The Kathleen Valley lithium project, in Western Australia, has suffered a big cost blowout, with ASX-listed Liontown Resources on Friday reporting a new capital cost estimate of A$895-million.
The new price tag, which includes a A$40-million contingency, compares with the June 2022 forecast of A$545-million and the 2021 definitive feasibility study estimate (DFS) of A$473-million.
Liontown explained that the engineering design and project delivery had been significantly refined and optimised since the completion of the DFS in November 2021 and the final investment decision in June 2022. Several optimisation and scope changes have been made, including a 20% increase in initial throughput capacity to three-million tonnes a year, to take advantage of the strong price forecast.
In addition, the project has not been immune to the substantial inflation seen across the industry, with some tenders experiencing price increases of more than 30%.
Liontown further stated that tendered package prices had been impacted by a reduction in productivity rates and the number of contractors willing to bid.
To date, the company has spent A$73-million on the project to date, with A$685-million of remining funds, comprising A$385-million in cash reserves and A$300-million in debt via a facility available for future deployment.
Liontown said that did not anticipate needing additional funds until the end of 2023. The firm is advancing a potential direct shipping ore (DSO) opportunity, which could generate early revenue.
“We have said from the outset that our overriding commitment is to deliver Kathleen Valley to its full potential – safely, on time and fully optimised for early tonnes and long-term value. The scope adjustments announced today will allow us to increase the initial project throughput by 20% to three-million tonnes a year, bringing forward additional SC6.0 tonnes into a market which remains extremely short of lithium units and continues to see very strong pricing outcomes.
“This, together with the exciting new DSO opportunity we have identified during project and mine schedule optimisation, opens up the potential for increased tonnages and revenues at an early stage in the mine life – an attractive opportunity given strong pricing and market conditions,” said MD and CEO Tony Ottaviano.
Liontown’s share price closed 8% lower on Friday at A$1.38 a share.