Lake Resources (ASX:LKE) results prove large lithium brine basin


by Jessica Amir

Lake Resources Limited (ASX:LKE) Managing Director Steve Promnitz discusses how drilling has confirmed the maiden discovery of a large lithium brine basin at a scale similar to globally significant lithium brine projects.

Jessica Amir:
Hello, Jessica Amir here for the Finance News Network with Lake Resources Managing Director Steve Promnitz. Steve, welcome back.

Steve Promnitz: It's always a pleasure to be here.

Jessica Amir: For those that don't know, Lake Resources has the largest lithium holding in Argentina on the ASX with four lithium projects. Today, you've just announced drilling results from your Kachi drilling programme. What are the key takeaways?

Steve Promnitz: Well, thank you. The key takeaway is simply this. It's scale. We've got three drill rigs operating at Kachi, and they have confirmed that the project has a globally-significant scale, 25 by 15 kilometres in extent, over 400 metres of depth and counting of numerous lithium brine aquifers. These projects are actually pretty rare, and we are in this a hundred per cent. And it's also in the right location. It's only about 80 kilometres down from FMC's project that has been producing for 20 years.

Jessica Amir: And so given these results, what's next Steve?

Steve Promnitz: So we're going to be getting more drill results from Kachi. We'll be getting results at depth, below 200 metres, and we'll also get some idea about flow rates. That just then confirms not just scale but leads into resource statement.

Steve Promnitz: Then separately, we've also got our Olaroz/Cauchari project for the north. We're quite comfortable with the way process is underway at the moment, so we can get drilling somewhere in the next few months. You need to understand that these areas at Olaroz/Cauchari, we actually applied for those before this current boom in early 2016, but we've only recently got access to them. What's good about that is that thankfully our next-door neighbours, they're about to release a resource. That's Orocobre together with Advantage Lithium. They've actually been producing what we'd call ore grade, high lithium results with high flow rates right along our lease boundary. So we're fairly comfortable that we're going to see some pretty good results from that in the future.

Jessica Amir: Sounds good. So lithium stocks have been a bit soft of late or, in fact, this year. But you've just come off the Benchmark Minerals World Tour, and I understand Benchmark Minerals are the leading provider of data collection in the battery minerals space. So what is the word on the street in this very fast moving area?

Steve Promnitz: Well, the great thing about Benchmark is that not only are they a leading provider, but they spend all the time talking to the suppliers, talking to the battery producers to actually find out exactly what's going on. It's quite difficult in our Western media. We read about Tesla, but it's hard to sort of see into China, see into Korea exactly what's occurring.

Steve Promnitz: Fundamentally, on the demand side, the demand side is pulling the whole space. The demand is really, I think, significantly underestimated at the moment. To give you an idea, when Benchmark started their first World Tour in 2015, they talked about three mega-factories. So these are large factories producing lithium-ion batteries. Now they're just coming out with research talking about 39 mega-factories, that's in the space of three years. So there's a lot of demand for the lithium-ion battery. Now what's driving that? We've heard about EVs. So the automakers are pushing towards electric vehicles. They then say to the battery makers, "Right, we need more batteries”. And then, of course, the battery makers need to find more product.

Steve Promnitz: There was some concerns around potential for oversupply. It's very hard to see that. Fundamentally, the large providers are looking whether they scale up, how they might do that, and that continues to create space for some of the juniors and the mid-tiers in the lithium space.

Steve Promnitz: Another example of that demand has been Tienqui, the Chinese just signing up for a minority block in SQM. They stumped up over the money, it was US$4.2 billion for that. So that gives you an idea. They're pretty keen to get access. Then Tesla, which is continuing to push out more cars, they need more batteries. They've just signed a transaction with Kidman and SQM. That was received positively by the market, but I think there's still a little bit of a lag. To give you an idea, these are disruptive technologies, and they're disruptive by their very nature. You can't really see what the forecasts are going to be. Naturally forecasts are always difficult, but the demand is clearly there.

But I have to say, personally, it reminds me of years ago, back in the early 2000s I was working at Citigroup. You could go to China, you could see the demand coming, in that case for iron ore, for copper, for metallurgical coal. But it was difficult then to get people to actually buy into it. So you'd get this delayed response. You'd get a sort of a lack of conviction. Then finally when it's all happening around us, then a lot of that value is sort of taken out.

So key takeaway, demand is strong. I think there's still going to be a significant supply shortfall. That's certainly the forecast from Benchmark Minerals. So I think that allows opportunities for many players in the lithium and the cobalt space.

Jessica Amir: So Steve, if the demand for electric vehicles is so strong, and of course that goes hand-in-hand with the demand for lithium-ion batteries, then why should someone be looking at adding Lake Resources to their portfolio?

Steve Promnitz: Well, Lake Resources has got scale, and it's got four projects. Scale's important because that's what battery producers are looking for. Once we start putting out more information about resource style and size and actual numbers, values, that's the sort of thing that triggers interest on the battery and the automaker side, outside.

Steve Promnitz: Second thing is there's four projects. Each one of these projects could be a company maker in itself. We've got these results from Kachi. It looks like it's got globally-significant scale. When we start bringing up results from Olaroz/Cauchari, we already have a pretty good idea what they're going to be, because we've got great results right alongside us. Then later on, we'll be bringing out results from our hard rock projects.

Steve Promnitz: So you get scale, you get optionality, you get four potential company makers, and at the moment we're still trading at a scale, at a price which is quite competitive versus our peers. At the moment, still roughly around our last capital-raising price, and that's just because the market's been a little bit flat, not because there's anything wrong with the company. So I think there's some pretty deep value there that can be unlocked. It'll be something good just to juice up anybody's portfolio if they're interested in this space.

Jessica Amir: Deep value indeed, and congratulations again on the results. We look forward to seeing the new ones.
Steve Promnitz, thank you so much.

Steve Promnitz: Thank you.