Liontown Resources Ltd (ASX: LTR) shares have fallen hard this week.
A disappointing update on the Kathleen Valley Lithium Project sent investors to the exits in their droves.
Investors may now be wondering if this is a buying opportunity. Let's see what Goldman Sachs is saying about the lithium developer.
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What is Goldman saying about Liontown shares?
Goldman has been working through the update and appears a touch concerned with the company's funding predicament following the termination of its $760 million debt package.
Although the broker believes the company can get by on lower funding, how much it requires will come down to where lithium prices trade. It explains:
LTR anticipate working capital/ corporate cost requirements of ~A$150-200mn through ramp up, where on our gradual ramp up profile/spodumene pricing (~US$800/t) we estimate LTR requiring further funding of ~A$200mn (previous target of ~A$460mn in fresh debt). As a downside scenario, a further ~25% decline in our near-term spodumene prices to ~US$600/t would imply a further ~A$300mn may be needed to get to positive FCF in ~CY27, though we expect in this scenario other measures may be utilised to preserve capital (selective/reduced mining, processing ore stockpiles, etc.).
But are its shares a buy?
Goldman is sitting on the fence with its recommendation at present.
Although the broker sees enormous value in Liontown's shares at current levels, it doesn't appear willing to put a buy rating on them.
According to the note, it has retained its neutral rating with a target price of $1.45 (from $1.65). This implies potential upside of 54% for investors over the next 12 months. It explains:
Our NAV [net asset value] is down to A$1.36/sh (pre-risking), where LTR is trading at a discount to our revised NAV at ~0.75x and an implied LT spodumene price of ~US$950/t (peer average ~1x & ~US$1,150/t), with a high valuation sensitivity to our LT lithium pricing. However, we see LTR pricing further uncertainty on funding into the possibility of further lithium price declines/volatility, and remain Neutral.
