Lake Resources NL (ASX:LKE, OTCQB:LLKKF) has secured a buy rating and a A$1.25/share target price from Canadian investment dealer 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 the capital costs of Kachi via debt, Red Cloud noted that Lake Resources can continue advancing the project, ahead of securing offtake partners and commencing construction activities in H2/22, before beginning production of 25,500tpa LCE in H2/24.
The following is an extract from the initiation report:
Lake Resources has the largest land package in the Lithium Triangle with a total of four lithium brine projects in Argentina, including its flagship Kachi project. In conjunction with its partner, Lilac Solutions, the company has developed a direct lithium extraction (DLE) technology. This uses ion exchange (IX) methods to produce a high purity (99.97%) Li carbonate from its flagship Kachi project in under a few hours and with little environmental impact as compared to traditional extraction methods
- Clean Li with ESG benefits. Traditional extraction methods take up to two years and only recover about 50% of the Li content. Lake and Lilac’s DLE process produces 99.97% Li carbonate in under three hours using less land and water, and with a reduced carbon footprint.
- Kachi’s Li carbonate exceeds industry standards. Battery-grade purity is 99.5% and testing in Jan/20 confirmed Kachi’s high purity of 99.97%, making it highly sought after by Tier 1 battery makers and EV manufacturers. Further testing is underway to demonstrate its utility compared to other commercially available Tier 1 Li carbonate products. Results are expected to facilitate offtake discussions.
- Green energy revolution fueling Li demand. With a push to increase sales of EVs in the US and globally (40% to 50% of all new vehicles sold by 2030 are to be EV) demand for Li, a key component of Li-ion batteries, is expected to increase by 4x in 2025. With current supply unable to keep up with demand, projects like Kachi that are modular and scalable, will become imperative to the Li supply chain.
- Significant upside potential. A PFS published in Mar/21 outlined an NPV8% of US$1.6B and IRR of 35% for Kachi, considering 25,500tpa LCE. Expansion studies are underway to support potential future production of 51,000tpa LCE. Furthermore, other projects (Cauchari) have shown very promising results similar to those observed at neighbouring mines and large projects.
- A strong team to lead the way forward. Lake’s management team has global experience in the resource sector and has expertise leading companies from inception to development, and operation.
We are initiating coverage with a BUY rating and A$1.25 target price. Our target price is derived using the discounted cash flow (DCF) method and after applying a 0.7x multiple. Lake trades at a discount to peers on a P/NAV basis (0.40x vs. peers at 1.21x). As Kachi is de-risked further and inches closer to production, we expect this valuation gap to close. Upcoming catalysts: 1) Demo plant (Q4/21), 2) Off-take discussions (ongoing) and 3) DFS and ESIA (Q2/22). Mining and exploration is inherently risky and Lake is subject to various technical, corporate and financial risks.