Liontown Resources Ltd (ASX: LTR) shares were out of form on Monday.
Despite starting the day strongly, the lithium developer's shares ended the session 1.5% lower at 95 cents.
This followed the release of a quarterly update which revealed that everything remains on track at the Kathleen Valley Lithium Project.
Where next for Liontown shares?
It has been a tough 12 months for the company's shares. During this time, they have lost almost two-thirds of their value.
While this is disappointing, one leading broker believes it has created a buying opportunity for investors with a high tolerance for risk.
According to a note out of Bell Potter this morning, its analysts have retained their speculative buy rating on Liontown's shares with an improved price target of $1.90.
Based on its current share price, this implies potential upside of 100% for investors over the next 12 months.
Commenting on the quarterly update and progress at Kathleen Valley, the broker said:
Kathleen Valley is set to commence spodumene concentrate production imminently, with key construction contractors demobilising over the next three days and the project 99% complete. Underground mining is advancing on schedule and budget. Open pit mining is expected to reach the primary ore zone in the current quarter, boosting ROM inventories and de-risking plant feed ahead of underground ramp-up. Dry plant commissioning is complete and the wet plant commissioning underway. Ancillary plant/infrastructure has also advanced: the Paste Fill Plant is now >60% complete; the 95MW Hybrid Power Station has been commissioned and is supplying the site.
Market may be tighter than you think
Concerns over supply outstripping demand has weighed heavily on lithium prices. However, Bell Potter believes that the lithium market may be tighter than what is being reported. It highlights a recent offtake agreement as potential evidence of this. The broker adds:
LTR and Beijing Sinomine International Trade Co. executed a binding agreement covering up to 100kt of concentrate supply over a 10-month period. The new agreement covering ramp-up volumes and, with BSIT being a lithium miner, provides some evidence that lithium markets may be tighter than current pricing and media suggests.
In light of the above and its belief that the Kathleen Valley lithium project is highly strategic, the broker remains very bullish on Liontown's shares. It concludes:
LTR's 100% owned Kathleen Valley lithium project remains highly strategic with initial production imminent, a long mine life and located in a tier-one location. LTR has offtake contracts with top tier EV and battery OEMs. Under our modelled assumptions, we expect that LTR is fully funded to free cash flow. We have made no changes to our earnings estimates in this report. LTR is an asset development company; our Speculative risk rating recognises this higher level of risk.
