Lake Resources NL (ASX:LKE, OTCQB:LLKKF) has teamed up with pre-eminent battery maker SK On in an offtake deal for up to 25,000 tonnes of battery-grade lithium per annum from the Kachi Lithium Project in Argentina.
The clean lithium developer has executed a conditional framework agreement (CFA), which also stipulates that SK On will make a 10% strategic investment in the lithium stock.
Lake says the deal highlights the importance of a clean lithium supply chain, which is needed to meet the global environmental demands for electric vehicles, particularly in North America.
It also represents a continued de-risking of the project for financiers and investors.
The fine print
The CFA covers an initial five-year term, but there is an option to extend for another five years if the need arises.
SK On will take up its 10% investment based on the 20-day volume weighted average price of LKE shares.
The company will also offtake half of the Kachi project’s lithium product — up to 25,000 dry metric tonnes every year.
While the numbers haven’t been announced, the offtake deal is priced on an agreed market price formula, which is based on the average quoted price in the quotation period.
Of course, the CFA relies on several precedent conditions, including a definitive feasibility study, results from the demonstration plant, financial due diligence and product specifications.
But once those conditions are met, the CFA will become unconditional.
Strengthening mutual partnership
Lake’s new CEO and managing director David Dickson said the CFA cemented the company’s capacity to scale up environmentally responsible production.
He said it also afforded SK On the opportunity to participate in Lake’s other projects as they moved to development, ensuring a supply of high-quality lithium products is available to the growing battery maker.
“SK On is very pleased to execute this CFA with Lake, a clean lithium developer, which can allow SK On to secure a stable lithium supplier for its US supply chain,” said SK On vice president Jinsuk Ryu.
“Lake fits particularly well with SK On's environmental, social and governance (ESG) policy as it utilises environment-friendly direct lithium extraction technology to produce lithium.
“With this CFA, both parties will strengthen their mutual partnership to advance opportunities to secure sustainable sources of raw materials in the future,” she said.
Speaking to the agreement, Lake executive chairman Stu Crow said the deal strengthened the company’s long-term shareholder base and added to the equity component required for the drawdown of debt facilities for project development.
“The CFA delivers a long-term strategic agreement with SK On, one of the world’s pre-eminent lithium-ion battery producers with a major growing presence in the North American market,” he explained.