Why Lake Resources stock price lagged the ASX 200 in July

0

Image source: Getty Images

The Lake NL Resources (ASX: LKE) The stock price fell on a slippery slope in early July, then catapulted to post a 3% gain for the month.

However, ASX lithium stock, Lake Resources, and its stock price underperformed S&P/ASX 200 Index (ASX: XJO), which rose 5.73% last month.

What caused Lake Resources’ stock price to plummet and soar in July?

The Lake Resources share price started the month at 78.5 cents and closed at 81 cents on July 29. In between, a scathing report from short seller J Capital sent shares of Lake Resources down to 60.5 cents apiece on July 14.

J Capital has peppered the company with some major allegations. These included a claim that his Kachi project would not reach production in 2024 as planned. He also alleged that the processes used at the site would cause environmental damage.

This last allegation is particularly detrimental given that Lake Resource’s brand is centered on providing lithium in a responsible and environmentally responsible manner.

These concerns caused Lake Resources’ share price to fall to 61 cents in July.

Lake Resources share price rebounds on management response

Market optimism for Lake Resources shares returned following management’s response to J Capital’s allegations on July 14, 2022.

Concerns were allayed by positive news contained in the company’s quarterly results for the three months ended June 30, 2022.

Key highlights include the progress of its definitive feasibility study, progress on the assembly of its demonstration plant in Argentina and a positive cash balance of $173 million on the balance sheet.

I think the recent rally in the stock price is likely related to the potential for further lithium exploration. In quarterly results, Lake Resources announced that it had obtained a second drilling platform. These are its lithium brine projects in Olaroz, Cauchari and Paso in Argentina.

In addition, recent discussions with Ford Motor Company (NYSE: F) and Japan Hanwa Co Ltd fuels the prospect of major removal contracts.

My opinion on the lake

Lithium explorers like Lake Resources are experiencing a long tailwind from the industry due to the structural adoption of electric vehicles (EVs). Lithium explorers who manage to secure supply sooner will reap the benefits through first-mover advantage and scale.

The main benefit for these explorers is to ensure that they find the “gold” – or – the lithium – early on. This provides important commercial contracts with the biggest users of lithium, namely the big manufacturers of electric vehicles. Once these contracts are locked, this allows them to systematically reinvest in the discovery of new lithium sites.

However, in the long term, more competitors are likely to erode early capital returns, as the number of suppliers may exceed demand.

An investor with technical knowledge in this space could reap significant rewards if they can determine if Lake Resources has an emergent first advantage and a scale advantage.

Share.

Comments are closed.