Lake Resources NL (ASX:LKE, OTCQB:LLKKF) has taken a big step closer to securing financial support for its flagship Kachi Lithium Project after receiving a strong Expression of Interest to fund the project to approximately 70% of the total requirements.
The clean lithium developer is utilising direct extraction technology for production of sustainable, high purity lithium from the Kachi Project, which is in the Catamarca Province, within the Lithium Triangle in Argentina.
UK Export Finance interest
A formal Expression of Interest (EOI) has been received from the United Kingdom’s official Export Credit Agency (ECA), UK Export Finance (UKEF), to cover a major slice of the total project funding requirements – subject to standard project finance conditions.
In the last five years, the UKEF has provided £14 billion (A$26.4 billion) of support for UK exports and international trade.
The EOI comes just two weeks after LKE appointed Peter Neilson as chief financial officer to help drive Kachi Lithium Project financing and development.
Clean energy drive
Any support from the UKEF would be a major step forward for the Kachi project and reflects LKE’s commitment to delivering ESG benefits and to assisting the global clean energy drive towards net zero emissions.
The project finance would deliver several benefits including:
- A significantly lower cost of capital than traditional financing structures, with the principal repaid over an 8.5-year period post-construction;
- The lower interest rate and longer repayment terms associated with ECA financing minimises the financial risks with this level of funding; and
- It will drive development of the project in Catamarca Province, Argentina.
It should be noted that the EOI is non-binding and is subject to a series of standard project finance terms and due diligence, including suitable structured offtake contracts, the successful completion of Kachi’s Definitive Feasibility Study, which is due in Q1 of 2022, and an Environmental and Social Impact Assessment (ESIA) to Equator Principles.
The EOI does, however, indicate the attractiveness of the project.
Further to this, while the EOI is non-binding and has stipulated minimum UK content requirements, the UKEF welcomes the involvement of other ECAs, with whom Lake Resources is already in discussion.
Watershed moment
For Lake’s managing director, Steve Promnitz the EOI is a watershed moment.
“To have a leading ECA willing to indicate financial support for Kachi provides an enormous vote of confidence in our clean energy project,” Promnitz said.
“The support reflects not only Kachi’s robust financials but also its considerable ESG benefits such as a small environmental footprint, satisfying a number of defined Sustainable Development Goals.
“We acknowledge that we have significant work to convert this EOI into a committed funding arrangement. We are pleased that a number of international banks have already approached us who have expressed an interest to be part of Kachi’s development and their interest is dependent on having a strong ECA like UKEF.
“Essentially this EOI is stating that if Lake does what it says it’s going to do in the DFS and ESIA, the project will be funded. Combined with backing from potential international off-takers, investors will increasingly see progress towards successful production and expansion of Kachi, perfectly timed to meet the needs of a decarbonising world.”
UKEF has provided a very strong EOI, in line with the OECD Arrangements for Officially Supported Export Credits. The EOI includes the possibility of a portion of direct lending at the OECD CIRR rates linked to the UK content.
Demand for EVs in LKE’s favour
Accelerated demand for battery metals from EV car manufacturers (and projections of a growing structural supply deficit) is now having a major impact among battery metals suppliers, particularly those such as LKE who mighty supply high purity product.
The positive funding environment for green-focused metals suppliers follows the increased focus by EV makers on supply chain sustainability, as mandated by UK and European Union regulations.
Essentially there is now a requirement for high quality, battery-grade product to support Europe’s climate goals: by 2050, Europe aims to become the world's first climate-neutral continent.
In the case of LKE, the EOI has indicated that total funding could be increased to include 70% of an expanded production plant to 50,000 tonnes per annum high purity lithium carbonate equivalent – a crucial ingredient in the EU’s aims.
In a joint statement, Gabriel Buck, of GKB Ventures Ltd. and David Buckle, of SD Capital Advisory Ltd. respectively said: “The quality of this project with its strong SDG credentials and its off-shore hard currency revenues were key determining factors in obtaining this exceptional level of support.”
With A$26 million in cash and cash equivalents at the end of the June quarter 2021, Lake is well funded through to the final investment decision (FID) on construction finance for Kachi, anticipated in mid-2022.