Should you buy Liontown shares after 'highly encouraging' quarter?

Bell Potter has given its verdict on this lithium miner.

| More on:
A young man goes over his finances and investment portfolio at home.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Liontown Resources Ltd (ASX: LTR) shares were under pressure again on Wednesday.

The lithium miner's shares ended the session down by 4.5% to 85 cents.

This means its shares are now down a sizeable 46% since this time last year.

Why did Liontown shares drop?

Investors were selling the miner's shares following the release of its first quarterly update since commencing production at the Kathleen Valley Lithium Project in Western Australia.

Management revealed that its production progressed to plan with volumes totalling over 28,000 dry metric tonnes (dmt) of spodumene concentrate for the eight weeks since first production with an average concentrate grade of 5.2% Li2O.

While the market didn't respond positively to the update, the team at Bell Potter has described the quarter as "highly encouraging."

Commenting on the quarter, the broker said:

The quarter was highly encouraging from an operational perspective with the company illustrating two months of processing plant performance and reiterating previously stated ramp-up targets relating to plant throughput and recoveries. LTR expect to update the market on project optimisation outcomes and its refreshed operating cost estimates in the current quarter. The key focus is on cash generation given current market conditions through optimising production levels, mine sequencing (mining costs and grades) and concentrate product grades.

Big returns

Bell Potter has made no changes to its estimates or valuation following the update. This means that big returns could be on the cards for investors buying at current levels.

According to the note, the broker has retained its speculative buy rating and $1.50 price target on Liontown's shares. Based on its current share price, this implies potential upside of 76% for investors over the next 12 months.

To put that into context, this would turn a $5,000 investment into approximately $8,800 if Bell Potter is on the money with its recommendation.

Though, it is worth noting that its speculative rating means it would only be suitable for investors with a high tolerance for risk.

Commenting on the lithium miner, the broker concludes:

LTR's 100% owned Kathleen Valley lithium project remains highly strategic in terms of scale, long project life and location in a tier-one mining jurisdiction. 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. LTR is an asset development company; our Speculative risk rating recognises this higher level of risk.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Materials Shares

Lion holding and screaming into a yellow loudspeaker on a blue background, symbolising an announcement from Liontown.
Materials Shares

Why is the Liontown share price sinking 6% today?

This lithium miner is failing to roar on Wednesday. Let's find out why.

Read more »

Close up of a sad young woman reading about declining share price on her phone.
Materials Shares

Pilbara Minerals shares higher despite guidance downgrade and project suspension

This lithium miner has announced a lot of things today. Let's dig deeper into them.

Read more »

Miner looking at a tablet.
Resources Shares

Mineral Resources share price up 7% as company responds to ASX queries

The mining giant has responded to an ASX Aware Letter it received on Friday.

Read more »

Miner looking at a tablet.
Materials Shares

This ASX 300 mining stock is up 27% in a month. Here's why it's in the red today

This mineral explorer has just released its quarterly activities and cash flow report.

Read more »

View of a mine site.
Materials Shares

Guess which ASX lithium stock just rocketed 14% on record quarterly production

This ASX lithium miner has released its third-quarter results.

Read more »

Contented looking man leans back in his chair at his desk and smiles.
Materials Shares

5 reasons to buy Rio Tinto shares now

Goldman Sachs has named the reasons why it thinks this mining giant is a buy.

Read more »

A man holds his head in his hands, despairing at the bad result he's reading on his computer.
Materials Shares

Guess which ASX 200 stock is tumbling 8% after downgrading its guidance

What's behind this downgrade? Let's dig deeper into things.

Read more »

Businessman taking off in rocket-fuelled office chair
Share Gainers

This ASX lithium stock just rocketed 63%! Here's why

Investors are sending this ASX lithium stock through the roof on Monday. But why?

Read more »