following the news that the company had entered into a $550 million debt facility to fund its Kathleen Valley lithium project and to repay its Ford debt facility.
The numbers: Today, Liontown shares fell 5.59% to $1.32 at 2:55pm AEDT, losing gains from Wednesday that saw the stock rise 6.08% following the debt facility announcement.
While Jarden downgraded the stock it left its target price unchanged at $0.91.
The context: Jarden said its rating downgrade was due to increasing its weighted cost of capital-based discount rate to 14.1% from 14% in light of the debt facility given the implied coupon rate.
The analysts also said the funding constraints inhibited meaningful progression of any downstream initiatives and that risks for Liontown remained, particularly if lithium prices did not recover.
Earlier this year, Liontown’s banking syndicate pulled a $760 million debt funding package and now the company is working to complete a number of preconditions prior to the drawdown of the debt facility while maintaining operational focus on delivery of first production.
What they said: “The big if is whether lithium prices recover providing basis to expect the facility can be refinanced,” Jarden analysts said.
They noted that the prior $760 million funding package was insufficient to meet the project’s liquidity requirements when the lithium spot price was USD950/t ($1,436/t).
“We are also flagging that on our current assumptions funding risks remain (in the form of refinancing), particularly should lithium prices not recover to our outlook. And noting that we cannot generate sufficient free cash flow on our modelling to meet the 31 October 2025 deadline for the bullet repayment,” they said.
“In addition, the revised operating operating expenses and ramp-up parameters are pending review and we believe that these could be significantly poorer than the original definitive feasibility study assumptions.
“The company is entering the typically most risky period of its evolution: commissioning and ramp-up. This has, to date, proven particularly acute for hard rock spodumene miners.”
The source: Jarden research report
