This is Allens

Bryn

One of the defining moments of 2023 in critical minerals was the completion of Liontown's funding package for the Kathleen Valley lithium project. This was a unique and complex funding package, which was completed in the midst of a proposed A$6.6 billion takeover offer from a US bidder. Liontown pivoted from that takeover bid to complete a A$1.2 billion funding package comprising commercial and government bank debt and equity within a week. It was extraordinary, but highlighted the ever-changing critical minerals market.

I look at our relationship with Liontown as a great example of partnering with the client. We have worked alongside Liontown in all aspects of the development and financing of the Kathleen Valley project as they have transitioned from explorer to near-term producer, and into the ASX 100. When you have that relationship with a client, they don't feel like a client – it feels like a partnership.

Australia's market for critical minerals, and lithium in particular, is evolving rapidly. There is uncertainty around valuation of lithium assets, given changing demand and supply. We have seen the ASX become the preferred stock exchange on which to list for emerging lithium participants due to higher valuations. These participants tend to have assets both in Australia and internationally. This spike in companies with lithium assets wanting to list – and a corresponding spike in ASX companies acquiring lithium assets on the ASX – may be due to the Australian market's higher demand and risk appetite. Over the past 12 to 24 months we have seen enormous swings in the share prices of lithium participants on the ASX.

We're also seeing established Western Australian-based listed and private companies, notably those led by local billionaires, taking large stakes in very early-stage lithium miners, in Australia and internationally. In some cases, this appears to be motivated by the potential to gain access to the product or to assist with a move to downstream processing. In other cases, they could simply be blocking stakes. Motives are, at this stage, unclear, but we suspect they'll be known in the next 12 months.

The development of critical minerals assets in Australia is now very different from what it was two or three years ago and pre-COVID. We've seen capital costs escalate due to inflation, increases in product and labour costs, and general labour shortages. Development projects that were economically viable two years ago might not be as profitable as they once were.

When you're working with miners, especially in this market, you have to understand every facet of their business. From a very early stage, we adopt a partnership approach when working with our clients. We really get to know the intricacies of how they work – especially in the listed company space, where investors are continually seeking up-to-date information.

 

Alex

Working at the coalface with Liontown in the period where they pivoted from a takeover offer to a debt and equity funding package was a formative experience for me. Bryn and I had the opportunity to sit in the Liontown office during this period and see first-hand how the management team, board and the respective advisers worked seamlessly together to navigate an extremely complicated set of circumstances and reach the desired funding outcome.

Liontown has been a leading market developer in the emerging critical minerals sector over the past 24 months, and has also faced intense media scrutiny and interest in the development of this world-class asset. As with all developers, they have had to deal with increased capital expenditure and an ever-changing labour market. Their offtake agreement with Ford, inked in 2022, saw them become the first lithium company to obtain a marquee offtake with an original equipment manufacturer that had a corporate facility attached to it. They also managed to hit development timelines and market expectations in the midst of a takeover. They've been running ahead of the pack in both challenges and opportunities.

The takeovers market for critical minerals is evolving rapidly and participants have different perspectives on valuation, as well as differing reasons for investment in the critical minerals supply chain. It's extraordinary to see some of the largest miners in the world attempting to take a stake in early stage exploration and pre-production assets. The involvement of high-profile WA investors makes matters even more complex. When you have individuals willing to put billions of dollars into acquisition in the space of a matter of weeks, it changes the game completely, compared with a large corporation – bound up in internal approvals – that might take a while to act in a takeover.

As a large corporate law firm we see large-scale mergers and acquisitions regularly. However, in this market, we are seeing early stage mining companies become the subject of takeovers by large players. These companies have often grown at such an exponential rate that they have resourcing issues and no in-house legal function. That is where we come in – partnering with them and being equally invested in their business and success. It's unique and something that probably wasn't seen in the market previously.

If you ask anyone in the Allens team across Australia who has worked with Liontown, they all have the same sentiment – we feel invested in their success. With this new funding package, Liontown is on track to become the next significant Australia lithium producer and we'll have advised them every step of the way.