Rinehart snaps up more Liontown shares, what's going on?

This lithium developer continues to gain attention from Australia's richest woman.

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a miniature moulded model of a man bent over with a pick working stands behind a sign that has lithium's scientific abbreviation 'Li' with the word lithium underneath it against a sparse bland background.

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Liontown Resources Ltd (ASX: LTR) shares are starting the week positively.

In morning trade, the lithium developer's shares are up almost 1% to $2.96.

What's going on with Liontown shares?

Investors have been buying the company's shares on Monday after Gina Rinehart's Hancock Prospecting revealed that it has been increasing its stake.

According to a change of substantial shareholder notice, Hancock Prospecting has lifted its holding from 235,491,417 Liontown shares to 272,291,417 shares. This increases the miner's interest from 10.69% to 12.36%.

These shares were picked up between 26 September and 29 September, with the biggest buying taking place on 27 September. On that day, a total of 35.5 million shares were snapped up at $3 per share. Once again, Rinehart has not paid a price above the takeover proposal from Albemarle Corp (NYSE: ALB).

Why the buying?

In a media release, the miner once again criticised Liontown's development of the Kathleen Valley Lithium Project and appears to believe that it needs Hancock's guidance to be successfully executed. The release states:

Whilst Hancock continues to see Liontown's Kathleen Valley project as a significant lithium asset, Liontown's update to the ASX earlier today reinforces Hancock's previous observations that the project faces significant execution, operational ramp-up and market risks. Liontown confirmed a further $56 million capital cost increase to $951 million, and on a 'real' basis which ignores inflation. Factoring in inflation over time, the actual capital cost could be in excess of $1 billion. This follows Liontown's prior cost increases, above the $473 million estimate from its definitive feasibility study. The latest capital cost estimate includes rates and quantities for awarded contracts. However, Hancock notes that the productivity, design, quantity and schedule risks largely remain with Liontown.

Hancock also considers that most cost pressures typically emerge in the second half of the construction of mining projects. Liontown's revised operating cost estimate has increased by approximately 50% from previous estimates. The actual numbers are some time away from being known. Only last month, Liontown stated that it was proceeding with a Direct Shipping Ore (DSO) product to provide an early source of revenue from the project, describing the economics as compelling.

Hancock also notes that Liontown is going to need additional funding because of the above. It adds:

Today, Liontown put DSO on hold indefinitely due to declining lithium prices. Liontown's need to debt fund part of its capital costs, and the DSO revenue source that is on hold, has now increased to a minimum of $450 million – which Liontown has indicated may need to be further increased. Ultimately, it is the Liontown shareholders that will have to meet the cost of this additional funding.

One thing that remains unclear is whether Hancock is looking to launch a takeover offer in the near term. Investors will need to keep their eyes peeled for that.

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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