Lake Resources (ASX:LKE) Presentation, FNN Online Investor Event, February 2021

Company Presentations

Lake Resource's (ASX:LKE) Managing Director Steve Promnitz talks about its focus on producing a consistent, clean, high-quality lithium and why this is important for investors in a world where ESG investing is becoming the norm.

Thank you very much pleasure to be here. Now, as we open up the slides, fundamentally, I'm going to talk about something completely different. Lake Resources is focused on producing a consistent, clean, high-quality lithium to the sector that provides batteries for electric vehicles. And it is a very large growing sector, but doing that in a way, which doesn't just deliver a high-quality product, but does that in a better way with better ESG outcomes. Responsibly sourced, environmentally more friendly. So I will be making some forward-looking comments; these on slide two. And this presentation is available on our website: lakeresources.com.au, and was also released to the ASX on the 18th of February. We can move to slide three, please.

So fundamentally what Lake Resources does is provides a cleaner solution to the growth in electric mobility. Electric vehicles, and to a lesser extent energy storage, needs cleaner, better batteries. As the world transitions from gas-guzzling internal combustion engines to electric vehicles, it doesn't want to repeat the errors of the past. It wants better quality products going into those batteries. And the approach we take, we just treat water. These projects, they're called brines, but it's basically a salty water with lithium dissolved in it. And we use a water treatment where we just take the lithium straight out of the water without any of the other products. And by doing that, it produces a very high purity lithium product.

We do that in conjunction with our technology partner, Lilac Solutions. They're based out of California in the United States. And one of the key benefits of that process is we get a much, much smaller physical footprint and water usage footprint. We return virtually 99% of the water back to its source and in the process produce a high quality product.

Now, as soon as you mention the word new, investors can be concerned. We've demonstrated a path to production, we're financed now, thanks to a capital rising in January to take us through the construction finance round, in a little less than 18 months time. We've run a successful pilot plant in conjunction with Lilac now for nearly 12 months in California. And we'll run that all of this year. We're going to put a demonstration plant on site as well in the latter part of this year; it would have been in 2020, if not for COVID. It's cost competitive and scalable. And we are now just getting on and delivering.

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So what's powering the sector? What's powering it is this demand for electric vehicles. And the best way to measure that is not just the number of electric vehicles that go out the door, because as you can imagine, the size of the battery is different depending on what the performance is, but actually measuring the growth in mega factories. Now, mega factories are the ones that actually produce the batteries that go into these electric vehicles.

Last year, despite the pandemic, we saw the number of battery factories increase from 70 to 181, with 118 of those actually operating. That's a massive increase and we're seeing more going forward. The compound growth we're looking to deliver into that is between 20% to 25% year on year. And some people have actually suggested perhaps 40% compound growth over the coming 10 years. That's a massive increase. That needs new supply, but not just any lithium. It needs to be a high quality product and preferably with an ESG benefit. So all lithium stocks have increased during January and February; that's thanks to a final spike in lithium pricing. Right, I'm going to talk about what makes us different.

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So, as I mentioned, Lake basically delivers a solution to this demand. First of all, on high purity products, these are needed to avoid performance issues. Secondly, being more responsibly sourced and sustainable. That's because the physical footprint is smaller, a lower CO2 footprint, much lower water usage, lower land use, and still doing that at a cost competitive way.

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In October 2020, we've demonstrated that we can produce an ultra high purity, lithium carbonate, 99.97%. What does that mean? Battery grade or battery quality is, as a rule of thumb, considered to be 99.5%. This is more than 60 times more high purity. It basically means there's just lithium in it and nothing else.
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Fundamentally, no other company has been able to deliver that sort of purity at this sort of scale. So it is a new field and yet we're still doing it in a cost competitive way. On the left-hand side of this cost curve in the grey area are the prime producers, we fall in there. But because this is a premium product, it gets a premium price. And so our margins are much more healthy.

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Another key benefit, smaller environmental footprint. We're talking a footprint, to put this plant in our salt lakes, of about the size of one or two city blocks, instead of 15 or 20 square kilometres of evaporation pond, or digging another hole in the ground.

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And if we look at the CO2 footprint our all brine producers are quite small, including ourselves. We're going to be using a solar hybrid solution to provide power here, which makes our CO2 footprint smaller. But the key difference here is that, not only is it physically smaller, but a much smaller water usage.

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So how does direct extraction work? Basically, this is just water treatment. There's no mining involved, and the water treatment method we use, ion exchange, has been used widely for the last 70 years; it just hasn't been adapted for lithium. And that's what our technical partner, Lilac, in California have done. It's efficient; we remove just the lithium. It's fast; we do it in the space of two and a half hours, not months or years. It's a higher recovery so you actually utilise the entire resource. And yet it's still cost competitive. We can scale up because it's modular. And, as I mentioned before, environmentally friendly.

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So how does it look? Just imagine a salt lake like Death Valley in California, underneath that salt lake it's a salty water, which contains brine and lithium. We pump that brine, that salty water, to surface, and we put it in small tanks, what we call modules, about 50 of them. And then inside each module are these little beads about the size of tiny little rice grains. And those beads bond onto the lithium, no chemicals involved. We can then release the water after two hours, we strip the beads in about 10 minutes, and then reuse it. And it just goes over and over again. What that does is produce a very high purity liquid, called lithium chloride, and then we use the same processing method that other brine producers use to convert it into lithium carbonate.

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And the beauty of this process is that it scales up. What we're doing in our pilot plant in one or two modules we can do in fifty. And this is something that's quite unique in the industry. As the demand comes to get more lithium of a high quality and doing that quickly, we've got the confidence that we can do that. Because what happens in one tank or two, happens in fifty, or happens in a hundred.

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Right, so that's the process. Why do we produce a high quality product? To deliver and avoid performance issues. Why are we doing that with an ESG benefit? That's what electric vehicle makers want, that's what the market is looking for. And where are we? Where are our projects? Our projects are located in the prime location for lithium brines in the world, what's known as the lithium triangle. Chile and Argentina produce about 40% of the world's lithium, all at the lowest cost. And all of the big five producers are here, either by themselves or in equity in one of the projects.

Our flagship project is the one at the lower end of the image here, our Kachi project, but we have other projects next to the big boys at Cauchari and Olaroz, which are joint Orocobre and Lithium Americas in their joint venture with Gangfeng. Over 220,000 hectares of mining leases across four projects.
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Our flagship project, Kachi, which is a 100% owned, has a large resource. Of the resource we've already defined, less than 20% is used over 25 years of production, at 25,000 tons per annum. It's a larger lease area. It's the size of New York City, or 12 times Manhattan Island. And that's just the Kachi project. And the beauty is, this project is eminently scalable.

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So it's large, it's expandable, we know the resources open both laterally and at depth. And we explained this in our resource statement in 2018. It's quite a clean brine; it doesn't have a lot of impurities in it. And that lends itself to producing a high quality product. We've done a pre-feasibility study that demonstrates this is a long life, high value project and can be eminently scaled up. Cost competitive around $41.70 a ton. And probably that price will be a little bit lower on operating cost side. That cost will be a little lower because when we come out with our definitive feasibility study, it'll include solar power and eminently scalable.

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Furthermore, when we delivered our pre-feasibility study, that was back in March/April 2020, since then we've demonstrated that we can produce a high quality product, which gets a premium price. If we put a premium price of, let's say, $15,000 a ton into this model, that project value goes through more than one and a half billion US, post-tax. And we have an EBITDA on operating our cashflow line, which is at half the CapEx of 540 million. So it becomes quite a compelling project. And that's just the first one.

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When the plant is built, this is basically what it would look like. On the right-hand side, where the letter A is, is a warehouse with those tanks, or modules, that I was talking about. That replaces 15 or 20 square kilometres of evaporation ponds. And then the rest of the plant is roughly the same. So this is how it will look, roughly, when it's produced.

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So our production timeline, what we focused on this calendar year and for the next 18 months, completing that definitive feasibility study, demonstrating that this process works on site through a demonstration plant, having all of those studies completed for approvals and then construction finance in about 18 months time. And then getting that into construction and into production in 2024, earliest would be the end of 2023. Other news items you can expect is who we're talking to with our off-take agreements and some results coming out of how our product performs in batteries.

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So how at performance in batteries, we've partnered with a company called Novonix, listed on the ASX, ticker code ASX:NVX. This is a standout company. It was the spin-out of a technical laboratory at Dalhousie University in Nova Scotia, Canada. That was headed up by one of the gurus in battery technology over the last 10 or 15 years called Dr. Jeff Dahn. He then went and worked with Tesla, and just in the last few weeks has come back to Novonix. Tesla has extended their funding out to 2026, and we are going to be able to demonstrate how well our high quality product works in a high quality battery. And that helps us then in discussions with electric vehicle makers and battery makers.

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Apart from our flagship project, Kachi, we also have our Cauchari project. It actually adjoins Orocobre and Lithium Americas' Gangfeng, very similar brines and we're really the only junior in this area. And so this would be the next project to develop.

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We're currently funded through to construction. Market value of between $300 and $400 million. Our share price has lifted somewhat, but most of that was just catch up, to catch up with our peers, because this is really the first time we've been fully funded through to a key milestone. And there's a lot of news coming, particularly with our relationships.

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And in comparison, our nearest peer would be Standard Lithium in the United States. They're TSX listed, ticker code SLL. They're also using direct extraction and also have demonstrated a high quality product. Basically, the focus now amongst ESG focused funds is to find this sort of company. And we're almost unique in being able to produce that quality product to scale it up and have that ESG benefit. So a large amount of money looking for a scarce number of companies, including ourselves.

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So, in summary, clean, high purity lithium using clean technology, and this is essentially a solution for the 21st century. Responsibly sourced, sustainable and ESG benefit, we're almost a unique proposition. If you'd like more information, please go to our website: lakeresources.com.au, or email me directly: steve@lakeresources.com.au. More than happy to field this. As I mentioned, this presentation is available on our website and was released to the market on the 18th of February. Thank you very much.

Ends