Liontown will be cash city, says Goyder, as he commits to development journey

The way newly minted billionaire mining investor Tim Goyder puts it, every man and his dog has been in his ear over the past two years saying his 17%-owned Liontown (ASX: LTR) should sell off its Kathleen Valley lithium project to a lithium major.

Topics covered In the following article include:

• He’s just become a billionaire, but Goyder says he’s settling in for the long haul at Liontown,
• Over at stablemate Chalice, the hunt is already on for Gonneville repeats, 
• Next week’s Breaker AGM fuels talk of imminent gold resource update and lithium assays.

“We’ve kept this 100%. I don’t think people understand what we are here for. We are here to build a real company. We are here to build a Fortescue, not some fly-by-night outfit. Believe us, we know what we are doing,” Goyder said.

Value creation is on his side. Two years ago Liontown(ASX: LTR) was a $250 million company. Kathleen Valley was recognised as having Tier-1 potential but the lithium price was in the doldrums because of perceived over-supply.

Now here we are two years on and Liontown is a $3.13 billion company, making Goyder’s 17% stake in the company he chairs worth $532 million, thank you very much.

It is a handsome reward for Goyder and the rest of the Liontown team for waiting out the lithium doldrums and for ignoring the calls from everyman and their dog to take the easier route and sell out to a lithium major.

Goyder is a country boy from WA’s southwest who turned a love of prospecting into a since-sold major drilling company based in Kalgoorlie and investing in a string of exploration companies.

Aside from Liontown, his other big win in the sector has been Chalice (ASX: CHN), of which he owns 11%. Two years ago, it was a $50 million company. It is now a $3.53 billion company after making the Julimar PGE-nickel-copper discovery 17 months ago.

Goyder’s stake is worth $388 million, and earlier this week, a maiden resource estimate confirmed it as a world-scale metals deposit. Will Goyder be looking for a sale to the big platinum group metal players like Anglo American, or a green metals focussed player like BHP Group (ASX: BHP)?

Judging by his Liontown commentary, you wouldn’t think so.

Liontown and Chalice get Goyder most of the way to $1 billion status. The remainder is covered by his stakes in Devex (ASX: DEV), Minerals 260 (ASX: MI6) and the soon-to-list Chalice gold spin-off, Falcon Metals.

Goyder’s success with Liontown and Chalice (more on Chalice later) has required patience.

“We’ve been in this company over 16 years,” Goyder said of Liontown. “You don’t often find a reserve and resource of the quality of Kathleen Valley."

“We are totally committed and I’ve got 300 million bits of paper to prove that. We can see the amount of cash this project can generate. It is substantial. So we will be looking forward to those dividends.

“If you look at the study results in detail, this is a cash machine when we get into production. It is a high-quality asset. We are building this to last. We are building this to produce cash and grow the company.”

Kathleen Valley

Goyder was speaking on Thursday on the release of Liontown’s definitive feasibility study into the development of Kathleen Valley, and a scoping study into an eventual push to become an integrated lithium hydroxide producer to capture the value-add.

Liontown MD Tony Ottaviano, who came across from years with BHP and Rio Tinto, did most of the talking. He had lots to talk about too, with the DFS outlining an accelerated plan to become a low-cost spodumene producer at an initial annual rate of 511,000t from 2024.

Reflecting on his background with the majors, Ottaviano said a Tier 1 project is all about having a cost profile that is resilient through the cycle. Capital intensity below that of competing projects is also a requirement for Tier-1 status.

Kathleen Valley sailed through the DFS on both counts.

Forecast AISC in the first 10 years of the 20 year-plus project were estimated at $US452/t, which would have provided headroom during the worst of times during the 2018-2020 lithium downturn, and lots of upside to the $US1,287/t pricing forecast in the DFS by independent consultant Roskill.

On the capital intensity front, Kathleen Valley rates better than all comparable projects except for one in Africa, and one in Brazil.

Regardless of that fact, Kathleen Valley and all of the comparable projects will be needed to meet the growing supply deficit as the EV revolution accelerates. Roskill estimates 9 new projects of Kathleen Valley scale area needed to close the supply deficit come 2029.

Kathleen Valley will be an underground development, with production supplemented in the early years from a small open-cut operation.

Once the initial 2.5mtpa underground mine is bedded down, there will be a push to a 4mtpa mining rate – a level that builds the case for the development of a lithium hydroxide refinery.

The post-tax NPV in the DFS was put at $4.2 billion, and the IRR was at 57%. Capex to get to the 4mtpa rate was estimated at $538 million.

The NPV on becoming an integrated producer after years six and seven grows to $9.6 billion, with the IRR put at 56% on an overall investment of about $2 billion.

Impressive as the figures were in the DFS and scoping study, Liontown shares took a 12% hit on the day to close at $1.64. The hit was put down to the DFS CAPEX estimate being higher than the earlier PFS figures.

While cost inflation has had an impact, the increase reflects the bigger scale of the initial project, and the inclusion of additional expenditure on plant and equipment to make the push to 4mtpa a smoother process.

The increased CAPEX is meaningless for a 20-year plus project, certainly for one poised to capture the boom demand and pricing for lithium as the supply deficit yawns ever wider.

Chalice

While Liontown’s share price pulled back from its recent highs, Chalice continued to march higher following Tuesday’s release of its maiden resource estimate.

In three days of trading, the stock put on 47% to a record $10.01. It is the kind of stuff that should be expected when a discovery comes up with 330Mt containing 17 million ounces of palladium equivalent, or 1.9Mt of nickel equivalent if you prefer.

It is very much the start of the story as the maiden estimate comes from the Gonneville deposit alone which has yet to be closed off. And then there are the look-a-like targets to be drilled, once permission is granted, where the Julimar intrusive heads off into a state forest.

It is a province in the making and according to people who know about these things, Julimar has implications not only for Chalice, but for WA and Australia as the world sets about securing the metals needed to underpin the green revolution.

Platinum group metals are very much part of the green revolution and the world has been crying out for alternative supplies to the current dominance of South Africa and Russia.

Chalice’s stellar share price performance was despite some mumblings that Gonneville’s grade was on the low side of things.

But apart from Mr and Mrs Short perhaps trying their hand in the market on that basis, the broader understanding was that Julimar’s magic mix of metals, and its scale, does make it something special.

That came through in Macquarie’s estimate that on a palladium equivalent basis, Gonneville could produce 600,000oz annually for the first 10 years at an AISC of $US400/oz, and 550,000oz annually over 25 years at an AISC oof less than $US500/oz.

Compare that with the current palladium price ($US1,966/oz) and the reason for the excitement around Julimar is abundantly clear. Then there is the possibility for repeat deposits along the Julimar trend.

Breaker

And a quick note on Breaker (ASX: BRB), mentioned here on October 14 when it was a 28.5c stock.

It has since moved higher to 38c, with the gold price moving back over $US1800/oz helping things. After all, Breaker owns the growing 1.4Moz Bombora gold deposit.

But as suggested on 14 October, the company’s recent drilling program at a forgotten lithium project called Manna has stirred interest in the stock beyond Bombora.

Breaker holds its annual meeting in Perth next Thursday and history tells us that announcing resource upgrades (Bombora) and lithium exploration results (Manna) can be market-moving events.

Assay delays might well prevent news on either. But they are in the works.

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