Chanticleer
How Gina Rinehart silenced Liontown’s roar
After a tumultuous week, Liontown has managed to lock in a debt and equity package to fund its flagship mine. But the shadow of a major shareholder hangs heavy over the company.
It’s barely five months since Liontown chief executive Tony Ottaviano came to The Australian Financial Review’s mining summit with a clear message: no one would be getting this company on the cheap.
This was a company, he said, at the very start of a multi-generational expansion that would be driven by a decades-long boom in global electrification, with a low cost, high-quality project in the Kathleen Valley mine.
Tony Ottaviano David Rowe
“We know we’re the best people to understand the value of our assets,” Ottaviano declared.
But on Thursday night, it was clear the market had taken a very different view.
Gina Rinehart’s decision to spend $1.3 billion to build up a 19.99 per cent stake in Liontown led to US lithium giant Albemarle abandoning its $3-a-share bid for the company on Monday, and forced Liontown to scramble to secure a $1.136 billion package of debt and equity to fund Kathleen Valley.
Early reports from the Financial Review’s Street Talk column had Liontown seeking $400 million at between $2.20 and $2.60, but on Thursday night the company announced it had secured $376 million at a price of $1.80.
That is a 35 per cent discount to Liontown’s last closing price of $2.79 on October 13, but perhaps more notably it is just 17 per cent above the $1.53 price that the stock closed at on March 27, the day before Albemarle’s first bid for the company was announced.
The extent of Rinehart’s participation in the raising will be revealed after the bookbuild closes late on Thursday night. But those close to the deal said the billionaire had been instrumental in talking down the capital raising price on Thursday. Having acquired most of her stake at $3, Rinehart was apparently in a mood to drive a hard bargain.
On one view, you’ve got to hand it to Ottaviano – having seen the Albemarle offer evaporate on Sunday, he’s ended up with a fully funded project by Thursday night.
While the equity raising has clearly been a painful process – made particularly difficult by a major shareholder whose intentions are opaque at best – Ottaviano had a roster of banks including ANZ, CBA, HSBC, NAB, Westpac and Société Générale lined up, plus support from the Clean Energy Finance Corporation and a commitment from Export Finance Australia.
And Liontown’s timing could barely have been worse.
If the evaporation of Albemarle’s $3 a bid on Monday and the continued pressure from Rinehart wasn’t enough to turn investors off, a 9.8 per cent plunge in Albemarle’s share price on Wednesday night in the US added to the general souring of sentiment. The stock hit a two-year low after Bank of America issued a downgrade based on its need to secure $US2 billion in funding in the next two years, and weakness in lithium prices, which have fallen about 75 per cent from last November’s peak.
It’s a good thing for Australia that this project has got the support of capital markets. But there’s a price attached to that – and it’s a long way from what Liontown shareholders thought the company was worth just last week.
Rinehart’s intentions at Liontown remain a mystery for Ottaviano and Liontown chairman Tim Goyder, who will put $10.8 million into the raising. But the short sellers who hold about 10 per cent of Liontown’s stock face an intriguing decision. Do they buy shares in the capital raising, and lock in a certain profit, or stay out in the hope the share price keeps falling?
It’s not time to put away the popcorn just yet.
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