Liontown Resources (ASX:LTR) share price sinks 9% after Kathleen Valley DFS

This lithium share is falling on Thursday…

The Liontown Resources Limited (ASX: LTR) share price is back from its trading halt and has tumbled lower.

At the time of writing, the lithium developer's shares are down over 9% to $1.69.

A young woman with tattoos puts both thumbs down and scrunches her face.

Image source: Getty Images

Why is the Liontown Resources share price tumbling?

Investors have been selling down the Liontown Resources share price this morning despite the release of its definitive feasibility study (DFS).

According to the release, the DFS confirms the potential to develop a state-of-the-art, second-generation lithium-tantalum mining and processing operation at the 100%-owned Kathleen Valley Project in Western Australia's north-eastern Goldfields.

The release notes that the DFS base production has been increased from 2Mtpa to 2.5Mtpa, producing ~500ktpa of spodumene concentrate with a 4Mtpa expansion planned in year six, to deliver ~700ktpa spodumene concentrate.

In respect to costs, Liontown revealed that its pre-production capital cost estimate has increased to $473 million.

Nevertheless, the company estimates that the project has a post-tax net present value (NPV) of $4.2 billion, a payback of 2.3 years, and post-tax Life of Mine (LOM) free cash flow of $12.2 billion.

First production is expected to commence in the first half of 2024. This is a full year earlier than originally planned. Management notes that this will be when demand for lithium is forecast to accelerate significantly due to the stronger adoption of electric vehicles globally.

Liontown's Chief Executive Officer and Managing Director, Tony Ottaviano, commented: "The completion of the DFS marks a major step towards Liontown becoming a substantial global lithium producer and, together with the Updated Downstream Scoping Study also released today, lays very strong foundations for our aspiration to become a world-class battery materials company."

So why are its shares falling?

The weakness in the Liontown share price may be due to some of the inputs being used in its NPV.

For example, the company's DFS assumes a long term weighted average US$1,392/t Free on Board (FOB) LOM spodumene price. As a comparison, in July, Core Lithium Ltd (ASX: CXO) used an average price of US$731 per tonne.

Some investors may believe Liontown's estimate is unrealistic over the long term (given the likely increase in supply at those prices) and is inflating the value of the project.

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 Bruce Jackson.

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