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

Good morning, and thank you for joining us today. I'm Karen Greene, Senior Vice President of Investor Relations and Communications. And we're glad to have you with us for this very important investor update. We are excited to share highlights and commentary on our Kachi Phase 1 definitive feasibility study. Please note, we will be referencing the Kachi Phase 1 DFS slide presentation during our remarks. This slide presentation is posted here as well as on our website. Joining us today is CEO, David Dickson; Scott Munro, Senior Vice President of Technology, Strategy and Risk; and Sean Miller, Senior Vice President of Field Development and Evaluation. With that, I will turn this over to David.

Thank you, Karen, and good morning to everyone. Obviously, this is a very special webinar for us as a company and having the DFS published today is obviously a significant milestone in our journey. As Karen said, today, I'm joined with Scott and Sean. And over this period, we'll provide some highlights of the DFS and a lot of the good work that has happened since we went out with our operational update back in June of this past year. So looking at the highlights. It was pleasing to see is that the outcome of our DFS is very similar and very much in line with where we were when we're talking back in June. So a lot of success there. The investment highlights extremely good. We're still there with regards to the strong economics of the project. And later on, we're going to tell a little bit more detail. You'll hear from Sean to talk about the actual reservoir itself, and you're seeing a number of updates that came from the company over the past few months. So I'm going to let Sean talk about the good work that was done in that area. And then lastly, we'll ask Scott to talk through a lot of good work that was done with regards to, one, the demonstration plant, but also a lot of good work that's going to ultimately producing the DFS today. If we go back since June, and again, just kind of reminding everybody, obviously, June was quite a tough webinar when we obviously broke the news to our investors that we had to change the philosophy of how we'll develop Kachi, and, obviously, we broken into phases. And today, we're here talking about Kachi Phase 1 only. But if you recall back to June, we said as a company to develop this project, we will split the project into 2 phases. And within those 2 phases, each have 2 plants of 12,500 tons. Since then, we've got to work demonstrating a number of things that we said at that time, but obviously delivering on a number of items that we said that we would do. So over this past 6 months, we've gone to work to demonstrate that both pumping and reinjecting works in this reservoir. We drilled deeper where we find more and a good quality of brine. We've been able to update the market on the performance of or the outcome of those drilling activities. And just recently, a few weeks ago, we announced the engagement of Goldman Sachs to come and work with the company to look at bringing in a strategic partner, and I'll emphasize again into the Kachi development, and I'll talk a little bit about that later. But -- so a lot of work has been done. And then today, obviously, we're extremely pleased that we are releasing and publishing our DFS. So a lot of good work and we stuck to our commitments that we said we would do over the last 6 months. Before we get into that in more detail, a little bit on the lithium market. So we as a company engaged WoodMac to performing market study with regards to the lithium market, particularly, to cover the time line for the life of mine. And as we've seen in a number of instances is that predictions are fairly consistent that indicate that by 2030, 2031 is that we'll start to see a significant and sustained deficit with regards to the supply of lithium to the market and all that subject to the EV penetration that is planned throughout the globe. So things are fairly consistent. What is good about this is it also highlights that when we look at early production for us, which is in '27 and ramping up through '28 is that this ties in to when the markets are predicting when there's going to be a deficit in lithium supply. And as a result, a growth in pricing. So with that, the work they've done [indiscernible], we had -- we've run the model now at the varying lithium prices or forecasted prediction of pricing over the early years and then there's a consistent pricing for lithium carbonate throughout the life of mine. And just to look at some of the numbers we presented on the slides earlier, in the earlier stages of production, we're looking at lithium pricing of just over $20,000 a ton and that ramping up to over $31,000 a ton long term. So again, we're seeing that across the market and some other DFSs and it seems to be consistent with what the industry is predicting with regards to both supply and demand and in pricing. From operational update, we made a number of commitments. We said we'd do a lot of work to demonstrate the reservoir. I'm pleased that we completed that. We also did a lot of work to demonstrate the Lilac technology, the DLE technology, and I'll let Scott talk into that a little bit later. But again, we succeeded in that work. Back in June, we did highlight a concern around the power side. That was an area where the company hadn't developed that far back in June, but pleased to see that the team have been able to come up with a power solution, which is now defined within the DFS study itself. And as I said before, on the funding side, we are looking at our existing CFAs, but really looking to look at with Goldman Sachs, how we take advantage of this reservoir and how we can take advantage of offtake agreements, tying that in with financing to strategic delivery of Kachi project, and I'll touch on that a little bit later. But ultimately, we delivered the DFS. I know that was a concern for a number of our investors, but obviously, as a company, extremely pleased to release our DFS to the market today. Just before we get into some of the detail, a couple of other things I want to touch on, and that is we're really happy and pleased that a lot of the things that we set back in June are consistent with what we are presenting to the market today, particularly with things around our operating costs and CapEx. And if you look at one of the slides that indicates that and both the OpEx and capital costs, we've come in roughly in the middle of the band. So considering that we have done 6 months of additional work and to see these numbers sit within the bands is an excellent result for the company. And then on that slide talking about the value and where we got to on the numbers with regards to NPV, you'll see that actually the NPV is more to the upper end of the band. And that's more around the building of the model. Back in June, we were still in the early stages of building the model. But obviously, we have learned a lot since then. And what's pleasing is the fact that since then, we have a model that even with the pricing of $23,470 a ton that we used back in June, even with those -- with that price in regards to lithium as it shows that the economics are still very, very strong. So very pleased that from the work's been done over the last 6 months as it remains consistent with what we've set back in June of the operational update. Before jumping on to -- handing over to Sean, a little bit on Argentina itself. Obviously, there was the recent election, the new President took office back on December 10. So he's only in the job for over a week. A lot of questions coming from investors, what does this mean for Lake Resources and generally the sector. We, as a company, and I think the sector itself sees this as being a positive. We see that the new President and his cabinet wants to make a number of changes. They are very strong on export and very strong on developing the lithium market. So from a federal side, we see opportunity here. We haven't had the opportunity to meet with the new government yet. Obviously, it's still very early, but obviously, in the start of the year, we'll be taking the opportunity to meet with the government and look for their support. Not only just for Lake Resources but also for the sector. But more importantly, locally, we've talked about this before, we have a very strong relationship with the government team and the province of Catamarca. The governor himself has been successful and remain in seat. And so that team will remain in position and that's the team that we've been working with over this last year, helping them become educated on the work that we are doing at site taking around things like reinjection and DLE. So we have an existing strong relationship with local government and, obviously, we'll continue to strengthen that over the next piece. I will come back to talk about on the federal side, people have noticed that there was a devaluation of the currency back last week. Again, I remind our shareholders is that at this stage, our costs in Argentina have -- are limited and more so now that we've completed all the drilling activities. So very little exposure to the company with regards to what's happening on the economic side within the country. Obviously, that's something that we will monitor as things progress. But why don't I hand it over to Sean. I'll let Sean talk about the work that's been done with regards to the drilling and developing the reservoir. Sean?

Thanks for that, David. Yes, look, we're very excited that we've released our maiden ore reserve statement along with this DFS statement that's been released for the Kachi project. It's taken a long time and a lot of hard work for us to get to this position. The team have developed a number of very robust hydrogeologic models to support the ore reserve, and we're really pleased with how these models are matching the field data and also the future lithium production results from the models. I think it's really important to call out that the constraining modifying factor on our ore reserve is our planned plant capacity, which is the 25,000 tons over 25 years, not our field design or lithium grades. Our actual mine plan that's being developed produces 806,000 tons of LCE to deliver the ore reserve. And this represents less than 12% of our measured and indicated resource, which provides a real clear pathway for future expansions. So we're all really pleased with the result there. More than 85% of the 25-year life of mine is also coming from our measured resources. And this provides us with a high level of confidence in our projections. The mine plan itself consists of 16 production wells within the central area and 21 injection wells in the Western alluvial fans and the Eastern margin of the Salar. Now when the team we're developing the well field layout, it's been optimized to maximize the lithium grade recovered, maximizing the proven ore reserve and also minimizing the environmental impacts, and we're really happy with the results we've seen in all 3 of those areas of designing the well field layout. The models are also demonstrating that our injection strategy maintains high reservoir pressures, which was always a key target to minimize the environmental impacts or the potential environmental impacts. Touching on the grades, we're well above our design basis of 205 milligrams a liter. For the first 7 years, we're above 250 milligrams a liter. And for years 8 to 25, we're above 240 milligrams a liter. So again, really pleased with the results there, and it shows that we've got well within our design basis. The technical and operational teams we've pulled together really have transformed the operations out on site. They've built robust hydrogeological databases that allow us to make informed business decisions going forward. It gives me great confidence for the other milestones we have ahead of us to achieve them. So I'm really happy with the progress we've seen. Thank you.

Thanks, Sean. Scott, why don't you take us through the work that you and the team have been doing with regards to work around the DLE and the DFS itself?

Okay. Thanks, David. Thanks, Sean. Yes, I think it's important, we will talk in a few minutes about the actual outcomes that DFS itself, and we'll call out the significant amount of paperwork that everyone will have the pleasure of reviewing in the near future. But before we get to the paperwork side of things and DFS study outcomes itself, it's probably important to touch on some of the field work that set us up to achieve this outcome. And the first part and probably a part that everyone's heard the most about, if you've been a follower of Lake Resources, is the demonstration plant for Lilac Solutions Ion Exchange technology. We believe it's one of the longest, most intensive field demonstration activities for any ion exchange program anywhere in the world. It ran from October '22 until November '23 in a couple of campaigns. We did have a short break to get some people some time away from the site. But overall, we process more than 5.2 million liters of brine from Kachi. We achieved uptime greater than 90% during those periods of continuous operations. And we have collected over 200,000 liters of lithium chloride at site, and we've retained a significant proportion of that for future testing. All of this means that we've been able to demonstrate the process flow, the parameters that we're using for the DFS construction. The plant itself is now being demobilized. But before that happened, we were able to complete independent witness tests and get sign off by independent parties to validate the data that we've used for construction at the plant flow sheet. Important steps, we believe, and set us up for due diligence with other parties when we move into 2024. The key data that people always ask about what's your recovery rate? So we averaged 8% as we expected. As you -- if you got a chance to look at the slides, the company -- the webinar, you'll see that we've learned as we've got along. Part of the reason for doing a demonstration plant is to learn lessons and optimize the process. And that's what we've done. So we achieved what we wanted to achieve. We got validation for the numbers that we used in our design, and now we believe we're ready for deployment. Moving along to the next phase of the field test and work. Beyond the lithium chloride, we obviously, as a company, are very focused on producing battery-grade lithium carbonate. David mentioned earlier, the supply/demand balance for lithium generally shows deficit beyond 2030, but for battery-grade products in particular. That deficit is more aggressive, it starts earlier and it is a larger deficit. So we believe by bringing a high-quality battery grade product to market when we expect to ramp up, we will be in a great position to take advantage of that market opportunity. And so the important thing for us as a company was to be ready to take advantage of that, have a process flow sheet that we felt very comfortable would achieve battery grade and working with our friends at Saltworks Technology. We've been able to run a large multi batch program of demonstration activities. We achieved in all cases above 99.5% purity for lithium carbonate. And in fact, once we had taken out some of the lessons learned or taken advantage of some of the lessons learned, I should say, we were actually able to achieve a greater than 99.9%. So a great outcome. And yes, the numbers are important here. It gives us great offtake samples to do testing with. But the most important thing for us is we've collected the data. We've had that data validated. It's available for our process flow design, and we are comfortable now that we know what the plan is going to look like when we move into operation. All of that field work has set us up well for completion of the DFS itself. We -- as Sean mentioned earlier, as we finish the rest of the numerical modeling for things like the reservoir, we've learned some things that may help us to optimize in the future. But we started the DFS in earnest after the operational update in June earlier this year. So we had to take some conservative assumptions. One of those was on the lithium concentration. We know we're above our minimum design basis, so we're comfortable that the plant will achieve capacity. We think there's opportunity to improve that in the next phase of the project. Another area where we had to take conservative assumptions was around power and water usage and how we recycle that water. All of -- those 2 areas, in particular, do drive a significant portion of both our CapEx and OpEx. So again, in the next phase, when we move into fee, those are identified as opportunities for us to enhance the efficiency of capital and operational efficiency of the plant. Having said that, the basis design work gave us what we wanted. We've got a 3D model. We've got process flow sheets. We've got heat and material balances. We now know that our lithium recovery will be in excess of 75%. Again, once we move into the next phase, we're hoping to review that and see if we can push that up slightly with some of the other parameters changing as well. But again, we've got so much opportunity in this reservoir. The lithium recovery 1% or 2% at this point doesn't change materially the outcomes in the model. In addition to the -- all of the process design work we've completed, we've also looked at well field layout, well design, reservoir modeling has been mentioned. And then the next one is on power. Power is an area where we had identified a gap previously. So we've spent a significant amount of time both commercially, but also technically with consultants in the Argentinian market who've helped us through the process of selecting the best option for a transmission system to site. They helped us perform technical evaluations on that to feasibility study level, including full route assessment and preparing commercial bid documents so that we can move into the next phase of the work. So power transmission has moved along significantly in the last 6 months, and we will continue to work that program with the market in Argentina in the new year. Last but not least, it's probably to mention that from this process, we achieved our target of Class 3 plus/minus 15% estimate, which sets us up nicely for the financials on the project. So David touched briefly on the successful outcomes on the financial or economic assessment for the project. I suppose the key elements to highlight, this is for Phase 1, the first 25,000 ton capacity for the plant. It produces our post-tax NPV at $2.3 billion. All of these dollars are in U.S. dollars, not Australian. In terms of EBITDA, an annual average EBITDA of $635 million and some of the bigger numbers, which are worthwhile point to note, a life-of-mine revenue in excess of $20 billion. So by anyone's measure, this would be a significant facility and add significantly to the market for high-quality battery-grade lithium supply. In terms of sensitivity of the model, we run a number of cases. The project model shows itself to be resilient for, I guess, both OpEx and CapEx moves, a minus 15% -- sorry, a positive or an increase in OpEx or CapEx by 15% results only in a 6% or 7% deterioration on project outcome. So we think that sets us up nicely to deal with any movements, which may come, particularly on the OpEx front because this plant will be in [ site ] for 20-something years. And of course, you need to be able to adjust to the operating environment in which you work. So we think we've got low sensitivity against those 2 parameters. The parameter which has the biggest influence on project outcome is lithium price or -- which is really just a read across for total revenue from the project. So that can come either by producing more or less than target or achieving a higher or lower sales price for the project. A 15% reduction in lithium price, the model generates a 28% reduction in NPV. But again, even at that minus 15% model, we've got a project that post-tax NPV is in the high billion category. So again, fairly resilient there too. But that is the factor that can move the numbers the most of those that we assess. Time line for the project has remained consistent with what we did for the June operational update. So we're still looking to move to FID in Q1 2025, driven primarily by permit -- the permitting process for Catamarca Province, but also the project financing activities and other approvals that we'll need to have in place before we can move ahead. So 2025 Q1, that's our target for FID. And then the program through to first lithium is the second half of 2027 and then full ramp-up to Phase 1 capacity by the end of 2028. Grid power comes on stream as we're producing first lithium. So if you get a chance to have a look at the full DFS summary document, you can see a description of how we handle power at site and how the methods that we employ. All of these things have remained constant, all of the market engagements that we have completed between June and now indicates that this schedule is achievable, and we're certainly comfortable in moving down this path. So consistent plan has not moved much since we spoke before, and we're ready to move into 2024 and take the project forward.

Thanks, Scott. So just to kind of close out. So let's kind of talk about where we are today. So DFS has published. What I can share is that over the last few weeks, we have been doing a lot of work in terms of demobilizing from the drilling. You heard from Scott, the demo plant completed its activities back at the end of November. So a lot of work coming to an end. And what does that mean is that we -- our cost of monthly burn has now started to reduce significantly. And sometime in January, we'll come out to the market with an update with regards to our cash burn and our cash situation, we'll also take the opportunity to introduce Don Miller, our new CFO, to the investment community. But now thinking looking forward, obviously, DFS was a significant milestone, and as we said before, really becomes a milestone that allows us to move forward as we think about how do we strategically deliver Kachi and [indiscernible] using that for a number of months. So if you look at the next 12 months, which really involved; one, the publishing of the DFS today allows us now to really fully progress the work with Golden Sachs and getting back out to the market to look at potential partners, strategic partners, equity investors, but also looking at how do we tie that in with the offtake. As I said before, we've had the CFAs under constructure and, obviously, where the macro environment has changed since those put in place. There are some challenges to complete them, however, we see an opportunity there and we're looking at developing our relationship or bringing in partners utilizing the actual Kachi asset itself. So we're excited to get Goldman on board and [indiscernible] really get to work to looking at what the options are for us as a company. As we said earlier on, it's clear there is a deficit in the supply and demand. Most people forecasting that occurring around 2030 onwards, we feel we're well positioned, and we feel that this process that we should see interest of parties who want to come and participate in the Kachi development. In parallel with that, we will submit our EIA in early 2024, and the team is now working towards that, now the DFS is completed. We've said in a few instances before, we think that is a 12-month long process to get complete. We still think it is a 12-month long process. We also believe it's a prudent amount of time to take. We've seen other EIAs being approved in less of time with that, but we feel that 12 months is a good estimate, and that is in consultation with the Catamarca authorities. You heard from Scott, on the technical side, we will move forward with selecting lots of FEED and the EPCM contractor for the overall plant, and then [indiscernible] with that, we'll get moving with regards to the power side, identifying it will be our provider and also moving to some sort of power purchase agreements. All that will be done in parallel. And last but not least, obviously, based on where we get with a number of things is, obviously, we look at putting in place the project financing both on the equity and on the debt side. What we shared today is that we're still in very close dialogue with the ECAs. We are looking at further opportunities on that side, but we're still in a close dialogue with ECAs, that's both [indiscernible] and [ EDC ] from Canada. And at the same time, we're still in very close dialogue with the supporting banks of JPMorgan and Citi, and we'll look to evolve those relationships and also get more into detail now that the DFS has been published because now we actually have the data that allows us to now move to the next steps of doing due diligence and other activities. So that really forms the plan for the next 12 months. And obviously, we will look to update the market as we achieve certain milestones with our plan. So just to close, like before we said in the operational update, we believe we have come up with a plan, which is about being credible, having a plan that's achievable, but also has been derisked. And 6 months later, we still strongly believe that is the case with the work and the further work that's being done. The economics are extremely strong, and we're extremely happy with the work that's being done there and very happy with the fact that both from our CapEx and the OpEx is that we've landed well within the ranges that we get to the market back in June. I'd also say at this time, we are starting to see across the industry itself, particularly in the DLE space, is that we're seeing other companies putting out their numbers with regards to CapEx and OpEx. And from where we are today, we feel we're well benchmarked with the industry. So we're seeing a lot of movement in that area. You heard from Sean, we've done a lot of good work on the reservoir, the further drilling work we did, the modeling work that we did. And today, we're obviously very happy with the work that's been done and obviously the size of the reserve that we have in cash. So very -- a lot of good work has been done in that area. And you heard from Scott, a lot of work is being done on improving the DLE. Obviously, that's always been an area of concern across the market. But from the work that's been done with Lilac in parallel with Lake Resources, a lot of excellent work done at the demo plant, which proves the DLE, the ion exchange technology works. And as you heard from Scott, we are still, I would say, a number of years away from when we're in production. And so we're going to take that time to really look at -- as we progress through FEED and more detailed engineering and work with Lilac, we're going to look at where the opportunities are for us to improve on our efficiencies that hopefully leads to further better economics. But we still have time and so we'll take that time to look at improving things if we can. So that's it from us, as I said, I think obviously, as a company, we're extremely pleased that we've completed this significant milestone. I want to take this opportunity to thank the work that Scott and Sean and their teams have done to get us to this point. A lot of good work is being done and a lot of hard effort. You heard from Scott, there's a lot of pages in these documents and a lot of good work is being done. And I think this team has really demonstrated from where we were in June to where we are today that they've got a good handle on what it is that we're trying to achieve here. So I want to thank investors for their patience because I know the DFS has taken its time to come out. But as I said, I think we've taken the time to do the right thing and look forward to talking with all of you in the future. So with that, Karen, I'll hand it back to you.

Great. Thanks so much, David. I want to remind our investors that for more information on our Phase 1 DFS, please look for the DFS -- the Phase 1 DFS summary report, which was lodged with the ASX earlier today. Please send any questions via e-mail, and we will do our best to get back to you in the coming days and, certainly, we'll address them on our next webinar. I also would like to take the opportunity on behalf of Lake Resources to wish all of our investors a very Merry Christmas, happy holidays, best wishes for the new year, and we look forward to reporting back to you on our progress shortly. Thank you.