Lake Resources NL (LKE.AX) Earnings Call Transcript & Summary

Hello, everyone, and welcome to today's webinar with Lake Resources. My name is Alex Paull from InvestorStream, and I'll be your host today. Our first speaker is Barry Dawes, Executive Chairman of Martin Place Securities, who will provide a quick summary on the lithium sector. Next, you'll hear from Lake Resources' Managing Director, Steve Promnitz, who will focus on a number of the company's key recent developments, headlined by the testing of lithium brine samples from Lake's Kachi lithium brine project, which is using its U.S. technology partner Lilac's direct extraction iron exchange to the pilot plant module in Oakland, California. Now guys, please feel free to send in your questions via the chat platform or in the question pane in the GoToWebinar control panel or you can also e-mail them to me at [email protected]. We'll be addressing the questions at the end of the presentation, and we'll attempt to get through as many questions as time permits. You will also see that a copy of both presentations today are available in the Handouts panel, both Steve and Barry's presentation. And also, a recording of the webinar will be available on Lake's website later today. I would like to throw it over to Barry, who will commence proceedings. And Barry, the floor is yours.

Thanks, Alex. Thanks, Steve. My name is Barry Dawes from Martin Place Securities. I'm here to talk about the lithium market. And I'm sure that you're all here interested in what's going on in lithium. You understand the basic drivers, but I think the most important thing about lithium is to understand that this commodity has changed from an industrial average-grade material for greases, glasses and ceramics into a very technically specific high-performance material. And we can see this very, very clearly in the growth and the changes in the global end users of lithium. What I'd like you to focus on is to see how the market demand between 2009 and 2025 will be up by over 10x. And batteries will go from 21% market share to 65%, as we have at the moment, but they will be 86% of all lithium consumption by 2025. All the others are just small-scale businesses. So the real growth is in batteries. And that's what you're here for. But you need to understand, lithium is going to lead to precious chemical. And the higher the purity of this material, the better because high-purity materials mean better performance of the batteries themselves. As we see -- you need to understand that we have got lithium carbonate produced at the moment and also lithium hydroxide. And the demand for lithium hydroxide is going to increase over time relative to the carbonate. And the reason for that, again, is this issue of purity. There's just very, very strong growth in the demand for these products. I'm going to very quickly go through supply. You're probably all a bit confused by the number of players that are there in the market, what sort of products they have and where it goes. Albemarle, in its presentation, put out some excellent flow chart, which basically show where we've got production from. Now if we look at the brines, in 2019, 45% of all lithium carbonate equivalent material has come from the brines, and most of this goes as a carbonate. And you can see we've got from Chile, the Atacama operations of Albemarle and SQM. And we've got Livent in Hombre Muerto in Argentina, Orocobre with Olaroz, and that's -- almost all of that is going into carbonate. What we got to see there by 2025 is something -- quite strong growth in Chile as SQM and Albemarle increase their output. We might have lithium power there. Argentina will grow. But you can see really the brine supply is essentially out of Chile and Argentina, with a little bit of -- a little bit out of China. And that will move up to about 400,000 tonnes. Now when we look at lithium hard rock, again, these Albemarle flow sheets show you where the material is going. Now most of you will understand how significant Australia is in terms of production of material from spodumene. Australia produces the best part of 95% of spodumene. And you can see, it goes through Albemarle County and others into a mixture of -- carbonate. And at the moment, rock -- hard rock material provides 55% of carbonate equivalent. When we go to 2025, we find that there's a big expansion. You are aware of the expansions underway in Australia, and not all of them are operating at the moment. So we can see rock go to 62% of output by 2025. So there's real opportunities in the hard rock as well as in the brine producers. But interestingly, by 2025, 80% of the product will be hydroxide. Again, this is a very, very useful flowchart, rock Albemarle. Now with holding all that supply, the market is sort of reasonably balanced for the next 5 years. But when we go a bit further, you'll see that we're getting a lot more supply, and we're not sure where it's going to come from. So there'll be a market that will sway between tightness and looseness as new capacity comes on stream, but the longer term is that the marketplace needs a lot more lithium material. Now when we look at the main demand, it's going to be in electric vehicles, of course, and we're going to see that move from this date, normal mile, 26% market share for electric vehicles, and that's for personal use. But we see a 36% compound average growth rate, such that 2025 gives electric vehicles 61% market share. So that's really where the growth is going to be. Buses and trucks will grow at 22% per annum, but the growth rate of the EVs themselves are such that they maintain their output at about 10%. But the other one that we really want to be looking at is grid storage. This is probably going to be bigger. If we look at the most recent commentaries, we're seeing this go from 4% to 6%, so it's kind of double, so a 50% increase in market share and a growth rate of 29%. So it's like the Tesla walls plus all sorts of storage within grids. Again, it'd be very, very possible that this will be developed much over the next few years. So coming down with all this, it comes back to the takeup in electric vehicles and the cost of the batteries. And we've seen this very strong reduction in costs of production, which is showing that the battery cost into the vehicle has come down by 60% and will continue to fall as we go into the future. And what that means is electric vehicles will be competitive against internal combustion engines by around about '23, '24, and that we expect to see a very, very strong growth in demand for electric vehicles. So the position for lithium, as I can see it, the demand is increasing. There'll be a very robust increase. We're looking at 6 or 7x increase from today's rates to what we see in 2025. And there'll be a very, very strong demand for the materials. Now what we're also seeing in batteries, and this is a dynamic feature, batteries make up between 20% and 25% of the cost of building an electric vehicle at Tesla at the moment. And so it's important that the cost of those things come down to make them more competitive. And the battery components of -- the raw materials make up about 75% to 80% of the cost of the battery, so it's important to get these costs down. What they're seeing is a change in the makeup of the battery or all the changes that we've got in cathodes. We're getting more into the -- maybe more ranges. There's developments in that with energy density, power retention, safety and so on. The next frontier which will come through, which will mean that we're going to see lithium metal is not only in the cathode, but also in the anodes. So the demand for lithium will continue. So overall, we've got a material which has a very strong growth rate, and it's -- Australia is a very important part of that in terms of the production of both hard rock and the investments by various other players into lithium hydroxide plants around [indiscernible] and Kemerton in WA just shows how this is becoming a quite a sophisticated industry for Australia. And Argentina, on the other hand, has got a really quite strong growth opportunity in developing its price. So thank you very much. In summary, lithium has changed from an ordinary material to a very high-performance, particularly speaking, chemical. And in terms of resource, we'll be producing the very, very highest grade we should see developing in the market for purity. Their purity matters. Thank you.

Thanks very much, Barry. I'm sure you guys got a lot out of that presentation there. I'd now like to throw it over to Steve, who will be, in a couple of minutes will be -- in a couple of seconds, will be presenting his presentation now. Steve, whenever you're ready, the floor is yours.

Good morning, good afternoon, good evening to the participants. I really do appreciate you coming online. We're trying to maintain our contact with investors regardless of what's happening in the world, mainly because we think we've got a different story and something that's pretty positive, almost regardless of global growth. Now I do appreciate that there are a range of participants here and a range of familiarity, both with the lithium sector and with Lake Resources. The presentation I'm going to run through is essentially the one that was released in February. I've just updated a couple of the dates, but it's essentially the same. And the idea is to provide a platform, a summary, so that then the questions have some context. As I go through this, as a standard disclaimer, of course, essentially, our view is that Lake, because it's been spending time looking at the sector and looking at how to develop the project, we're going to be producing the right product at the right time with a sustainable lithium product. Our focus has been on high purity and particularly, low-impurity lithium. This has been driven by our discussions with battery makers and cathode makers for the last more than 18 months. And as you heard Barry mention, there is a change in the sector, almost regardless of whether you're producing hydroxide or whether you're producing lithium carbonate moving towards a low-impurity product. And the way we've gone about that is to look at a range of different direct extraction technologies, and we've selected Lilac because based on the work that we have done now, 18 months, both on benchtop and now at a pilot plant scale, we can see that we can, in fact, produce that high-purity product out of using the Lilac process. And we get the additional benefit of having a small environmental footprint. That means that we extract the lithium straight out of the brine, out of the salty water, and then return that liquid through the aqueduct without the lithium in it, really without changing the chemistry apart from the extraction of lithium. So it's a real benefit both from the footprint. Instead of having 15 square kilometers of evaporation ponds, you just have the processing plant and without affecting the chemistry of the fluid apart from removing the lithium. Of course, to do that, you've got to have a large brine resource. And you've got to have one that can expand and be scaled up to suit demand. We will have our prefeasibility study out in the next couple of weeks. I understand that for a little while, there have been some delays in getting some of the final numbers just due to Christmas, New Year, but we'll have that out pretty soon. And that will essentially demonstrate that the project is large, as we showed back in late 2018 with the resource, but that it's also economic using the Lilac process. And then over the next 6 to 9 months, we will continue to optimize that so we can produce a definitive feasibility study. Please feel confident the management team has spent a lot of time both in Argentina and Chile over the years in various different levels, and we can still deliver this. Last of all, I would say that the company is well positioned even in the current market from a valuation perspective. Still considerable upside on a comparative basis, together with other direct extraction possibilities, and also companies that are currently developing their projects towards production. Barry Dawes last week released a report. It's quite comprehensive. It's available on our website, has a $0.25 price target over the next 12 months. There are opportunities, and we believe that we can differentiate ourselves here because we're doing something different that is actually in demand right now. And therefore, our product, once we start producing, is actually going to be preferentially selected by off-takers and electric vehicle makers because they want this in their supply chain. I'm just going to quickly go through some of these slides because most of you are familiar with it. We are in the right location in the middle of a lithium triangle, and we're well positioned in that lithium triangle both next to current producers with our Cauchari-Olaroz project and Kachi down the road from Livent FMC's operation since 1997. And we continue to see transactions happening here, regardless of the market, the most recent being Orocobre making an all-scrip bid for Advantage Lithium, which leaves Lake being the only junior in the area of Cauchari and Olaroz apart from the Ganfeng with the Americas and Orocobre. This is what the Kachi project looks like. It has a large footprint, over 70,000 hectares, a major brine resource amongst the top 10. And on this slide, you can see when we were pumping out brine between Christmas and New Year to then go into tanks, which were delivered to California. They're now at the pilot plant in Oakland. 20,000 liters have been delivered there. And the intention over the near term is to convert that to lithium chloride and have that lithium chloride converted into high-purity lithium carbonate. That's using this direct extraction technology. It is a game changer, faster, more efficient, higher recoveries, high-purity products and a sustainable outcome. You've seen this image before. This is basically how the flow sheet looks and how we quickly convert a brine. And all we're doing in the flow sheet is replacing evaporation bonds with the iron exchange filter of Lilac. That's it. Essentially, the flow sheet looks the same. But because you're only taking out the lithium, you're not concentrating the impurities. And as I mentioned, it has a much smaller footprint. All of the brine producers are down at the lower end of the cost curve in gray. In blue are the hard rock producers. You see in the middle is Greenbushes. It's anomalous in that it's a particularly high grade. We'll be coming out, as I mentioned, in the next couple of weeks with both our operating costs and capital costs. But we continue to be at the low end of the cost curve, producing a high-purity product. And what's important about this is not just the cost of the product, but also what you're going to be selling it for. Producing a high-purity product, it doesn't matter if we're producing widgets or reducing lithium, you normally get a premium price for that or, at the very least, preferentially selected amongst a group of potential providers. This is a slide I added a few weeks back in February when we presented this, and it's a real thing. If you'd asked me 6 or 9 months ago, it was still questionable whether sustainable lithium is going to be something that the market is generally interested in. It has been focused on purity and low cost, and we can deliver that. But on top of that, we can also deliver the benefit of sustainable lithium. You're familiar that Bill Gates-led fund Breakthrough Ltd together with MIT, The Engine fund decided to put money in, USD 20 million, to back our technology provider, Lilac. And at the same time, we're seeing Volkswagen and Daimler out of Germany and BMW talk about the need to see sustainable lithium in the supply chain. And I have had this independently verified by people who are deeply involved in the whole supply chain process. This is a real thing of genuine interest. So if we look carefully at our time line over the next 6 to 9 months, we are focused at the moment in getting products through the direct extraction pilot plant in California, getting those samples out to our offtake partners. There could be some delays in that process due to this whole COVID-19 virus. It would be inappropriate for me to say that there won't be some delays in that process, but we think we're reasonably well positioned because, at the moment, we're focused on getting the product out of California prior to then moving that pilot plant, say, midyear to our site in Argentina. That will then help to engage at least 2 different offtakers out of the groups we've been talking to. I must say that list of gentle offtake partners has grown somewhat considerably after the announcement of Gates' investment in our technology partner. It is always difficult with a new technology to know which one. The benefit of that is it's the old follow the money in the market. There are some clever people with money who think that's a good technology, not just us. And so that certainly will help in the process. As mentioned, our PFS will be in the next couple of weeks, and that will help us then finalize financing. We announced in October last year that we're in discussions for a USD 20 million to USD 25 million structured debt facility with an equity kicker. And we're well advanced in those conversations, and that will help us then finalize offtake strategic partner discussions. And then towards the end of the year, initiating discussions around financing for construction and moving into production indicatively around 2023. And we'll be releasing more information on that in the near term. So thank you very much for your interest. I'd just like to reiterate high-purity lithium carbonate, larger samples coming out from April indicatively onwards to potential offtake partners. Our finance is shortlist. The fact that our technology partners finances assisted us as well. We're using this new technology, and we're meeting that desire for sustainable lithium. Right back to you, Alex. Thank you for your attention, and we're now going to throw it open to the range of questions that we've received. Thank you for submitting those online.

Thanks, Steve. Thanks very much for your presentation there. Yes, we do have a couple of questions that have come through. The first question asks whether Lake Resources have exclusive rights to use Lilac allowing exchange lithium extraction technology? Or could any other company have access to it?

So how this process evolved is that we looked at a number of different direct extraction technologies, around 13 in total. And we spent a lot of time looking at both nanoshelters as well as iron exchange. Out of that group, Lilac seems fairly good. There were a couple of other providers that may have well been suitable, but we've now spent 18 months working with them. Now the reason for that is that our agreement is in 2 parts. One is as a service provider to provide the iron exchange beads and the support, which they could potentially do for others in the future. And then secondly, that there is a genuine partnership with exclusivity over large areas of the lithium brine-bearing basins of Argentina. You have probably seen in the news that Lilac has an agreement with CTR to look at geothermal possibilities in California and have also had discussions now for some time with potential oil shale producers and extracting something out of the brines that come to surface. For us, there have been different business models. They're more like environmental cleanup or working as an addition to other activities that are currently occurring within the continental U.S. I think that's probably an opportunity for Lilac in this business, but we essentially coerced them to come down to the heartland of lithium, to the lithium triangle, work with us if they need a company that's both small enough, that's prepared to pony up on a new technology and also large enough -- with a large enough resource, not a posted stamp, so that it can be expanded as we see the big end of town with offtakers, electric vehicle makers saying this is a product we want in our supply chain. Thank you.

The second question is from Coach Pty Ltd, and it's actually 2 questions. The first question is, have you discussed with Lilac the possibility of them investing directly in the Kachi project? And the second part to that is, can you also explain why Lilac chose your project? And what makes your brine so different from other brines in Argentina?

Right. The first one, I can't really comment on. We have been in discussions now with Lilac for some time. And naturally, now that they're financed, there are opportunities for us to work more closely together. I can't really say more than that publicly. With our particular project, what we've found is that the Kachi brine is a very clean brine. It's very low in impurities anyway. We've seen that all of these direct extraction methods have tended to come to the fore by working on what we would probably consider marginal projects or one that don't immediately lend themselves to being part of the lithium supply chain. We've got the benefit of not just a large project that's scalable. Look, with more holes that we have said back in 2018, this could easily be 2 or 3x larger. But also with our benchtop and now pilot plant testing, we found, in fact, that it's a very clean brine, low in impurities. It actually produces very high-purity product. I can't guarantee that's necessarily going to happen on other projects. I'm unaware of what has happened with Lilac in considering other projects. But clearly, both the scale and the lack of impurities has assisted in ensuring that we've got a high-purity product. Because at the end of the day, if you're going to use direct extraction or any new technology, you want it to really move the dial. You want to still be at the low end of the cost curve, and you want to produce a premium product. Otherwise, you're essentially just amongst the great group of potential lithium projects, and there's not an opportunity to significantly differentiate it. Over to you, Alex.

Another question from [ Darryl Carsten ] of [indiscernible] When is the power plant due to arrive at Kachi?

Yes, that's a very good question. Essentially, what we're doing at the moment, as you know, we've delivered 20,000 liters of brine to the pilot plant in California. And it will be producing high-purity lithium chloride, first of all, to be converted into lithium carbonate and send that off to potential offtakers. Then we'll also produce a lithium sulfate to go to some of the offtakers as an intermediary product. Once we've completed that process, we may have to send more brines down there. But once we've completed that initial process, we have actually engaged with a sufficient number of offtakers, then we'll shift to the pilot plant down to site so we can produce larger volume samples. Indicatively, that would be midyear. As I mentioned, look, this whole global virus thing may impact things a little. The good thing is that the changes we've seen in Argentina aren't affecting us at the moment. But we would expect that then certainly in the second half of this calendar year, we'll be producing that much larger samples, 20 kilos up to 0.5 tonne samples for a selected group of offtakers. That's the indicative time line at the moment.

The next one comes from [ Morris McKelley ]. At the current market cap and with so much upside possible, is Lake not a takeover target? And how will impact -- how will that impact shareholders?

Because Lake has a lower valuation than its competitors, it has always has a greater possibility for M&A activity than others that are just at market. The second is that, with our partnership with Lilac and the fact that we are producing high-quality samples for offtakers, when we announced who some of those offtakers are and perhaps some financing, that may also trigger other activities. . It's always very hard to opine. I perhaps had a stronger view on that before the latest market shakeout. But look, these are possibilities. I can't really opine on the activities of other companies.

The next one comes from [ Lincoln Rathnum ]. If everyone starts using the Lilac process, will this lead to a glut of low-priced, high-quality lithium?

I guess that's always a possibility. The thing is that any new technology needs to be tested first at a lab level and then at a pilot scale level and then to go into putting some commercial size modules on site. It's not something that happens very quickly. I'm not certain that this will necessarily become the holy grail and everybody will want to use Lilac, but I do think that there's a real opportunity in the market. Please understand that this market is dominated by 5 key lithium suppliers at the moment, and I don't suspect that they're too keen to let go of that control of the market. I think there's an opportunity for Lake, together with Lilac, to provide high-purity product into that market. But I could only opine on other technologies I've been involved in, in the past. They generally tend to take a piece. The fulcrum will move -- or the tipping point will be when we see some of the majors also want to participate in that as well.

A couple more questions, Steve, and then we'll call it a morning. There's a question from [ John Cane ]. Does the company have sufficient liquidity to progress as planned? Or might you need to raise further equity in the near future?

Well, all I've learned about small cap companies is that they always need more funding at some stage. But our intention is to progress a structured debt with an equity kicker facility with possibly a couple of providers over the near term. And then that would essentially fund at least the Kachi project through to a decision to do construction and a development finance. . So it's not our intention. There will need to be an equity top-up once we're doing the full financing for construction, but I suspect that the company will be at a significantly different market value at that stage.

Steve, this one comes from [ Ben Jarvis ]. What size lithium carbonate sample are potential offtakers want it?

Yes, that's a very good question. How the process works is this. Whether it's us or whether it's any other company, they start initially with 1 or 2 kilo samples. These are so that they can do their own analysis, essentially to demonstrate that the numbers we've sent them are real and that is indeed low in impurities. They then just do a quick comparison with some of their other suppliers. And once you've got through that initial filtering process because naturally, many, many companies come to all of these, cathode makers and lithium supply companies, then they seek larger samples. The next round is normally in the order of 20 to 30 kilograms. And once you've got through that process, then you tend to have a smaller group of offtakers who are then asking for 0.5 tonne samples, which they physically put into their supply as a batch test to ensure that there aren't any other issues that they hadn't considered previously. That process takes 6 to 9 months. And it doesn't matter if we were starting now or if we were moving into production, that is a process that needs to occur. And the benefit -- one of the key benefits of the Lilac process is that because it's modular, what comes out of our pilot plant is going to be pretty darn similar to what comes out of a commercial plant because it's just more modules, essentially the same size. And this was reiterated recently by our engineering firm that, that is indeed one of the benefits. All we're doing here is water treatment, so we don't quite perhaps have the same issues than if you're digging from one part of our project, it could be different to another.

And just leading on from a previous question, Steve, is there a big difference between the pilot plant operating in California or being in situ at Kachi?

The key difference is it's really just that you're pumping straight out of the ground and it's going into the plant. So there may be some slight difference through transporting or what have you. But at the end of the day, all we're doing here is treating water. We're not doing anything particularly difficult. So that's the key difference. Secondly, the other key difference is that an investor, a debt financier can turn up on site and physically see and touch the pilot plant operating on site where it's going to be operating in a production sense. So you're derisking the process further. But at a high level, there is limited difference. It's really more just from a scale and a demonstration perspective that it's operating on site.

Okay. Now if there are any more questions, now is the time to get them through. But look, I just want to take this opportunity to finally thank Barry and Steve for presenting today. It's been a -- I think it's been quite an informative presentation for everyone involved, given especially the current climate we're in at the moment. We'll be trying to do a few more of these webinars over the coming weeks and months. But look, if there are any more questions, feel free to send them through to me at [email protected]. I think we've -- that's pretty much all the time we have for today. But again, I just want to -- firstly, thank you, you guys, for all attending this morning. I know sometimes it's early, sometimes it's late, depending where you are in the world. So thanks very much for taking the time to join us. Barry and Steve, thanks very much for your presentations. Like I said, a recording of the webinar will be available on the Lake website later today. Steve, just one last question just come through. So if you don't mind, this one's come from [ Lucas Cabana ]. What's the scalability of the Lilac plant to produce volumes of up to 40,000 tonnes per annum? And what's the cost forecast?

Thank you, Lucas. So the operating costs will come out in our prefeasibility study in the coming weeks. And there is always an opportunity for those operating costs to decrease as we scale up. And that's particularly around the provision of energy. We have been talking to some solar power providers to look at ways of doing that. And as you get larger, naturally, the incremental cost is -- it becomes smaller. But the beauty of the Lilac process is that once we have our pilot plant operating for a number of months, let's say, 3, 4, 6 months, we'll probably then put a couple of commercial modules just to continue operating to make absolutely certain there aren't any issues that we haven't considered. Once those 2 commercial modules are there -- look, indicatively, we're looking to have, say, 50 or 70 of those at a 25,000 tonne per annum, a much smaller amount at 10,000 tonnes per annum. But if we move to 40,000, it just means more modules and then ensuring that you've got the capacity to treat that product either into lithium carbonate or lithium hydroxide. It lends itself to scaling up more quickly with fewer issues than any of the other processes that are currently available, either hard rock or lithium brine evaporators. And if I could just take this opportunity also to thank everybody who's participated. Yes, there are difficult times. Lake is familiar with operating remotely. We do want to continue to engage. Please send me your questions or through Alex. We will be having another webinar in and around our prefeasibility study announcements. And we hope to update the market then plus once we start pushing more samples out of the pilot plant in California. Thank you all for your time and your interest.

I want to echo those sentiments. Thanks very much for joining us all today, and have a great day. Thank you very much.