Assessing Lake Resources Stance Against The Lithium Outlook Amid COVID-19

With cases of Coronavirus increasing, a sense of insecurity arises amid the crashing stock exchanges, halting operations and falling GDP. A question may arise as to what will happen to the ongoing exploration projects, will they be in a good position with the commodity outlook? Will the social isolation impact the progress of Lake’s Kachi Project?

For the same, let's gauge through the effect of social distancing amid Coronavirus and lithium stance in the present pandemic scenario to unearth the different possibilities.

On 20 March 2020, the Argentina Government announced the social isolation guidelines till 31 March 2020 due to the possible health crisis created by COVID-19, ranging from the restriction on people and goods movement with many exemptions on essential items like supplies and fuel.

Social Distancing – Gauging Effect on Lake’s Kachi Project

On 24 March 2020, lithium explorer and developer Lake Resources NL (ASX:LKE) stated that the impact of the restriction on travel and movement has minimal influence on Lake's subsidiary in Argentina, where field camps have already been reduced in line with the guidelines.

Lake’s current focus has been the advancement of Kachi lithium brine samples using U.S. technology partner Lilac Solutions' direct ion-exchange pilot plant module in Oakland, California, to produce high-purity battery-grade lithium carbonate for potential off-takers. Having said that, the COVID-19 restriction is likely to delay the process of brine conversion.

It is also worth mentioning that Argentina has already announced the incentives via presidential commentary on 1 March and 3 March 2020 to support the country's lithium, oil and gas sector. And its lies with the Company's intent to explore the possibilities available to aid future financing for construction.

After evaluating the COVID-19 restriction in Argentina, let’s gauge through the Coronavirus impact on lithium outlook vis-à-vis Lake’s future stance.

As per the Department of Industry, Science, Energy and Resources (DISER), the prices of lithium carbonate prices, as well as lithium hydroxide prices delivered to China fell by 14% and 18% over the December quarter 2019, respectively.

The current scenario of falling commodity prices and exports restriction are expected to impact the lithium export market by A$1billion in FY20.

Falling Lithium Prices - Bad News for Lake’s Kachi Project?

Well, NO! It is anticipated that post the subsiding of pandemic effect of coronavirus induced demand and supply disruption, price would recover in “V” shape. This is because the way the prices would improve is likely to follow a similar pattern the way it has dwindled due to the effect of coronavirus, keeping all other factors constant.

Interestingly, this is coming in line with Lake Resources anticipated Kachi lithium production commencement by 2023, benefiting over the supply and demand mismatch.

2023 Shedding Any Positivity Around Kachi Project?

The optimism doesn't start only in 2023, but it has already begun with the Lake's project location in Lithium Triangle, while utilising direct extraction ion-exchange technology. The less water and environment polluting methods of ion-exchange beads is anticipated to deliver low impurity, high-grade lithium carbonate with 99.9% purity. It will be catering to the needs of EV's and battery makers demand, offering scalable and sustainable raw materials supply chain.

The characteristics of high recovery in few hours, less polluting, high-quality product along with its low cost are anticipated to make producer capable of charging a premium on the price.

To know more About Kachi Project Significance, Do Read: Kachi Projects - Assessing requisite for LKE Future Production.

Also, it is worth mentioning that the DISER’s plan of vertical integration for lithium producers’ benefit matches with the LKE’s strategy of holding all its partners together including tech partner Lilac Solutions and engineering partner Hatch Pty. Ltd.

According to DISER, The lithium production is anticipated to rise from 495,000 tonnes of lithium carbonate equivalent (LCE) to 858,000 tonnes LCE by 2025. The production is likely to surge, crossing consumption by 2024 and 2025, due to which it is quintessential for producers to pay close attention towards its off-take agreements, vertical integration and strategic considerations over expansion because of accelerating scale of vehicle manufacture capacity.

Kachi Lithium Brine Project and Offtake Agreements

Presently, Kachi brines is being tested at Lilac's direct extraction ion-exchange plant in CA, USA which will be made available for prospective off-takers by April 2020, expecting to aid downstream groups in the qualification process and further in financing support. For the same, LKE has planned to produce both the products, i.e. lithium carbonate or lithium sulphate for the off-takers and intends to remain the market-driven Company to deliver the customised product as per the needs and requirements of the off-takers.

Lake’s Funding Update

As of now, the Company has raised the A$3.68 million via Private Placement (PP) to the sophisticated and professional investors by issuing a total of ~91.4 million shares at an issue price of A$0.04. Also, A$2.5 million is raised via the Share Purchase Plan (SPP) at an issue price of A$0.04 to the existing shareholders. The issue of SPP shares and Shortfall shares is anticipated by on or before 7 April 2020, post the closure of withdrawal period.

Do you know that the PP and SPP issued by the Company upsized dramatically by 245% and 167% respectively after Lake’s technology partner Lilac was backed by the US$20 million funds by Bill Gates-Led fund Breakthrough Energy Ventures? Please Click to Know More.

Stock Information

LKE traded at A$0.024 (AEDT: 01:57 PM) on 24 March 2020 and has a market cap of A$17.08 million.