Liontown Resources Ltd

ASX:LTR

Q2-2026 Earnings Call

[Operator]

Welcome to Liontown's Half Year '26 Results Call. Following the formal presentation, there will be a Q&A session for investors and analysts. Participants can ask both text and live audio questions during today's call. [Operator Instructions] I will now hand over to Tony Ottaviano, MD and CEO of Liontown.

[Antonino Ottaviano, executive]

Thank you, Michelle. Good morning, everyone, and thank you for joining us today. With me today, we have Greg Jason, our Chief Financial Officer; Ryan Hair, Chief Operating Officer; and also Grant Donald, our Chief Commercial Officer.

If we can go to the first slide, please, Michelle. The important information. I want to start here by framing where we are as a company because this half has been a real inflection point for the business.

Firstly, Kathleen Valley is delivering as designed. We completed the transition to 100% underground mining during the first half and generated over $208 million of revenue, more than double the prior corresponding period. The underground mine is scaling, and we've got some more information on that, that Ryan will go through. The plant is performing, notwithstanding we are feeding at lower-grade material from the OSP, and we're finishing the remnants of the open pit mine, and we're shipping our product to customers all around the world now.

The first half financial result reflects what should reflect for a company that's still in ramp-up period. The statutory loss of $184 million, Greg will go into further detail about that. But I'll unpack it that the number becomes -- it doesn't reflect the operating performance of the business. And I'll just break it down into 3 constituent parts.

Firstly is a derivative charge. That's a noncash item that's directly related to the convertible note, and Greg will speak to that a little bit later. There's a $90 million depreciation charge, which is part of the open pit. We finished the open pit. It's over a 3-year period, and so we have to depreciate it over that 3-year period. And this is some capitalized commissioning costs as we call commercial production in our plant.

But the key takeaway is that the earnings profile is getting better and for the right reasons. We're now feeding a higher-grade iron ore into the plant and blending it with our open pit and OSP material, and recoveries are lifting. And we're realizing higher prices. They continue to strengthen in the second half, and all 3 of these push for us to deliver better margins.

The market is also helping. We're now seeing BESS emerging as a second demand engine alongside EVs. And when we look at when we approved this project back in 2023 or 2022, we've got a different environment from the market perspective. Permitting, financing and construction all take years to put into place. So near-term supply response is going to come from brownfields expansion and restarts. And that's good news for us because we're already producing, which brings me to the 4 million tonne expansion study underway at Kathleen Valley. This is a brownfield growth option from an operating asset where -- and there is one of only very few around the world that can bring on additional tonnes to the market as quickly as this option can.

That's the setup. I'll now hand over to Greg and the team to go through the details. So over to you, Ryan.

[Ryan Hair, executive]

Yes. Thanks, Tony. So if we just go to the next slide. Thanks, Michelle. So this slide summarizes where we are operationally, and the headline is that the transition to 100% underground mining is complete. That is a significant milestone. Open pit mining delivered 917,000 tonnes of ore during the half with the final ore delivered in December. Underground ore mined totaled 533,000 tonnes, highlighting the speed of the ramp-up. The plant processed just over 1.2 million tonnes at an average grade of 1.3% lithia. Recoveries continue to trend upwards, averaging 61% for the half. Concentrate produced came in at 193,000 tonnes at a weighted average grade of 5%. Every metric is heading in the right direction. The inflection point from here is clean ore and grade. As underground ore becomes the dominant mill feed, we expect recoveries and production to continue to improve.

With that, I'll hand over to Greg.

[Greg Jason, executive]

Thank you, Ryan. Good morning, everybody. Can I please have the next slide? Great. So I'll talk through some financial highlights here and then give you some more details later in the presentation. You can see the production and sales up as both Tony and Ryan have discussed. At a realized price level, we've got 18% improvement period-over-period. We have changed the calculation methodology to be more in line with what our peers are doing. We were previously reporting realized prices simply being the period revenue divided by the tonnes shipped.

What that meant was you've got some mark-to-market or provisional-to-final pricing adjustments that relate to prior periods and to the extent that there's pricing data after the end of the reporting period that needs to be picked up in quotation periods that was being missed. So now what we're doing is we're representing the estimate of the realized price only for the tonnes shipped in the period, and $888 is the result. Just to help you translate from the Q1 and Q2 numbers that we previously reported. We had said that Q1 was $700. And on this method, it's $691. And we had stated Q2 as being $900. And on this method, it's $985. So we'll keep that method going into the future.

Talking about unit costs, you can see the increase to $985 per tonne. This was almost all driven by mining costs. In the first half of FY '25, we were processing material that came from the open pit, the large ore load there, large body clean feed, lower unit cost. And in the first half of '26, we were blending OSP material. So that has high levels of contamination and hence, impacts recovery. We also have the premium cost of the crushing and sorting of OSP that fell into the half and not the prior, and we transitioned into underground as well, which has a high unit cost of mining relative to that previous open pit material. And so the net effect is what you see now. You can see that the increase on all-in sustaining is about another $45 higher. That is the impact of sustaining capital kicking in. We had a new plant freshly commissioned in the first half of '25. And in the first half of '26, we've now got sustaining capital programs underway driving that result.

Moving down to the P&L section. We more than doubled the revenue, and this followed both the tonnes and the improvement in price. Underlying EBITDA was an $8 million loss. The first important point about here is notwithstanding the improvement in realized price, it was still a subdued price for the period. And the prices that you see now in the market really don't impact us a lot for the first half of '26. Many of our contracts have got backward-booking QPs and hence, full exposure to the pricing as it was.

Secondly, we've got the ramp up and the unit operating cost impact that I spoke about before and the transition from open pit to underground. We also had a capitalization of production cost in the first half of '25 because we had not yet achieved commercial production for the processing plant. That was declared start of last calendar year, and hence -- and that was $39 million.

So a big difference period-over-period. And then the D&A impacts once you get to the next line, the underlying net profit, negative $89 million. It has higher D&A with the open pit coming to an end, amortized over a short period. We had capitalization of interest for the same logic around having achieved commercial production in the first half of '25, and ultimately, that gets us to the $89 million. And then when you go to the statutory result headline, there is a significant impact from LG. That was all about revaluing the derivative on the books for their convertible option. It was noncash, and you should think of it as, as the share price went up, the accounted cost of discharging that liability with equity went up. So we had to recognize that in the half.

The conversion occurred on the 4th of Feb. You're going to see a $58 million gain coming through the books in the second half, and that represents the difference between the total liability we had at the end of December being the derivative plus the debt and the market value of the shares that we issued on the 4th of Feb. 239 million shares at $1.77 being the closing price. So you'll see $58 million in the second half. We closed with $390 million. That's news we published in January, strong position as we entered the year. I'll talk more about the balance sheet a bit later in the presentation.

[Antonino Ottaviano, executive]

Next slide, please, Michelle.

[Ryan Hair, executive]

Great. Thanks, Greg.

[Antonino Ottaviano, executive]

Over to you, Ryan.

[Ryan Hair, executive]

Yes. Thanks, Tony. So safety still remains our core operational focus, particularly as we scale the underground. Our lost time injury frequency rate held at 1 through the half. The total recordable injury frequency rate increased to 11.55, reflecting the trend we flagged during the last quarterly presentation around manual handling injuries across our contractor work groups. The targeted actions around field leadership and contractor oversight continue. Safety observations at just over 3 per 1,000 hours show sustained workforce engagement in proactive hazard identification.

Our hybrid power station delivered 82% renewable penetration for the half, which reflects our ongoing commitment to low carbon intensity production. And $11.7 million in expenditure on Tjiwarl businesses through the period reflects the strength of that partnership and our genuine commitment to meaningful local employment and value creation.

Now turning to underground production on the next slide. Thanks, Michelle. The 37% quarter-on-quarter increase in ore mined to 308,000 tonnes in Q2 reflects -- continues to track well against the planned ramp-up. As we noted last quarter, the mine achieved a 1 million tonne per annum run rate in September. And for the December quarter, the overall run rate was just under 1.25 million tonnes, leaving us well placed to achieve the 1.5 million target by the end of this quarter. Development is progressing well, opening additional work fronts across multiple levels. Reconciliation to both resource and grade models has been good. Stope performance and dilution continued to remain in line with expectations, and infrastructure continues to perform well. The summary is infrastructure is in place and working well. The ore body continues to meet expectations, and we are ramping to plan.

Now moving to the plant.

[Antonino Ottaviano, executive]

Next slide, please.

[Ryan Hair, executive]

The plant continued to perform in line with expectations as we progressed through the planned transition in mill feed composition. As I mentioned, just over 1.2 million tonnes processed for the half at 92% average availability, stable and reliable performance. Lithia recovery averaged 61%, continuing to trend upwards, reflecting deliberate feed sequencing and ongoing circuit optimization.

The feed mix is the key story here. In H1, open pit ore still comprised around 60% of the feed. In H2, that shifts to approximately 75% underground. And by FY '27, we're targeting over 90% underground feed. As clean higher-grade underground ore becomes a dominant source of plant feed, recoveries will continue to improve.

With that operational summary, I will provide -- I hand back now to Greg.

[Greg Jason, executive]

Yes. Next slide, please. This chart shows you the waterfall between first half '25 EBITDA and first half '26. We've talked about the increase in revenue, largely driven by the tonnes. We've got the increased cost of sales, excluding D&A with the ramp-up in tonnes as well, plus the impact of the higher operating cost. I mentioned the $39 million difference that was capitalization in first half '25, and that's the walk down to the negative $8 million.

Could you please go to the next slide, which looks at the net loss after tax. So same concept here from minus $15 million in first half of last year to minus $184 million. Of course, we got the carryover of the EBITDA from the price line. The LGES is a $148 million turnaround. So we booked a gain in the first half of '25 on the fair value of the derivative, but we booked a charge in first half '26, hence the $148 million. We did get a turnaround on the FX. The rate went south in first half '25. So you've got lower Aussie dollar debt, and the reverse happened in '26, additional D&A around the tonnes and the capitalization of the interest not occurring or lower level in the first half of '26. So that gets you to the $184 million.

Could you please go to the next slide? We started the period with $156 million. We closed with the $390 million. So $178 million of receipts. The difference between that and revenue, you can see a corresponding difference in an increase in accounts receivable. That's just a timing issue, $237 million of production costs has gone up, of course, with the high level of activity. The sustaining capital of $16 million, I mentioned that before, that we're now sustaining given we're past the commissioning of the surface infrastructure and a big chunk of growth capital. That was dominated by underground capital development plus associated underground infrastructure and completion of the paste plant. You can see the equity raising from earlier in the year, and that's where we get to the $390 million.

Could you please go to the next slide? So this LGES conversion has given us a real balance sheet reset. We've got notice in late January. The conversion occurred on 4th of Feb, and it took $482 million of liabilities off the books. The offtake agreement with LG is still in place. It's a 15-year agreement. It's unaffected by the conversion and the change in shareholding. We still have the LISP and Ford Debt, which is covenant-light. The forward repayments were rescheduled from last year until September of this year. And that's just over $11 million per quarter, so that begins in September. And the $15 million of LISP, we will repay in equal halves over FY '27 and FY '28. That's quarterly payments as well. You can see the debt maturity profile of the Ford and the LISP money. So starting the year with $390 million, conversion of LGES, resetting the balance sheet to put us in a great position to start the year, keep going with the ramp up, look at the growth opportunities and consider diversification. I'll hand back to Tony.

[Antonino Ottaviano, executive]

Thank you very much, Greg. If I can go to the next slide, please, Michelle. And that sort of sets us up for the next few slides that I want to take the listeners through. Let me come back, and I think it's important that we look at this slide to show as history has unfolded and what does the future potentially hold. But if we can talk about -- this chart tells a specific story.

You can see the 2 previous spodumene up cycles, roughly 15 months and 18 months, respectively. And you can also see where we are today where prices have come off the bottom and the market is tightening. And the question is, how can we actually respond when the market needs them? And I mean, the strap line says it all. The supplier response will favor existing producers. So there will be a greenfield lag. If their projects are not shovel-ready today, that will take longer to bring on, at least 3 years.

So new projects face years of permitting, financing and construction requirements. So unlikely to deliver tonnes in this next upswing. So the brownfield projects have an advantage. Existing operations with infrastructure and approvals in place will respond materially faster. And the way we are looking at our project, we are going to progressively debottleneck and deliver incremental tonnes as we move the expansion alone, which brings early cash flow in, but also it happens to manage our capital profile.

So I will leave you in this slide by saying the bottom strap line, which is we are uniquely positioned as an existing producer with the infrastructure and optionality ready to respond decisively.

So if we move then to the -- our specific project. Next slide, please. So the 4 million tonne brownfield expansion. I mean we spoke about this in our quarterly review. The 4 million tonne is really a refresh of what we presented as part of our DFS. We're going to bring into this refresh all the latest understanding and knowledge of our operations so that we can fine-tune the design criteria. We know the areas that we need to target. They were stress tested as we start to operate, and then we'll look at what do we do to give us that incremental debottlenecking to unlock those tonnes. So an expansion is expected to reduce our unit costs as we amortize our fixed costs and we increase scale. And as I mentioned previously, Liontown has a competitive advantage. We are a recent developer, and we've got all our key approvals in supporting infrastructure in place, and we're expediting time lines. So we will bring this to the Board in the first quarter of FY '27, and it's subject to the Board's approval and the way the market is unfolding at that time.

So if I go to the next slide, please. So just this final slide. I mean, we're delivering the transition, and the earnings are improving, as I said. And you can see by the right-hand side of this slide the mine plan comparison -- sorry, if we just move to this final piece.

I mean I won't repeat what I said at the start. Kathleen Valley, we're delivering as designed. We've gone through the ramp-up phase, and we produced a series of financials that reflect that ramp up. But the more important point is earnings trajectory are improving as the ramp-up progresses and the market tailwinds that we're getting. And we've got a real live option in the 4 million tonne expansion that we're refreshing that will set us up to capitalize on an improving market.

So if we go to the final, just in closing then. Before I open up for questions, I want to acknowledge the team at Kathleen Valley and what they've delivered in this transition, both safely and on schedule. They've done what we said they would do, and that's what matters for me and the Board. And I want to also acknowledge our shareholders who have stuck with us. The story is simple here. We are through the hardest part. The transition is complete. The balance sheet is cleaned up, costs are coming down, prices are going up, and we've got growth options. So we're in a very strong position as we look forward. So thank you, and I'll take questions from here.

[Operator]

Thanks, Tony. [Operator Instructions] Our first question comes from Hugo Nicolaci from Goldman Sachs.

[Hugo Nicolaci, analyst]

Congrats on continued strength and ramp up of the project. Look, firstly, on the debottlenecking piece, it sounds like things are progressing quite well already on restudying that if you're ready to go to the Board in the September quarter. I was just wondering if you could provide a bit of commentary around how you're seeing the cost piece there relative to previous expectations. I think historically, you're sort of talking to low hundreds of millions to debottleneck the plant and sort of similar magnitude to build the next mine to support that. Do you want to just comment in terms of directionally up with the sort of magnitude of how much those costs have maybe increased since you last looked at those, please?

[Antonino Ottaviano, executive]

Well, clearly, Hugo, thanks for the question. We're looking at that right now, right? And we're very alive to the market context. When I mean the market context, I mean the market context for construction and the supply of equipment. So the previous estimates that we provided the market was $100 million for the plant and $150 million for the mine, right? So we'd like to think that, that's the same order of magnitude, but I don't want you to hold me to it until we finish the study.

[Hugo Nicolaci, analyst]

Yes, that's clear. And then maybe just one in terms of the cost piece. I appreciate the underground mine is still not commercial yet, and that's still targeted for the June quarter this year. Are you able to just give a bit of a breakdown in terms of where your mining costs and processing costs are sitting at the moment and then where you expect them to get to as things continue to ramp up?

[Antonino Ottaviano, executive]

Okay. Ryan, do you want to take that? Or do you want me to handle it?

[Ryan Hair, executive]

That's fine, Tony. So I think Hugo, we've previously made some commentary in relation to the underground mining costs, which are kind of in the order of $100 a tonne or delivered, and costs kind of sit around about that. When you've got that data, you can probably infer then the processing cost given we've been kind of pretty transparent around the overall unit operating cost. Directionally, when we spoke in the quarterly presentation, we spoke to the fact that we'll obviously give further guidance around FY '27 as we go through that kind of budgeting process.

But I think the thematic that we've previously spoken about where as we mine into the lower levels of the mine at larger stopes, which means that the same cost to kind of get those tonnes out is distributed across more tonnes will directionally lower the unit cost of mining. And similarly, as we put more clean ore, clean underground ore specifically through the plant, recoveries will improve.

Production will, therefore, follow. And the denominator, being production, being bigger, will have some fixed cost dilution impact. So all things speak to directionally what we've spoken before about the value of the larger stopes and the increased recovery in production all still trending unit operating costs lower. But as I said, we will provide further guidance as we go through our internal budgeting process in the lead up to FY '27.

[Operator]

The next question is from Levi Spry from UBS.

[Levi Spry, analyst]

Maybe one for Ryan. I guess just now partway through, good partway through the March quarter, can you just give us a bit of an update on the 1.5 million tonnes and I guess, the 70% recovery target, just how the ramp-up of both those are going?

[Ryan Hair, executive]

Yes. Thanks, Levi. I appreciate the question. So look, 1.5 million out of the mine, we're very confident in. As you said, we're most way through the March quarter at this stage. And so still very comfortable with the way that the mine is performing and the way that the equipment ramp-up and ongoing development of the mine is giving us further work fronts and further opportunity to extract more. So I'm still very confident in that. And beyond that, beyond the 1.5 million to the 2.8 million at the end of FY '27, again, we're still on track for that. As I said in my opening remarks, the mine continues to perform pretty much exactly as we had planned it to. So nothing on the horizon that we're concerned about there other than ramp-up always has quite a bit going on, but as I said, the team has it well in hand.

In terms of the plant, we're still very confident in the plant's ability to run for extended periods of time. So good availability, good throughput. In terms of recovery, as we've said I think a few times before, 70% recovery is very achievable when we're on clean underground ore. And whenever we run underground ore through the plant, we get circa that level of recovery. In fact, only 2 days ago, we had a plus 70% recovery on some slightly contaminated underground. We mixed it with some of that OSP -- assorted OSP material that Tony was referring to. And so plenty of data points to support underground delivering that type of recovery.

In terms of Q3, we are processing more open pit material than we had planned or certainly back when we originally came out with the budget 12 months ago. And you might recall, at the end of the last quarter, we had indicated that we had extracted more ore out of the open pit. So with that additional ore in the open pit, we therefore had larger stockpiles, and we've been processing that through this quarter. So the predominant feed type at the end of the quarter will only just be converting to underground by the end of the quarter. So we'll expect to see more of that consistent 70% recovery as we head into Q4. I hope that answers the question, Levi.

[Levi Spry, analyst]

Yes. Perfect. And then just back to the 4 million tonne expansion studies schedule FID. Can you just sort of play the time line movie with that one, I guess, versus the ramp up to 2.8 million in FY '27? How are you thinking about ramping up to 2 point -- sorry 4 million from underground mining as opposed to the plant?

[Ryan Hair, executive]

So Tony, I'll take this, if that's okay?

[Antonino Ottaviano, executive]

Yes, yes, yes.

[Ryan Hair, executive]

Yes. So I think probably the easiest way to think about this, Levi, is that the 2.8 million case, I guess, continues if you think about that as kind of line item in your spreadsheet, if you like, that will continue. In order to get to the 4 million tonne case, we'll be doing a couple of things in parallel. The first is that if you refer back to the slide where we had that 4 million tonne case, and I don't know, Michelle, whether you can go back there. But there was a section of the Mount Mann deposit, which as part of the recalibration in November '24, we deliberately went past, and we can now go back and start to extract ore out of those upper levels in the Mount Mann orebody. So that's point one, and that will be incremental over and above what we had put in the 2.8 million case.

And then the second thing is that the other thing that we had chosen to do in November '24 was defer the work in the North West Flats deposit. And what we will do is start to extract ore out of that deposit. And the option we've got now, which we didn't have at that time was directly go from the bottom of the open pit and take that ore directly out of the North West Flats deposits. So that will also happen in parallel.

So if you think about the 2.8 case, you add on some additional Mount Mann and some additional ore out of North West Flats, which is now easier to get that at coming from the bottom of the open pit, then both of those should happen in parallel, as I said, with the 2.8 million case.

And with all that in mind, we are anticipating that the underground mine ramp-up will, broadly speaking, match the debottlenecking that Tony spoke about when he was talking about the plant work that we'll do to incrementally unlock capacity out of the plant. So it's roughly over the same period of time. And as Tony was indicating, brownfield expansion is always going to be quicker than greenfield. So if you said a greenfield was going to take 3 years, then we'll be probably more in the order of a couple of years rather than 3.

[Operator]

The next question is from Hugo Nicolaci from Goldman Sachs.

[Hugo Nicolaci, analyst]

Firstly, just a follow-up, Ryan. I just wanted to clarify that $100 a tonne mining cost. Is that what's being expensed? Or is that the total cash cost, including the sustaining development capital?

[Ryan Hair, executive]

I might hand to Greg on that one, but my -- yes, Greg, maybe you'll start and I can provide some color?

[Greg Jason, executive]

Yes. It doesn't include...

[Antonino Ottaviano, executive]

Go ahead. Total cash. Yes, total cash.

[Hugo Nicolaci, analyst]

Great. So that -- it doesn't include the development spend?

[Greg Jason, executive]

It doesn't include the amortization. It is the cash cost of the mining. Tony?

[Antonino Ottaviano, executive]

It doesn't include sustaining capital. It doesn't include sustaining capital. The development cost.

[Ryan Hair, executive]

Yes. Well, maybe the way to provide color on that is that -- so if you've got the actual cash cost of the day plus what is relatively minor sustaining cost, then that's included in the $100, but the development cost of which you may spend a significant amount of time and money, obviously, the work we've done to date, getting to that zone of the orebody, it doesn't include that. So it's -- so it does include the minor sustaining. So things like increased vents, sort of pasting costs and those kind of things, it does include that, but not that development cost. Hugo, does that makes sense?

[Hugo Nicolaci, analyst]

Yes.

[Operator]

Next question is from Andrew Harrington from Petra Capital.

[Andrew Harrington, analyst]

Could you elaborate on your customer wagon wheel? Like where is your quarterly shipping destination? Is it all China or half China? And how do you see that going forward?

[Antonino Ottaviano, executive]

I'll hand that over. Thanks for the question, Andrew. I'll hand that over to Grant Donald, our Chief Commercial Officer.

[Grant Donald, executive]

Yes, sure. So look, in previous presentations, we've included our offtake chart just to show where the volumes are going. So I'd refer you back to that. But broadly speaking, our main offtakers are for Tesla and LG. As we've said previously, the 4 tonnes in the first 18 months are going to Chengxin, which is a Chinese refiner with a facility both in China and in Indonesia. And from '27 and '28, that will go to Canmax in China. The LG volume and the Tesla volume have traditionally gone to China. But obviously, it's well known that Tesla built their own refinery in the U.S., and that's the plan for the ultimate destination for that product once that one is fully ramped up.

[Andrew Harrington, analyst]

Okay. And a broader question in terms of with the Middle East war. Do you expect any changes in terms of your, say, fuel costs? And I guess, are your customers saying anything differently or more urgently to you? Or what things do you think may shift if this goes on that positively negatively to you?

[Antonino Ottaviano, executive]

Yes. So Andrew, I might take a portion of that question, and then I'll ask Grant to finish it off in relation to customers. But in terms of fuel and diesel specifically, I mean, we are 80% renewable. That gives us a very big, big advantage. So most of our power is generated by renewable sources. So on average, our total diesel cost is about 4% to 5% of our overall cost base. So it's not a significant amount. So we're pretty confident from that perspective. And I'll hand over to Grant to talk to you about the customer impact.

[Grant Donald, executive]

Yes. Look, I mean I talked a little bit about where most of the volume is going. At this point, we haven't got any sense from customers that there's any issue from taking a ship from Australia to China. It's a relatively short voyage, less than 2 weeks. So I expect that trade to continue. We have seen some disruption from Africa into China, and that has sparked some interest from customers who are exposed to Zimbabwe volume to secure more volume, but that's a different issue.

[Operator]

That is all the questions from the queue. I will now hand back to Tony for closing remarks.

[Antonino Ottaviano, executive]

So thank you very much, Michelle. Thank you to the listeners. Thank you to the people asking those great questions. Thank you to my team for putting today together. Leanne, Jared, Ash and Claire and the team, I really appreciate it. So yes, let's look forward to the second half.