Liontown (LTR) – Going underground

Liontown produces and explores for lithium and nickel. Its flagship property is the Kathleen Valley lithium project in Western Australia, and it is based in Perth. Liontown posted an underlying first-half FY26 net loss that was smaller than market expectations, as reduced tax charges and benefits from non-cash inventory movements outweighed higher-than-anticipated depreciation and amortisation (D&A) expenses, while the rest of the result was as expected.

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The lithium miner reiterated FY26 production guidance for the Kathleen Valley project in Western Australia and for the project to reach a run rate of 1.5 million tonnes per annum (Mtpa) of spodumene concentrate by the end of the March quarter this year, before rising to a run rate of 2.8Mtpa by the end of the June quarter in 2027. The company forecasts reduced unit costs – $855–1045 per tonne on a 5.2% lithium oxide basis (SC5.2) versus market and Ord Minnett expectations of $913 per tonne and $934 per tonne, respectively– as the underground mining operation contributed the largest proportion of ore, rather than the open pit, by the end of FY26. Liontown sees a consistent recovery rate of circa 70% once the underground ore becomes the main feedstock.

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Post the result, we have cut our EPS estimates by 12.0% to incorporate increased finance costs and higher D&A charges, while our FY27 and FY28 forecasts are trimmed by 2.4% and 3.0%, respectively, to account for increased selling, general and administrative(SGA) expenses with a partial offset from reduced lease payments. We maintain our target price of $1.90 but have raised our recommendation to Accumulate from Hold on valuation grounds.

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