Liontown Resources Ltd (ASX: LTR) shares have been out of form this year.
Since the start of 2024, the lithium developer's shares have lost a quarter of their value.
While this is disappointing, one leading broker believes that it could have created a compelling buying opportunity for investors that are wanting exposure to lithium.
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Liontown shares named as a buy
According to a note out of Bell Potter this morning, its analysts have responded relatively positively to the company's quarterly update from earlier this week.
As a reminder, that update revealed that the development of the Kathleen Valley Lithium Project in Western Australia is on schedule for first production by mid-2024 and remains on budget.
Commenting on the quarter, Bell Potter said:
LTR's March 2024 quarterly report highlighted key milestones relating to the Kathleen Valley lithium project. At quarter-end, the project's development was 85% complete (earned value), with commissioning of the dry plant commencing late in the quarter. Underground and open pit mining activities have continued in line with mine plan expectations and are enabling stockpiled ore ahead of plant start-up. Kathleen Valley remains on budget and schedule for first production from mid-2024.
The broker also highlights that management believes it has sufficient cash to see it through to positive cash flow. It said:
LTR reiterated that the recently announced $550m debt package will see Kathleen Valley into production, ramp-up and positive cash flow. Work has progressed on meeting the conditions to enable debt drawdown in the September 2024 quarter. Including this facility, existing cash and undrawn funds provide LTR with total liquidity of around $600m.
Big returns
This morning, Bell Potter has reiterated its speculative buy rating with a slightly trimmed price target of $1.85 (from $1.90).
Based on where Liontown shares currently trade, this implies a potential upside of approximately 50% for investors over the next 12 months.
Commenting on its bullish view on the company, the broker said:
LTR's 100% owned KV lithium project remains highly strategic in terms of its stage of development, long mine life and location. LTR has offtake contracts with top tier EV and battery OEMs (Ford, LG Energy Solution and Tesla). Hancock Prospecting has a 19.9% interest in LTR. Under our modelled assumptions which includes the drawdown of the $550m debt package and repayment of Ford debt, and under a more conservative spot price scenario, we expect that LTR is fully funded to free cash flow.
Though, it is worth highlighting that it has a speculative rating, which recognises a "higher level of risk." This may make Liontown shares only suitable for investors with a high-risk tolerance.
