Lake Resources NL (ASX:LKE, OTCQB:LLKKF) has gained a ‘speculative buy’ recommendation and a valuation of A$2.54 per share from Bell Potter Securities, as the company advances its Kachi Lithium Project in Argentina into development
The analyst states that the company’s near-term outlook centres on delivery of the Kachi project definitive feasibility study, demonstrating the larger-scale success of the ion exchange direct lithium extraction technology.
Lake’s shares are currently trading at A$1.11 with a market cap of approximately A$1.54 billion.
Below are the excerpts from Bell Potter’s research report:
Transitioning into project development
LKE’s near-term outlook centres on delivery of the Kachi project definitive feasibility study, demonstrating larger scale success of the ion exchange direct lithium extraction technology which the project will employ, and ultimately coordinating binding lithium offtake and debt financing arrangements.
The March 2021 pre-feasibility study pointed to 25ktpa lithium carbonate production at a capital cost of US$544 million; the DFS is now assessing a project with 50ktpa production.
LKE has sufficient funds to take Kachi to development with cash at June 30, 2022, of $175 million.
A new managing director has been appointed to transition the company into development.
Lithium: Demand outlook retained; supply constrained
We have updated our EV-led lithium demand model with no change to our bullish outlook; LCE demand to grow from around 0.5Mtpa in 2021 to over 1.1Mtpa in 2025 and around 3.0Mtpa in 2030.
Supply analysis shows that over the next five years, Australian hard rock projects will at best meet only one-third of this demand growth.
We expect alternative sources of supply to remain relatively constrained and high-risk.
Our long-term lithium commodity prices are unchanged: Spodumene concentrate US$1,300/t; lithium carbonate US$25,000/t.
Investment view: Speculative Buy, Valuation $2.54/sh
LKE’s Kachi Lithium Project in Argentina is strategic in terms of scale, applied technology and uncommitted product offtake.
Demonstrating the feasibility of ion exchange lithium extraction is key to de-risking the project; success will disrupt traditional lithium brine production.
The technology also brings significant ESG benefits including less land disturbance and water consumption.
Definitive offtake agreements are yet to be signed; however, MoUs with Ford (US) and Hanwa (Japan) highlight interest.
Debt advisors for project development have been appointed with expressions of interest from export credit agency financiers ongoing.
LKE is an asset development company with prospective operations and cash flows. Our Speculative risk rating recognises this higher level of risk and volatility of returns.