It has been a helluva year for Liontown Resources Ltd (ASX: LTR) shares, to say the least. Buoyed by takeover bids, the lithium project developer has provided a peachy 137% gain so far in 2023.
Surprisingly, despite three offers, the board has held firm and rejected all proposals tabled by American lithium heavyweight Albermarle Corporation (NYSE: ALB). Concluding that the offers substantially undervalue Liontown, the board has shrugged off the approach and stridently continues working towards production.
Such decisions can be extremely important to the returns of shareholders. That's why investors often like to know if, and by how much, insiders are aligned with the interests of shareholders at large.
A simple way to get a read on this is to find out how many shares are held by insiders.
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Billion reasons to make the right call
Reassuringly, a considerable chunk of Liontown shares is held directly by insiders of the company.
By far, the largest Liontown holding sits with the current chair, Tim Goyder. Amassing a stake worth $943 million at today's prices, the lifelong mining devotee lays claim to 15% of the battery materials miner. To say he has an economic interest in Liontown's future would be an understatement.
Beyond Goyder, there are five other members of the board invested in Liontown Resources. These include:
- CEO Antonino Ottaviano: 0.15% stake
- Non-executive director Craig Williams: 1.35%
- Non-executive director Shane McLeay: 0.0073%
- Non-executive director Jennifer Morris: 0.003%; and
- Lead non-executive director Anthony Cipriano: 0.73%
In total, individual insiders hold 19% of all the Liontown shares currently on issue. This is a considerable amount when compared to most other companies of its size.
Will it pay off for Liontown shares?
Many companies have rejected proposals in the past, only to go on wishing they had accepted them in hindsight. Having turned their nose up at a $2.50 per share offer from Albemarle in March this year, will it turn out to be the right call?
There are a couple of factors to possibly consider here.
Firstly, Australia is said to be the most attractive investment mining jurisdiction globally. Part of this is because of the stability in government policy. Whereas another location popular for lithium mining is Chile, a country that is looking at nationalising the lithium sector.
If government intervention impacts operations in Chile, it could incentivise Albemarle to increase its exposure in Australia — prompting higher bids.
Secondly, Liontown is targeting production by mid-2024 with offtake agreements already in place for up to 450,000 dry metric tonnes of spodumene concentrate per annum. At around US$3,950 per tonne, that could possibly equate to US$1.8 billion in revenue.
If we were to apply the same price-to-sales (P/S) ratio to Liontown as what Pilbara Minerals Ltd (ASX: PLS) currently trades at (4.8 times), we could potentially be looking at a market capitalisation of $12.6 billion for Liontown.
However, these are simply 'finger in the air' estimates and are subject to lithium prices, Liontown's cost of production, and ramp time.
Whether it was the right call for Liontown shares will only become clear with time.
