The Kachi Lithium Lake project in Argentina is advanced, construction is expected to begin in mid-CY22, and first production is scheduled for 2024 (25,000 tonnes per year).
Lake Resources NL (ASX: LKE, OTCQB: LLKKF) is moving towards the development of the Kachi Lithium project in Argentina which will use a direct lithium extraction (DLE) process to extract lithium by ion exchange.
Euroz Hartleys sees the potential of DLE to disrupt medium-term industry forecasts by delivering large volumes of low-cost, high-quality battery chemicals in a shorter time frame.
Western Australia’s largest securities broker has launched LKE as it is an advanced DLE developer.
LKE remains at high risk as it heads into development, but without risk it has a high valuation, according to Euroz Hartleys.
Here is an excerpt from the initiation report:
LKE’s direct lithium extraction (DLE) process uses ion exchange to extract lithium. Ion exchange is a common technology, but it has not historically been used for lithium brines because
a. The purity of the lithium chemical was not required / required;
b. The assumed long-term selling prices of lithium meant that the DLE process was not cost effective;
Neither is more true. Product quality / purity specifications have increased significantly and long-term lithium price assumptions have also increased.
Long-term consensual price assumptions are often defined to encourage a significant conversion of spodumene / spodumene and conventional brines (with their long delivery times and their risks of commissioning). Instead, we see the potential for DLE to disrupt medium-term industry forecasts by delivering large volumes of low-cost, high-quality battery chemicals over a shorter period. This should always mean lithium prices need to be high, but maybe not as high as the worst quartile of brine and spodumene developers demand, and it can also mean that supply can be added to the market. in faster turnaround times than integrated spodumene / converters or brines. Therefore, DLE tracking is very important for mid-term lithium supply / demand models.
We are starting on LKE as it is an advanced DLE developer. It remains at high risk as it heads for development, but without risk it has a strong upside valuation. Investors in lithium are also expected to follow closely as the industry leader in DLE.
LKE is developing the Kachi project (LKE 100%, divestment at 75%) in Argentina alongside its partner Lilac (conditional 25%). The project is very advanced, construction is expected to start in mid-CY22. The first production is scheduled for 2024 (25 ktpa). We assume an extension to 51ktpa. The estimated PFS capital expenditure is US $ 544 million and the spot costs US $ 4.2,000 / t (we assume spot costs of US $ 6,000 / t in our model).
Based on the June 22 options (unpaid capital of A $ 60 million), as long as the share price is above the option strike price (75 cps), this means that on a mix 70/30 debt / equity, LKE only needs around AU $ 50-70 million. additional equity to finance construction.
Based on our estimates, LKE trades on peak Net Debt and Fully Funded EV / EBITDA 8.5x FY25 and 5.4x @ 50ktpa on the base case estimate and uses spot prices 3 , 7x FY25 and 1.8x @ 50ktpa. These are of interest to a future lithium producer, particularly as one of the first to adopt new techniques that could allow substantial growth if applied to other brine acquisitions.
We start with a speculative buy recommendation. Our valuation is $ 0.76, assuming LC prices of US $ 13,000. Our estimate of the spot price is $ 2.92. We note that lithium stocks are trading at a premium to our valuations, so our price target is set at $ 1.28 / sh.
- Demonstration plant – Quarter March 2022
- DFS – June Quarter 2022
- Direct Debit Partners – June Qtr 2022
- Fid & financing – June Quarter 2022
- Construction – 2H CY22
- First production – 2023