Liontown Resources Ltd (ASX: LTR) shares have been having a rough time of late.
So much so, that on a 12-month basis, the lithium developer's shares have halved in value.
While this is disappointing for shareholders, could it be a buying opportunity for the rest of us?
The team at Bell Potter appears to believe this is the case and is tipping the company's shares to roar materially higher from current levels.
Where are Liontown shares heading?
According to a recent note out of Bell Potter, its analysts have a speculative buy rating and a $1.85 price target on its shares.
Based on the latest Liontown share price of $1.40, this implies a potential upside of 32% for investors over the next 12 months.
To put that into context, a $20,000 investment would grow to be worth approximately $26,400 if Bell Potter is on the money with its recommendation. Though, it is worth highlighting that the broker's speculative rating means it is a high risk, high reward option. This makes it unsuitable for investors with a low to normal risk tolerance.
Why is the broker positive?
Bell Potter thinks very highly of the company's wholly owned Kathleen Valley (KV) lithium project in Western Australia.
This project, which is due to commence production in the middle of the year, has been optimised for an initial 3 Mtpa, producing approximately 500,000 tpa of spodumene concentrate. It also has a 4Mtpa expansion planned in year six, which aims to deliver approximately 700,000 tpa spodumene concentrate.
The broker notes that the project is highly strategic and should be fully funded through to free cash flow generation. It 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. LTR is an asset development company; our Speculative risk rating recognises this higher level of risk.
All in all, Bell Potter appears to believe this makes Liontown shares a good option for investors (with a high-risk tolerance) that are looking for exposure to the lithium industry before it rebounds.
