Lake Resources (ASX:LKE) - lithium sector and project update


by Anna Napoli

Lake Resources Limited (ASX:LKE) Managing Director Steve Promnitz discusses the company's Kachi and Cauchari lithium projects, its capital raising and the rapid growth of electric vehicles.

Anna Napoli:
Welcome to the Finance News Network, I’m Anna Napoli and joining me now from Lake Resources Limited (ASX:LKE) is Managing Director, Steve Promnitz. Steve, welcome back.

Steve Promnitz: Thank you very much.

Anna Napoli: Lake Resources has four lithium projects in Argentina. But before we talk about that, there’s been a lot of talk about electric vehicles in the media recently. What’s your view?

Steve Promnitz: The problem here in Australia is that we just don’t see the breadth, of electric vehicles that you see in other countries. If you go to China, California, Europe especially Scandinavia, you see electric vehicles everywhere. I was a couple of weeks ago in Shenzhen, China. You turn up on a fast train, the taxi’s electric, the buses are electric, half the cars are electric. That’s what we don’t see here. Penetration in China is about 4.5 per cent; similarly in Europe, Norway, it’s now nearly 50 per cent.

So, unfortunately we don’t see that, but it’s happening and it’s happening fast. And why is that? Performance, low running costs, very low maintenance and soon enough somewhere in the next few years, we’ll see that sort of breadth of electric vehicles available here in Australia.

Anna Napoli: So given that, what is the impact on lithium batteries and its supply?

Steve Promnitz: It’s always very hard with forecasting, to really get an idea what’s going to happen. What is the demand going to look like? And I’ve seen various forecasts into the future, as to electric vehicle demand. The metric often used is the mega factories that are being built for lithium-ion batteries. So there’s 46 of those built at the moment, it’s looking like 72 by the time we get to 2028. And for the capacity that they’re looking at building in, we’re going to need eight times more lithium than what we produced last year, eight times.

Now in any commodity if you just double it, that’s hard work. Eight times allows a lot of opportunity for new companies. It’s not going to be the five majors; it’s also going to be companies that have got advanced projects. And we’re fortunate our Lakes Resources is one of those.

Anna Napoli: If that’s correct, why has the lithium sector been soft and underperforming for the last 10 to 12 months?

Steve Promnitz: If we go back to early 2018, there was a piece put out by an investment bank, supported by a few others that said there would be massive oversupply of lithium, and that lithium prices would crash. As this played out that really hasn’t happened. But when people start shorting a play and thinking that’s the way it’s going to go, it takes a long time to turn that around. What we have seen recently is as I mentioned, an increase in the number of mega factories and that has to be fed somehow by lithium.

Now, it would suit the majors just for them to expand even with long-term contracts. But the amount of space that’s available, there’s space for new projects and I’ll give you an example of that. Basically, the lithium world changed last week in the 1st of April. On the 1st of April, the number two-lithium producer Ganfeng Lithium Co Limited (SHE:002460) announced that they were massively ramping up production in Argentina, from a project called Cauchari. They paid $160 million to increase their equity to 50 per cent, they’re ramping it forward increasing the amount of production.

And we thought that’s interesting and then a few days later, Volkswagen (ETR:VOW3) came out and announced a 10-year supply deal with Ganfeng.

Now that’s the first time a major automaker has ever signed a huge long-term agreement with a lithium supplier, leapfrogging the battery makers. That tells that there’s a supply squeeze, or certainly concerns about supply coming forward. And for me, that’s been the best metric to show that there is actually a shortfall, or a potential bottleneck in lithium supply coming.

Anna Napoli: Turning to Lake Resources now. What impact does this have on your prospects and what’s happening at Cauchari and Kachi?

Steve Promnitz: So at Kachi we’re advancing with a pre-feasibility study, a PFS. We’ll be announcing an engineering firm quite soon. And it should be towards the end of this calendar year, have a document that shows the development options, the costs and that we can show to battery makers, banks, investors to get that project going and then into production. And there we’re looking at using direct extraction, which is a very efficient way of bringing that project to market a year earlier, at very low cost.

Our other project Cauchari, interestingly we’re drilling only a few hundred metres away from that major transaction with Ganfeng. So if we’re in the gold space and I said we were drilling next to the super pit, people would be pretty excited. It’s that sort of thing. We’re drilling next to the largest defined resource of lithium on the planet. And so somewhere in the next six to eight weeks, we should get some results out of there and it’s a pretty exciting time for us.

Anna Napoli: You’ve recently closed a capital raising?

Steve Promnitz: Yes, the idea of that was a million dollars to assist with the drilling at Cauchari. We’re also doing a bonus option issue for our shareholders. So if you’re a shareholder, up until 17th of April, you will then get given an in the money option. And then if that gets converted before middle of June, then you can get another option as well that will get listed. Essentially, it’s a loyalty bonus to say thank you for your support, start looking at this stock again. I know we’ve under delivered recently on our drilling at Cauchari, but all of that’s about to change and it’s a pretty exciting time to be looking at Lake and looking at lithium.

Anna Napoli: Steve Promnitz, thank you for the update.

Steve Promnitz: Thank you.