Liontown Resources Ltd (ASX: LTR) shares have underperformed this year in a world where markets have set new highs.
Shares in the battery minerals producer are down more than 49% this year to date, after a 5% drop this past month.
On Friday, the company posted a court ruling related to a case started in 2023, in which an investor sought clarification on what they were owed as the owner of a private royalty.
While the announcement wasn't price-sensitive, it does relate to the company's financials and warrants further analysis.
Let's examine the details to determine what this means for Liontown shares and whether it's cause for concern.
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What does the ruling mean for Liontown shares?
Liontown advised that the New South Wales Supreme Court had delivered a judgment regarding a private royalty linked to its Kathleen Valley Project.
The court ruled that the royalty should be calculated as 2% of the gross sales from certain tenements at the site rather than the 1.743% that Liontown had argued for.
It might seem like splitting hairs, just 53 basis points. But when you're dealing in millions of dollars, over time, the figures really begin to add up.
According to the Liontown announcement:
… the holder of a private royalty, which applies to certain tenements now forming part of the Kathleen Valley Project, had sought court declarations regarding the interpretation of certain royalty documents and the amount of the royalty.
Liontown advises that the Court has now given its judgment in this matter. The effect of the Court's judgment is that the amount of the royalty is calculated as 2% of the gross sales of production from the relevant tenements.
Should investors be concerned?
You might be asking yourself: Does this spell trouble for Liontown shares? Well, rest easy. According to the company, this royalty isn't a "new obligation". Plus, it has already been accounted for in its financials at the adjusted rate.
Liontown notes that the private royalty is not a new obligation and payment of the private royalty has been reflected in published costs at 2%. The decision does not have a material impact on the royalty payable, nor is it considered material to the Company.
Liontown has 28 days to file any notice of intention to appeal from the judgment. Liontown is considering its position.
While the court's decision wasn't the outcome it had hoped for, it doesn't necessarily spell disaster for Liontown shares.
Analysts at Bell Potter are bullish on the stock. Analysts maintain a speculative buy rating on it with a price target of $1.50.
The broker highlighted the strategic nature of the Kathleen Valley Project, including its long lifespan and secure location in a 'tier-one' jurisdiction, as reasons why it was bullish on Liontown shares.
Bell Potter said the site remained "highly strategic", and it expected the company to be "fully funded to free cash flow" in its modelling.
However, it noted that this investment was best suited for those with a higher tolerance for risk.
Meanwhile, consensus rates the stock a hold.
Foolish takeaway
So, is the royalty ruling a problem for Liontown shares? While it's not the news investors were hoping for, it appears to be more of a bump in the road than a major obstacle.
Brokers are aren't overly negative on the stock either, with Bell Potter rating it a buy.
The Liontown share price has fallen more than 46% in the last 12 months. It closed the week at 83.5 cents per share.
