Liontown Resources Ltd (ASX: LTR) shares are rising on Monday morning.
At the time of writing, the lithium developer's shares are up 2% to $1.02
Why are Liontown shares roaring?
The company's shares are lifting this morning after investors responded positively to the release of an announcement.
According to the release, Liontown Resources has concluded negotiations with Beijing Sinomine International Trade (BSIT) and executed a full-form offtake agreement.
BSIT is operating in the lithium chemicals industry. It is active in both hardrock lithium mining and refining of spodumene concentrates into battery-grade lithium chemicals.
The offtake agreement is for the supply of spodumene concentrate from Liontown's flagship 100%-owned Kathleen Valley Lithium Project in Western Australia.
The company notes that the short-term agreement is for the supply of up to 100,000 dry metric tonnes (dmt). This is over a 10-month period to commence by 30 September 2024. Pricing will be determined using a formula-based mechanism that references market prices for battery-grade lithium carbonate.
But don't worry if you're concerned about this interfering with its existing offtake agreements. Management points out that the agreement with BSIT is in addition to existing long-term offtake contracts with Tesla, LG Energy Solution and Ford.
These existing offtake agreement will be progressively brought into effect over the next 12 months as Liontown ramps-up the Kathleen Valley Lithium Project to full production.
Agreement 'de-risks sales'
Liontown Resources' managing director and CEO, Tony Ottaviano, was pleased with the agreement.
He sees it as a way to de-risk the company's ramp up to nameplate capacity. Ottaviano commented:
Securing a near-term offtake with an established lithium refiner to sell initial volumes over the ramp-up period, de-risks sales during our ramp-up of the plant towards nameplate capacity. This complements our existing long-term offtakes, which we will progressively bring into effect over the next 12 months as we increase production towards nameplate to support our offtake commitments.
Should you invest?
Bell Potter is positive on Liontown shares and sees value in them at current levels.
And while the broker has not yet responded to this update, it currently has a speculative buy and $1.85 price target on its shares. This implies potential upside of 80% for (high risk) investors from current levels.
The broker thinks very highly of the Kathleen Valley lithium project. It explains:
LTR's 100% owned Kathleen Valley lithium project remains highly strategic with initial production imminent, a long mine life and tier-one location. LTR has offtake contracts with top tier EV and battery OEMs (Ford, LG Energy Solution and Tesla). Under our modelled assumptions, we expect that LTR is fully funded to free cash flow.
