Lake Resources shares: investment snapshot for 2023
Lake Resources shares could soar in 2023, but an updated J Capital Research report could derail the ASX lithium stock unless promptly defended.
Lake Resources (ASX: LKE) shares could be one of the best 10 ASX lithium shares to watch in 2023. However, like many exploratory miners, the AU$1.5 billion company comes with a modicum of risk which investors should weigh against the potential rewards when considering a long-term investment.
Of course, the key draw is that lithium prices are soaring. As the EV revolution accelerates and car manufacturers switch on to the concept that EV-critical materials — not just lithium, but nickel, cobalt, copper, and graphite — could see serious supply shortages in the 2030s, prices are adjusting, mostly in an upwards direction.
The Chinese lithium spot price now stands at a record 587,500CNY per tonne. And further upside momentum appears likely, with fellow miners now refusing to sign standard multi-year offtake agreements.
However, this tailwind is also supporting the many other ASX lithium stocks. But others are far more specific.
Lake Resources share price: considerations for 2023
LKE shares have undergone a stellar run since mid-2020, jumping from AU$0.03 to AU$1.07 today. However, they have also experienced severe volatility along the way, including striking a record $AU2.31 on 1 April 2022, before collapsing to AU$0.61 by 15 July.
There are various explanations for each stage of this volatility, but it’s certainly higher than most AU$1.5 billion companies, which is not surprising as its exploratory nature leaves the stock in price discovery until production begins. Long-term investors might want to prepare for a rollercoaster.
Lake Resources boasts an exciting portfolio of project sites, which together cover 2,200 square kilometres within a prime location inside the Lithium Triangle. The triangle covers famous lithium mining geography situated between Argentina, Bolivia, and Chile, where ‘40% of the world's lithium is produced at the lowest cost.’
A pre-feasibility study on its flagship Argentinian Kachi Project by ‘a tier 1 engineering firm has shown the potential for a large, long-life low-cost operation, with competitive production costs at the lower end of the cost curve.’
A key complaint about lithium mining is the localised environmental damage done when extracting the metal from both brine and spodumene. Lake Resources is in some ways unique for its partnership with Lilac Solutions, whose technology is backed by both the Bill Gates-backed Breakthrough Energy Fund and MIT’s The Engine Fund.
Lilac Solutions claims that its unique water treatment process — dubbed direct lithium extraction — means it can extract lithium from brine and then return virtually all the water to its source without changing its chemistry, excluding the lithium.
This could be far better for the environment than conventional methods, though critics argue the tech remains unproven, and still produces some toxic waste.
Lake has recently signed two new offtake agreements for Kachi, a key sign of wider institutional confidence.
50% of production, or 25,000 tonnes per annum of battery-grade lithium, has been assigned to WMC Energy, which will be taking a 10% strategic interest in the company for AU$1.20 a share.
The second half has been assigned to SK On, with an agreement which will last for at least five years with an option to extend. The South Korean company will also acquire a 10% strategic stake in Lake through the issuance of new shares.
Crucially, these agreements remain conditional on the outcome of Kachi’s definitive feasibility study, positive results at the Lilac demonstration plant, and satisfactory financial due diligence among other factors.
Lake Resources recently informed investors it had AU$158.87 million of cash and cash equivalents at the end of the most recent quarter, enough to last for more than 14 quarters at its current cash burn rate.
The company has also made several management changes offering a wealth of experience; David Dickson is in as its new CEO, Sean Miller as corporate development officer, and Karen Greene as senior vice president.
Lake notes that ‘a number of milestones lie ahead for Lake in fiscal 2022, including first production from the demonstration plant at Kachi, the successful completion of the DFS, an Environmental and Social Impact Assessment (ESIA) and the delivery of our first ever Sustainability Report.’
J Capital Research concerns
J Capital has multiple concerns over Lake Resources, including its plan to build a $1 billion processing facility in the remote Andes, the three-year delay in getting the Kachi pilot plant online, a further delay in the definitive feasibility study, and AU$8.1 million of insider selling. However, delays in exploratory mining are commonplace, as is some insider selling.
Its latest accusation is that Lake Resources deliberately misled investors by saying that funding from UK Export Finance, which would considerably de-risk the project, had been ‘confirmed,’ despite a Freedom of Information request apparently finding this was not the case.
To its credit, Lake has responded to J Capital’s concerns in the past and hasn’t yet had the chance to respond in detail to this most recent update. Investors may wish to wait for this critical piece of information.
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