Lake Resources NL (ASX:LKE, OTCQB:LLKKF) has demonstrated further financial support for its flagship 'clean' Kachi Lithium Project in Argentina on receiving a formal Letter of Interest (LOI) from Canada’s official Export Credit Agency (ECA) and Export Development Canada (EDC).
EDC provided the LOI to potentially work alongside UK Export Finance (UKEF) to support about 70% of the total finance required for the project, subject to standard project finance terms.
Promisingly, the ESG benefits at Kachi remain strong which coupled with the potential ECA support makes international banks keen to be involved in this project.
“Considerably de-risks project”
Lake managing director Steve Promnitz said: “Having Canada’s direct sovereign lending alongside the UK’s sovereign support considerably de-risks the project for the investors and the international banks who continue to express strong interest to be part of Kachi’s development.
“Admittedly Lake has significant work to convert these EOIs into committed funding arrangements, however, the EOI’s are a road map and if Lake does what it says it’s going to do in the DFS and ESIA, the project will be funded.”
Access to low-cost direct lending
EDC’s LOI does not increase the level of potential project finance available from Export Credit Agencies for the project but does increase sourcing flexibility with greater access to low-cost direct lending and reflects additional confidence around shared financing for a robust project.
It has indicated the ability to provide direct lending to the project up to US$100 million, subject to sourcing requirements.
Such direct lending would be at the attractive OECD Fixed Commercial Interest Reference Rate (CIRR) applicable at the date of signing.
EDC is a financial Crown corporation dedicated to helping Canadian companies of all sizes succeed on the world stage.
As international risk experts, EDC equips Canadian companies with the tools they need – the trade knowledge, financing solutions, equity, insurance, and connections – to grow their business with confidence. Underlying its support is a commitment to sustainable and responsible business.
ESG benefits
Having UKEF and EDC working together is welcomed by LKE and demonstrates potential further official backing for Lake’s clean lithium project.
The project finance would deliver a significantly lower cost of capital than traditional financing structures, with the principal repaid over 8.5 years post-construction.
Promisingly, the Kachi Project provides significant ESG benefits for key stakeholders, including the local community and the global clean energy drive towards net-zero emissions.
The lower interest rate and longer repayment terms associated with ECA financing minimise the financial risks with this level of funding.
DFS underway
The LOI from EDC and EOI from UKEF are not binding commitments and are subject to a series of standard project finance terms and due diligence, including, among others, suitably structured offtake contracts, successful completion of Kachi’s definitive feasibility study (DFS), an Environmental and Social Impact Assessment (ESIA) and Equator Principles.
The DFS and ESIA are well advanced and the company is targeting completion in Q2, 2022.
Lake is well funded to a final investment decision (FID) on construction finance for Kachi, anticipated in mid-2022, with A$26 million in cash and cash equivalents at the end of the June quarter 2021, followed by construction, targeting 25,500 tonnes per annum (tpa) lithium carbonate (LCE) production, with commissioning and production in 2024.
Furthermore, an expansion study to 51,000 tpa LCE is anticipated at a similar time as the DFS.
Technology partner
Recently, Lake announced Lilac Solutions will contribute technology, engineering teams and an on-site demonstration plant, earning a maximum 25% stake in Lake’s Kachi project based on performance-based milestones.
Lilac, after earning its interest in Kachi, will be expected to fund approximately US$50 million, equivalent to its pro-rata share of future development costs - aligning innovation, funding, development, and production.
About Lake
Lake Resources is a clean lithium developer utilising Lilac's ‘clean’ direct extraction technology for the production of sustainable, high purity lithium from its flagship Kachi Project within the Lithium Triangle in Argentina among other projects covering 200,000 hectares.
The Kachi Project is a large lease holding of 70,000 hectares with an expandable resource of 4.4 million tonnes of lithium carbonate equivalent of which only 20% is used for 25 years of production at 25,500 tonnes per annum.
Importantly, direct extraction method used by the company delivers a solution for two rising demands of electric vehicle batteries – high purity battery materials to avoid performance issues, and more sustainable, responsibly sourced materials.