Liontown stock roars on Albemarle takeover snub

Australian-listed lithium miners Liontown Resources and Piedmont Lithium have both been targeted by short sellers of late. However, both have seen their shares gain, with Liontown rejecting a takeover bid from lithium giant Albemarle. Elsewhere, FREYR has entered a non-binding agreement with four strategic industry partners.

- Piedmont and Liontown among lithium producers targeted by short sellers.

Australian lithium miners Liontown Resources [LTR.AX] and Piedmont Lithium [PLL.AX] have attracted the attention of short sellers recently over allegations of corruption and suggestions that their shares are overpriced.

Blue Orca Capital alleged on 8 March that Atlantic Lithium [A11.AX]—a miner whose projects Piedmont had invested in—obtained mining licences in Ghana via “textbook corruption” and that the firm was therefore shorting Piedmont.

Piedmont quickly refuted the allegations, highlighting that it had not invested in the Ghana mining project, which Blue Orca’s report referred to.

Piedmont shares fell 4.9% on the day of the short-selling report. As of Tuesday, the stock is up 30.2% year-to-date but down 12% over the past month.

Piedmont’s largest partner is Tesla [TSLA], to whom it agreed to supply 125,000 metric tons of spodumene concentrate (SC6), a lithium ore, for electric vehicle (EV) batteries from the second half (H2) of 2023 to the end of 2025. Sales data from industry pricing agency CAP HPI recently showed that Tesla’s price cuts for new models have led its second-hand cars to rapidly depreciate in value.

Liontown roars on Albemarle rebuff 

Elsewhere, Liontown has been targeted by short sellers such as Totus Capital, whose portfolio manager Ben McGarry told the Sydney Morning Herald that the high valuations of early-stage lithium miners made them a prime target for short sellers.

“From an outsider’s or short seller’s point of view,” McGarry told the news outlet, “you’re looking at a company that has got no real business and is priced as if everything is going to work out best for the long term.”

Liontown’s flagship site, Kathleen Valley, is due to start producing lithium in mid-2024. The site is considered one of the largest and highest-grade lithium deposits in the world.

Liontown shares surged 68.5% on 28 March when the miner rebuffed a takeover bid from Albemarle [ALB], the world’s largest lithium producer, which valued Liontown at A$5.5bn. Analysts expect consolidation in the sector, and the rise in share price suggests that investors anticipate an improved offer.

Liontown’s share price has gained 50.6% in the past month and 96.2% year-to-date.

Sectoral collaboration drives FREYR higher

In further signs of increasing collaboration across the sector, FREYR Battery [FREY] received a boost in late March by entering into a non-binding agreement with four major global partners, including Glencore [GLEN.L] and Caterpillar [CAT], to scale its production of lithium batteries.

The agreement establishes a set of guiding principles shared by the companies, including a commitment to “scale up the deployment of batteries in Europe, North America and beyond” and to collaborate to develop “novel solutions and service offerings suited to the low-carbon energy system of tomorrow”.

FREYR’s share price is down 1.4% over the past month and down 0.9% year-to-date.

As global demand for energy transition materials intensifies, the US is taking increasingly active steps to diversify its supply chain away from China. To this end, the US agreed to a deal with Japan on Tuesday not to impose tariffs on lithium imports or on other energy transition materials such as cobalt and nickel.

The deal also commits both nations to notify each other about potential supply chain labour violations or opportunities to expand production capacity.

Funds in focus: Sprott Energy Transition Materials ETF

Investors seeking exposure to lithium producers, as well as producers of other materials key to the low-carbon energy transition, can select the Sprott Energy Transition Materials ETF [SETM]. As of 3 April, SETM holds a 0.93% weighting in Liontown and 0.26% weighting in Piedmont Lithium. It doesn’t hold FREYR but does have a 4.00% weighting in Albemarle. 23.5% of the fund’s holdings are domiciled in Australia. 

Since launching on 1 February, SETM has fallen 16.2%, but it has gained 4% in the past week. Since 1 February, lithium prices have dropped 51.7%.

However, John Ciampaglia, CEO of Sprott Asset Management, believes that a combination of tailwinds will ultimately lead to the sector’s overperformance, as governments spend heavily to incentivise the industry, driven by the need to decarbonise and meet net-zero targets.

At the same time, the last year has proven the importance of energy security as price shocks rocked global economies.

“Governments around the world [are] putting out green taxonomies,” Ciampaglia said last week on the Opto Sessions podcast. “They’re all trying to essentially send investment signals to the market that they want this transition to happen.”