Lake Resources NL (ASX:LKE, OTCQB:LLKKF) has earned 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 towards development
Analyst says company’s near-term outlook is centered on delivery of Kachi project’s definitive feasibility study, demonstrating larger-scale success of direct ion-exchange lithium extraction technology .
Lake’s shares are currently trading at AU$1.11 with a market capitalization of around AU$1.54 billion.
Here are excerpts from Bell Potter’s research report:
Transition to project development
LKE’s near-term outlook is centered on the delivery of the Kachi Project’s Definitive Feasibility Study, demonstrating the larger-scale success of the direct ion-exchange lithium extraction technology that the project will employ, and ultimately coordinating binding lithium offtake and debt financing agreements.
The March 2021 pre-feasibility study indicated lithium carbonate production of 25 ktpa at a capital cost of US$544 million; the DFS is currently evaluating a project with a production of 50 ktpa.
LKE has sufficient funds to bring Kachi to development with cash as of June 30, 2022 of $175 million.
A new managing director has been appointed to ensure the company’s transition to development.
Lithium: demand outlook maintained; limited supply
We updated our EV-focused lithium demand model without changing our bullish outlook; LCE demand will increase from around 0.5 Mtpy in 2021 to over 1.1 Mtpy in 2025 and to around 3.0 Mtpy in 2030.
Supply analysis shows that over the next five years, Australian hard rock projects will meet at best only a third of this growth in demand.
We expect alternative supply sources to remain relatively limited and high risk.
Our long-term lithium 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 no-commitment product purchase.
Demonstrating the feasibility of lithium extraction by ion exchange is essential to reduce project risks; success will disrupt traditional lithium brine production.
The technology also brings significant ESG benefits, including reduced ground disturbance and water consumption.
Final collection agreements have yet to be signed; however, MoUs with Ford (US) and Hanwa (Japan) underscore interest.
Project Development Debt Advisors have been appointed with Expressions of Interest from Export Credit Agency Financiers pending.
LKE is an asset development company with forward-looking operations and cash flow. Our speculative risk rating takes into account this higher level of risk and the volatility of returns.