Why are Liontown shares crashing 26% on Monday?

Liontown Resources Ltd (ASX: LTR) shares are having another day to forget on Monday.

In morning trade, the lithium developer’s shares are down 26% to a 52-week low of 88.5 cents.

This means its shares are now down 70% since the start of October.

Why are Liontown shares crashing again?

The catalyst for today’s weakness has been the release of an update on the Kathleen Valley Lithium Project.

Let’s start with the positives. The company revealed that the Kathleen Valley Lithium Project remains on-track for first production in the middle of this calendar year. Management also advised that it remains focused on delivering to that schedule and on budget.

Now let’s see what is putting pressure on Liontown shares today.

According to the release, the material decline in spodumene prices has triggered significant reductions in short and medium-term lithium price forecasts.

As a result, the company has commenced a review of the planned expansion and associated ramp-up of Kathleen Valley to preserve capital and reduce the near-term funding requirements of the Project. It explains:

The Project Review includes examining options to defer the timing of the previously announced 4 million tonne per annum underground development work, sequencing adjustments to the mine plan, and scope for additional cost optimisations. There is no change to the 3 million tonne per annum plant capacity design which the Company is currently constructing.

Funding blow

Also putting pressure on Liontown shares is news that a recently announced $760 million debt funding package has been terminated due to lithium price weakness.

The company explains:

The finalisation of the debt package has been impacted by recent reductions in the independent forecast pricing for spodumene upon which the lenders’ credit approvals were based. Accordingly, the Company has now commenced discussions on a revised, smaller debt facility that will reflect the Project Review. As a result, the commitment letter announced on 19 October 2023 will terminate.

Liontown had approximately $515 million cash at the end of December, having fully drawn the $300 million project funding package secured from Ford (NYSE: F). This is expected to fund construction activities required for first production in the middle of 2024.

Management expects to make an announcement on its debt funding within the first quarter. It also concluded by reiterating that it “remains confident in the long-term outlook of the lithium market and Kathleen Valley’s status as a Tier 1 long-life producer.”

The post Why are Liontown shares crashing 26% on Monday? appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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