After receiving a $15 million interest-free loan through the WA Government’s Lithium Industry Support Program, Federal Resources Minister Madeleine King and WA Mines Minister David Michael yesterday officially opened Liontown Resources' (ASX: LTR) Kathleen Valley lithium operation - Australia’s first underground lithium mine.
With an ore reserve of 68.5 million tonnes at 1.34% lithium oxide and 120ppm tantalum pentoxide, the mine has enough reserves to operate for 23 years.
However, the mine opening coincides with low lithium prices which have already resulted in two WA mines closing in the past nine months.
While lithium was WA's second-biggest royalty earner behind iron ore in the 2023-24 financial year, generating $563 million for the state government, WA's 2024-25 royalty income from lithium was estimated at $208 million and a forecast $286 million for 2025-26.
However, Tony Ottaviano managing director of Liontown expects the ongoing uptake of electric vehicles and home battery storage across the globe to underpin the project for decades.
"There are many sources of demand. Everyone focuses on EVs, but stationary batteries we believe will be a huge growth area," Ottaviano said.
"The price is so low at the moment new demand cannot be incentivised, so we're setting up for another significant price spike."
Meanwhile, what’s underpinning current demand are a number of critically important signed offtake agreements that Liontown has signed with global electric vehicle and battery manufacturers including Tesla (NASDAQ: TSLA), Ford (NYSE: F), LG Energy Solution (KRZ: 373220) and Beijing Sinomine (SZSE: 002738).
What’s equally encouraging, noted Madeleine King at the official opening was LG's decision to increase its offtake deal with Liontown Resources from 10 years to 15.
"I've heard LG are working on battery-powered space suits for NASA, so you never know, the spodumene from Kathleen Valley could soon make its way into space."
King described the mine as "critical to Australia's national interests", but pulled short of confirming that lithium would be included in the federal government's proposed Critical Minerals Strategic Reserve.
"The road to net zero goes through Australia's resources sector … there's no surprise the project has received support from around the world, especially Japan and South Korea," she said.
David Michael also reminded the media yesterday that there is some optimism about a price recovery in the next couple of years.
Assuming lithium prices bounce back over US$1,100 per tonne and stay there for two consecutive quarters, WA government support is expected to fall away as normal operations resume.
“The WA government's funding is designed to help the lithium industry weather the storm… We know that the world will need a lot of lithium as we decarbonise the globe and I know WA is best placed to do that," Michael.
According to the Department of Industry, Science and Resources (DISR), rapid global lithium demand is projected over the outlook period to 2027.
To further assist during the project’s ramp-up phase, the state government also approved a waiver of port fees and charges and mining tenement fees for up to 24 months.
While WA had eight lithium mines operating last year around 300 workers were impacted when the Bald Hill mine was placed on care and maintenance.
Meanwhile, Rio Tinto's newly acquired Mt Cattlin mine at Ravensthorpe on WA's south coast shut down earlier this month.
Liontown Resources is a battery minerals provider focused on its two major hard-rock lithium deposits.
Given the low lithium price, questions have been raised over the viability of the Kathleen Valley lithium operation. This has also raised speculation that it could be ripe for M&A action.
Gina Rinehart’s Hancock Prospecting, which bought 19.9% of Liontown in 2023, would have the financial firepower to nurse Kathleen Valley through the downturn and wait for the next lithium boom to arrive.
The stock has a market cap of $1.9 billion; the share price is down 17% in one year and up 52% year to date.
