Liontown Resources Ltd (ASX: LTR) shares are heading in the right direction at last on Thursday.
In afternoon trade, the lithium developer's shares are up almost 2% to $1.37.
However, this gain cannot hide the fact that Liontown shares are down 38% from its mid-November peak of $2.22.
Why have Liontown shares been smashed?
There have been a number of catalysts for the sudden pullback by Liontown's shares over the last three months.
The first is concerns over the outlook for lithium prices. With some analysts suggesting that the price of the battery making ingredient could fall materially in the next 18 months, investors appear worried that lithium miners may not deliver earnings as strong as hoped. This has obvious consequences for valuations in the industry.
Also weighing on Liontown's shares has been short sellers loading up on its shares, as well as a number of other lithium developers. They may believe that lithium prices are indeed heading lower and have been shorting their shares.
Finally, a cost blowout at the Kathleen Valley lithium project has shaken confidence. The cost of the project continues to rise and there are fears that Liontown will need to raise funds in the near future given its cash shortfall.
Is this a buying opportunity?
Not everyone is bearish on Liontown shares. The team at Bell Potter remains positive and recently retained its speculative buy rating with a $2.81 price target. This suggests that its shares could double in value over the next 12 months.
Bell Potter acknowledges that project costs are rising but is overlooking this due to an increase in its production capacity. It commented:
LTR has announced that the Kathleen Valley capital cost is now expected to be $895m (June 2022 estimate of $545m), a 20% increase in initial plant capacity to 3.0Mtpa (from 2.5Mtpa) and the potential for early revenues from sales of Direct Shipping Ore (DSO). The capital cost increase is due to industry cost inflation, the increased plant capacity and prioritising schedule to maintain first concentrate production from mid2024. Around $75m has been spent on the project to date, implying $820m remaining. LTR has cash reserves of $385m, undrawn debt of $300m and is progressing a range of further funding options which it does not expect will be required until late 2023.
