Liontown Resources Cuts Production Forecast for Kathleen Valley Lithium Project, Flags Cost Reduction Plans

Liontown Resources, an Australian lithium producer, has made a significant adjustment to its production plans for the Kathleen Valley lithium project, a key asset for the company. The decision comes as the global lithium market continues to face challenges, particularly with an oversupply of the metal and a slowdown in the growth of electric vehicle (EV) sales. Taking these factors into account, Liontown has updated its production target to 2.8 million metric tons per year by the end of fiscal year 2027, reduced from its previous goal of 3 million tons by the first quarter of 2025.

The reduction in output is part of a broader strategy to adapt to current market conditions. This move also signals a cautious approach to balancing production with demand, as the lithium market has struggled with rapid supply growth outpacing demand. In the past year, prices for lithium have softened, and manufacturers of electric vehicles have faced difficulties in sourcing materials at a sustainable cost. As a result, Liontown’s decision to scale back its production plans highlights the company’s need to remain flexible in a volatile market.

In addition to the production cuts, Liontown has flagged potential cost reductions and deferrals totaling up to A$100 million ($65.83 million). These savings are expected to come from the company’s business optimization program, which aims to streamline operations and reduce expenditures. The company has indicated that further expansion of the Kathleen Valley project could still be possible, but it would depend on future improvements in market conditions.

The news of the production cuts has impacted Liontown's stock price, with shares dropping as much as 4.2% in early trading before recovering slightly to finish 0.6% lower on the day. Investors appear to be cautious as the lithium market’s dynamics continue to shift. Earlier this year, Liontown reported a net loss after tax of A$64.9 million, further underscoring the challenges facing the sector.

Despite the adjustments to its production plans, Liontown remains optimistic about the long-term outlook for the lithium market. The company’s CEO, Tony Ottaviano, explained in an investor call that the adjustment in output was necessary to align with current market realities. However, he also emphasized that Liontown would revisit its plans if market conditions improved, signaling the company's readiness to scale up again when the timing is right.

The revised production cost forecast for the second half of fiscal year 2024 is also noteworthy. Liontown expects unit operating costs to range between A$775 and A$855 per dry metric ton, which reflects the ongoing pressure from fluctuating lithium prices. Despite these challenges, the company is strategically positioning itself to weather the current downturn while ensuring it can capitalize on any recovery in the global lithium market in the future.