In an effort to increase sales of electric vehicles in the United States and around the world, demand for lithium, a key component of Li-ion batteries, is expected to quadruple in 2025.
Lake Resources NL (ASX: LKE, OTCQB: LLKKF) has secured a buy rating and price target of A $ 1.25 / share from Canadian investment broker Red Cloud Securities as it continues to advance four lithium brine projects in Argentina, including its flagship Kachi project.
The company has already demonstrated its path to production from Kachi through testing at its 2020 pilot plant.
With commitments received to cover 70% of Kachi’s investment costs through debt, Red Cloud noted that Lake Resources can continue to move the project forward, before finding drawdown partners and starting construction activities in H2. / 22, before starting the production of 25,500 tpa of LCE in H2 / 24.
Here is an excerpt from the initiation report:
Lake Resources owns the largest set of lands in the Lithium Triangle with a total of four lithium brine projects in Argentina, including its flagship Kachi project. In collaboration with its partner Lilac Solutions, the company has developed a direct lithium extraction (DLE) technology. This uses ion exchange (IX) methods to produce high purity (99.97%) Li carbonate from its flagship Kachi project in less than a few hours and with little environmental impact. compared to traditional extraction methods.
- Clean up Li with ESG benefits. Traditional extraction methods take up to two years and recover only about 50% of the Li content. The Lake and Lilac DLE process produces 99.97% Li carbonate in less than three hours using less of land and water, and with a reduced carbon footprint.
- Kachi Li carbonate exceeds industry standards. The purity of the battery quality is 99.5% and the tests carried out in Jan / 20 confirmed the high purity of Kachi of 99.97%, which makes it highly sought after by manufacturers of level 1 batteries and manufacturers of electric vehicles. Further testing is underway to demonstrate its utility over other commercially available Level 1 Li carbonate products. The results should facilitate discussions on the harvest.
- Green energy revolution fueling demand for Li. As part of a campaign to increase sales of electric vehicles in the United States and around the world (40% to 50% of all new vehicles sold by 2030 will be electric vehicles), demand from Li, a key component of Li-ion batteries, is expected to be quadrupled by 2025. With the current supply unable to meet demand, projects like Kachi, modular and scalable, will become imperative for the Li supply chain.
- Significant upside potential. A PFS released in March 21 described an 8% NPV of US $ 1.6 billion and an IRR of 35% for Kachi, given 25,500 tpa of LCE. Expansion studies are underway to support potential future production of 51,000 tpa of LCE. In addition, other projects (Cauchari) have shown very promising results similar to those observed in neighboring mines and large projects.
- A strong team to lead the way. Lake’s management team has global experience in the resource industry and has expertise in leading businesses from inception to development and operation.
We are launching a cover with a PURCHASE rating and a target price of A $ 1.25. Our price target is calculated using the discounted cash flow (DCF) method and after applying a multiple of 0.7x. Lake is trading at a discount to its peers on a P / NAV basis (0.40x vs. peers at 1.21x). As Kachi is further reduced in risk and moves closer to production, we expect this valuation gap to close. Upcoming catalysts: 1) Demonstration plant (Q4 / 21), 2) Discussions on sampling (in progress) and 3) DFS and ESIA (Q2 / 22). Mining and exploration are inherently risky and Lake is subject to various technical, corporate and financial risks.