⏩ Issue 23: Liontown

Last week we looked at Sandfire’s reporting boundary and the assets it left out. We stay inside an annual report this week, because reporting season keeps handing us first-year climate statements.

Some background first. Remote mines often have no access to grid connection, so historically diesel would be trucked in and consumed at site. Over the past few years a different model has become more common where a specialist power company will build a wind, solar, battery and thermal power station at the mine. They own it, operate it, and sell the electricity to the mine under a long contract called a power purchase agreement (PPA). It works like a long lease on a house someone else built: you don’t own it, you can’t walk away cheaply, and the payments run for years regardless of your income.

Liontown signed one of those contracts before its mine had produced a single tonne, and has now published its first Climate Report under AASB S2, Australia’s mandatory climate disclosure standard. The company released its FY26 Annual Report on 31 August, three weeks before its board makes a Final Investment Decision (FID) on whether to expand the Kathleen Valley mine.

This week’s question: Does the use of 80% renewable energy by the company reduce or increase the risk profile?

- Bronwyn

Source: Liontown Limited FY26 Annual Report (224pp) · Published 31 August 2026 · Reporting period 1 July 2025 to 30 June 2026 · Sustainability section at pages 25 to 61 · Climate Report at pages 62 to 89, prepared under AASB S2 · Deloitte limited assurance review of specified sustainability disclosures.

Liontown mines lithium at its Kathleen Valley operation in the northern Goldfields of Western Australia, on Tjiwarl country. The cover photo is the mine’s accommodation village, built in the shape of a dragonfly to acknowledge a Tjiwarl story from nearby Jones Creek. When I was at De Grey, we watched the Liontown approach to its workforce accommodation with interest (and a quiet respect). You can find out more about the cover design and story here.

FY26 was the year the operation grew up. Open pit mining finished, the mine went fully underground, and the company produced 392,000 tonnes of spodumene concentrate for revenue of $639 million, ending the year with $561 million in cash.

From the Managing Director’s letter:

Renewable penetration is the share of the site’s electricity that came from wind, solar and battery rather than gas or diesel. Four of every five units of electricity at Kathleen Valley in FY26, mine and processing plant included, came from renewables. The internal target was 70 per cent; the site delivered 80 (pages 84 to 85).

The reporting period began with spodumene sitting at US$630 per tonne making many lithium producers unprofitable, before prices recovered to US$1,880 per tonne in the final quarter (pages 10 to 11). Operating costs held within guidance despite higher oil prices driven by the Middle East crisis.

A mine running four-fifths on wind and sun mostly didn’t feel the oil shock, so credit to the team at Liontown for their approach during what must’ve been a difficult period.

Important to note though, is the achievement passage sits in the MD letter, but the detail on the cost and deal structure sit in different sections of the report.

Zenith Energy built the power station. Zenith owns and operates it and it sits outside Liontown’s operational boundary.

The contract appears in the financial statements. The section covering leases lists the Zenith power station among the leased assets on Liontown’s balance sheet with total lease payments to run at $213.5 million over an average 12 years at 30 June 2026. The report names the Zenith agreement as the key liability for the group with an average spend of roughly $18 million a year, payable whether the lithium market is weak or strong.

So the power station is not Liontown’s and the PPA is the whole design: the miner takes on no construction capital and no technology risk, which makes this power option extremely appealing to boards. In exchange, Liontown accepts a fixed, long-term obligation, which sits in the financial statements rather than the highlights.

Zenith paid to build the power station and owns it. What Liontown signed is a 12-year contract to buy the electricity. That is how a company that had not yet sold a tonne could commit to this level of renewables: it bought electricity, not infrastructure, and the price of that choice arrives monthly for a decade rather than upfront. Each company ends up holding the risk it is best-placed to manage: Zenith the power station, Liontown the mine.

The achievement sits in the Managing Director’s letter, because letters carry achievements. The ownership sits in the emissions methodology, because AASB S2 requires it to, and the cost sits in the leases section of the financial statements.

So, did the Zenith PPA increase or decrease Liontown’s overal risk profile? I guess it depends if you’re a director or a shareholder and what the lithium market more broadly is doing. Hit reply and let me know what you think!

Power purchase agreement (PPA)

A long-term contract to buy electricity from a power station that someone else builds, owns and operates. Liontown’s agreement with Zenith Energy is the key liability among the lease commitments in its accounts, which total $213.5 million in payments still to run over an average 12 years.

Organisational boundary

The line a company draws around what it owns or controls for emissions accounting. Anything outside the line that supplies the company shows up as purchased goods or energy, not as the company’s own operations.

Leased asset on the balance sheet

When a company signs a long lease, accounting rules put the leased thing on its balance sheet as an asset, with the promised payments as a matching liability. Liontown’s leased assets include the Zenith power station, within total lease liabilities of $136.2 million.

This week at CFS - mandatory climate disclosure

Issue 23 came almost entirely from the parts of a Climate Report that get read least: the methodology tables and the boundary statements. Cantilever works with mining and energy companies preparing mandatory climate disclosures, from boundary setting through to the final document. If that is a conversation worth having, get in touch by emailing Bronwyn directly at [email protected].