Finally got around to looking into LKE unfortunately (for me) its up 40% over the last few weeks but they really have a compelling opportunity. I wanted to look into a lithium producer with a point of difference and I think LKE has that with their direct lithium extraction due to the ESG bennefits they have. I don't often invest in mining companies but I do want some exposure to the EV "revolution" the world is undertaking.
Who are LKE? LKE are (will be) a lithium producer (in 2024) who opperate their flagship Kachi project in the "Lithium Triangle" in Argentina. They are aiming to produce 25,000 TPa of lithium carbonate (about 8% of current demand) by 2024. Macquarrie recently published a paper on the perpetual lithium deficit & Lake Resources aim to capitalise on this by producing a product of the highest standard that can demand a higher price & improved margins.
LKE use Lilac Iron Exchange process that has been addapted for lithium for the extraction of lithium carbonate from a brine solition.
LKE boast significant ESG benefits including; A small CO2 footprint, low water usage, as well as a small land footprint. They propose to leverage this to demand higher quality & premiums in their offtake agreements. LKE are aiming to setup a solar power plant to power their site. As well almost all water used during the brine extraction will be returned to the source.
CEO Steve Promnitz said in a recent interview "Could have signed a range of offtake aggreements in the last 6 months" but wants to ensure they sign the right partner and said investors should expect this offtake to be with a well known EV & battery manufacturer.
LKE key dates to lookout for: Q1-2024 - 25,000 T/Pa lithium carbonate production, Q3-2022 - Commence construciton of their plant, Q2 - 2022 - Complete financial close, Q1 - 2022 - DFS, Q4 2021 - Completion of demonstation plant.
Their pilot plant has been running in Califonia for 1 year. They anticipate that at least 1 offtake will be released prior to their DFS. Debt financing still to be locked in prior to their DFS.
They are currently drilling onsite for further reserves to be included in their DFS, potentially looking to expand to 50,000 T/Pa.
Valuation:
Their current NPV is 1.6b USD or 2.18b USD. LKE currnet market cap is 700m so they're trading at 32% of NPV. I think this is reasonable but I wish I had done this research when they were trading closer to 15-20% NPV....
EBITDA is anticipated to be $260m USD/Year.
Overall I think LKE has an interesting investment case. Given the recent run I'd like to see the shareprice settle down a little prior to entering. The current discount to NPV is fair given there are still a number of de risking events to take place.
Lithium has been running hot this last month or so and I think it's gotten a little ahead of itself as it did earlier in the year. Hopefully we see some profit taking from the larger institutions as they try and lock in profit and rotate into the next big thing. I'd be happy to enter LKE at 25% of NPV. If not I'm happy to sit on my hands until the investment has been further de risked.
Appologies this straw is a bit all over the place, my notes have been taken over multiple weeks of research & havent been consolidated yet.
Keen to hear others comments on this investment case.
CHill
