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

Good morning, and thank you for joining Lake Resources January 2024 Investor Webinar. The focus of today's webinar will be on our technology partner, Lilac Solutions, and our featured guests today is Dave Snydacker, Founder and CEO of Lilac. Also joining us today is Dave Dickson, Lake's Chief Executive Officer; and Don Miller, Lake's new Chief Financial Officer. We have published an accompanying slide presentation, which you can refer to as you listen to today's remarks. Finally, thank you to those who submitted questions. We will do our very best to address questions as time permits. If we can't get to you on today's webinar, we will respond to you via e-mail. We have a lot to cover. So with that, I will turn this over to David Dickson.

Thank you, Karen, and I guess welcome back to all our shareholders, and welcome to our first webinar of the year. As all you recall, we finished the year with a successful completion and publication of our DFS after a very hard 2023, obviously pulling all that together. So we're really pleased to be back talking to everybody and with the first of our webinars for 2024. As Karen said, what we decided on this one was to talk probably less a little bit about big resources. But really, hear from Lilac and particularly, Dave Snydacker, who's been the individual behind the successful growth of Lilac. And in response to a lot of feedback from stakeholders, whether it's investors, potential partners, offtakers, we feel this is a good opportunity for the market to hear from Dave personally. And hear his journey where Lilac is and hear about the successes that Lilac has had over the last couple of years. As you've heard from me many times before, I'm not a specialist on DLE, but one thing that we've demonstrated over that period of operating the demonstration plant, as I frequently say, the technology works. And I know that's been a concern for a number of shareholders. But I believe that we have proven up over many, many months of operating the demonstration plant and also producing quite a significant amount of lithium carbonate and battery-grade all at very consistent samples. But enough from me. And what I'd like to do is hand over to Dave, let him talk about it. And then after the discussion with Lilac, I'll take the opportunity to just give an update on where we are with regards to Lake Resources, progress on Kachi, really an update from where we were in the last webinar the third week of December and then also take the opportunity to introduce Don Miller, our new CFO, who joined us in early December. So with that, I will hand it over to Dave. And Dave?

All right. Well, great to be here. Thanks very much for having me on and giving me the chance to share more about the Lilac story. So excited to be here today. I thought I would start with a bit more background on Lilac and how we see the market and how our technology really fits into this picture. So, I got my start in battery technology. And when I started working on looking lithium-ion batteries back in 2010, at that time, a majority of the world's lithium was coming from brines. But over the last 14 years now, a large majority of new lithium projects to come online have been from hard rock. But these hard rock projects are significantly more expensive and significantly smaller. So as we look ahead to many more years of growth in electric vehicle and battery manufacturing, a lot of the strategic players in this space are asking themselves where do we get the very large volumes of lithium needed to really execute on this EV transition and the answer is clearly in the brine space. And when you look at the Kachi Project that Lilac and Lake Resources have been collaborating on for several years now, this is a perfect example of the type of scale that you can see in a lithium brine resource. This is one of the world's largest lithium resources, a truly massive deposit of lithium brine with the capacity to deliver significant new supplies to the market. But of course, there's a question of extraction technology. The historical technology is used to bring lithium brine production online based on evaporation or conventional absorbent technologies with large environmental impacts to land and water, they are just not suitable for a modern lithium project. And so technology, obviously, is key to the story here. When you hear about Direct Lithium Extraction, DLE technology, it is a noisy space. There's a lot of people offering solutions and it's hard to sort through all that. When I look at the space, I would say there's sort of 2 lenses that I apply. First is my background in battery technology. I certainly saw a good cause for skepticism. People were looking at the battery industry for many years and there would be announcements that's somebody's got a breakthrough new battery technology and it stores 50% more energy density. But many of those companies struggle and people are right to be skeptical. So totally understand that skepticism. And I think where this went astray in the battery space and this is a really good analogy for what's going on in the lithium extraction space as well, is the durability, the reliability and the kind of long-term and overall performance of the technology. So in the battery space, you would have new technologies come out, announcing fantastic numbers in terms of energy density, but those performance numbers could only be sustained for a very limited period of time. And the battery would need to be thrown out and replaced after a month. And so a lot of these technologies did not pan out because of materials durability. And that was the subject of my PhD and the work I did in the battery technology space was ensuring that new cathode materials for batteries can deliver the required durability to not only deliver the right performance but to deliver it for the long term, so it's economically viable. And we're seeing much the same dynamic in the lithium extraction space. It's crowded. It's relatively easy for a company to achieve high lithium recovery percentage. So say, recover 90% of lithium from a brine at a small scale with no constraints around the economics of production. So it's -- there's a lot of people who have demonstrated those types of numbers. But it's a much different story to say, can you sustain that performance over time and do it on an economic basis. And so from day 1, given the background of the battery industry from day 1, Lilac has been focused on not only achieving high performance numbers, but developing a technology that can sustain those high performance numbers can deliver them at scale and deliver them in a way that's economically efficient. So, we've completed more than 500,000 hours of test work across many pilot and demonstration scales and we've showed that as the technology is scaled up, we can maintain exactly the same level of performance and we can deliver that performance reliably over time. So we've put a lot of engineering resources into getting this right. And we have a really differentiated approach. Approximately 90% of the DLE companies in the market are providing the same technology based on aluminum absorbents. And they can make small changes to those aluminum absorbents or the way the valves are configured in the plant. But fundamentally, the performance of that technology is limited by the characteristics of that aluminum absorbent material. And this material was identified and first commercialized. Many years ago, the first project was brought online in Argentina, almost 30 years ago. And in the 30 years since the technology hasn't been able to scale. The primary challenge there is water consumption. And so I think people are right to look at the industry and see a lot of broken promises and the right to be skeptical. Most project sites in the desert simply don't have the volumes of water needed to run those conventional aluminum-based absorbents. Now, with the Lilac technology, we've taken a completely different approach. It looks on some level, I'd say, at the sort of layman's level, it looks similar. It's a small bead that absorbs lithium. You flow the brine through and the bead absorbs the lithium, so -- and that's really where the similarities end. The Lilac technology is very different from the conventional aluminum absorbents. Because we're able to achieve much higher recoveries of lithium, including from lower grade brine and we're able to achieve higher selectivity for the lithium, we're also able to completely eliminate the use of evaporation ponds and reduce the usage of freshwater by 10x. And that last piece is really important, particularly in arid climates. So, the Lilac technology, although it is a bead-based technology that absorbs lithium, that's really where the similarities end. When it comes to aluminum absorbents, the level of technical performance and environmental performance is much higher. Now ion exchange has been the Holy Grail of lithium extraction for 20 years. Actually, the early work on ion exchange was done at some academic labs in Japan 20 years ago for lithium extraction. The challenge there was you need a very special material to separate lithium from all the other impurities in the brine. You can't use a conventional polymer-based material. So you need to use a ceramic. And some of these ceramics were identified 20 years ago. And the ceramics could deliver a high level of performance, but what they were lacking was the durability, which takes us back to the analogy to the battery industry. They could achieve high performance initially, but the materials would wear down and fail and need to be replaced, which was simply too expensive. So what Lilac has done is come up with a new ion exchange material. It's also ceramic based, but it's a new material that allows us to achieve very high performance, but also the durability which has been previously missing. So with the Lilac technology, we can absorb and release the lithium thousands of times before those beads need to be replaced. In previous generations, with that early work done on ion exchange, the beads only lasted for about 10 cycles and that was not economically viable. But we've extended the cycle life from about 10 cycles to thousands of cycles and that's made the difference of enabling an economically viable ion-exchange technology for the first time. So with this innovation in materials durability, we've unlocked this new category of technology, ion exchange and made it economically viable for the first time. One of the things that we need to do more of is communicate the story broadly. And that's why I'm grateful to have the opportunity today to share with the Lake Resources investment community. And this is something we plan to do a lot more of. One of the announcements we put out in December, shared a lot more of this data for the first time, showing both the performance data and how that performance is sustained over time. That's available on our website. And with the data there and also showing that data we can achieve it not only at bench-scale or mini pilot scale, but at the full demo scale at the field site, we've been able to sustain that level of performance and that's given us great confidence in the economic viability of the technology. We also, in partnership with Lake, welcomed third-party consultants and independent engineers to visit the demonstration plant so that they could validate the performance of the technology. So we had multiple third-party experts come down to the demonstration plant, take samples from the brine going in and the lithium concentrate coming out, monitoring the reagent usage, et cetera. And that has created a very clear picture that the engineering and the test work is accurate and matches how this technology really performs in the field. So, I wanted to start with that high-level overview there and give the kind of the full perspective, but very open to taking questions that are top of mind for your investors today.

Dave, that is extremely helpful. Always good to hear you talking your -- obviously, your specialist knowledge in the sector is second to none. And so from a Lake Resources perspective, I always like to hear how you tell the story and more specifically talking about the technology. There's a couple of things that you touched on, I think good to just maybe expand a little bit further. These are the kind of concerns that we hear from investors. I mean one of them and you touched on it, is all about, okay, you've demonstrated this at Kachi with the demonstration plan. And 2 questions really come out of that. One is you operated the plant for x number of hours over 9 months from 2020 to the end of 2023. Have we done sufficient testing? My view of it is we certainly have, in fact, probably done more than what I've seen personally in the oil and gas sector in developing technologies. So kind of, that is the first question. I mean the second question is it goes back to this whole scalability and in my layman's terms I'll try to answer that with shareholders. But I think it would be good if you could expand on those 2 questions for our shareholders.

Yes, absolutely. Really good points. And first, on the amount of testing that we've done. So before we even arrived on site, we had completed over 100,000 hours of testing at the mini pilot scale. And that included testing of multiple different brines from across the Kachi Project from different wells. And so we saw not only could we achieve the performance, but we could achieve that performance for any of the wells, any of the different brine samples from the Kachi Project. And then when we arrived on site at the demonstration plant, we wanted to do the same thing. So, over the course of the year, we ran several campaigns, testing different flows of brines from different parts of the project. And so not only have we achieved thousands of hours of operation on site, but we've also put a variety of different brine chemistries from across the basin from across the aquifer through the plant and that gives us a high degree of confidence and gives our engineering partners at Hatch as well who visited and took samples and validated the performance also gives our engineering partners confidence that the engineering has been done right for this full-scale plant. The second question on scalability is another one we hear frequently. And the Lilac technology, we really designed for scalability. And we did that by building in multiple levels of modularity into the design and so we can leverage 100% off-the-shelf equipment. We don't need to do any custom design, custom fabrication of components. The only new piece of the technology from a component standpoint is the ion exchange beads. There, we've been manufacturing our ion exchange beads at our facility in California. We have a pilot scale facility which has been operated for almost 3,000 hours to date and we're currently constructing our first commercial scale ion exchange bead manufacturing facility in Nevada, just outside Reno. That commercial scale line is a 10x jump relative to our pilot and we really feel good about a 10x scale up very achievable. And importantly, it uses all the same manufacturing technologies as what we've already run at the pilot plant. So we're not introducing new unit operations or new materials technologies here. We are automating processes. So we're using fewer shovels and more conveyor belts, but no new technology fundamentally to the scale-up of the ion exchange beads. Now everything else is off-the-shelf and available from big suppliers globally, and there's a unique configuration of how we configure with the piping and the tanks and the filters and everything else. But all that equipment is off-the-shelf and has been used for decades in these types of applications. When we look at the core iron exchange vessel, which holds the ion exchange beads in place as we flow the brine through, what we demonstrated at the Kachi site was 1/3 of commercial scale. Now over the last 5 years, we've scaled that vessel up by 10,000x from bench scale to mini pilot to pilot to the demo plant, 10,000x scale up there and the performance has been identical throughout that scale-up. So the final 3x jump, we feel very confident in. And we've already tested that full commercial scale vessel here in Oakland, that's ready for deployment now. So we've completed all the mechanical testing. Of course, here in Oakland, we don't have the volumes of brine. We need to put that in a steady-state operation. But we've completed the mechanical testing showing we can achieve the right flow rates, the right pressures, the right water efficiencies that you would need for any ion exchange system. So the focus on scalability is, first of all, no new technology, that's already all been proven and second of all, leveraging off-the-shelf equipment from large vendors.

That's really, really helpful. Some of that I've obviously shared with our shareholders. I mean, particularly pleased to hear you talking about the bead manufacturing facility itself because obviously, that's critical to the success of Kachi. But again, I've said this to our shareholders, the fact that we're building this with equipment made from off-the-shelf items is something which is really important. And what I can share to our shareholders is someone with the experience of building large capital projects in the oil and gas world using process technology, the fact of building something with off-the-shelf items is certainly a big bonus. So I appreciate that. And I really appreciate the color on the scalability and hopefully, that provides some comfort to our shareholders that are listening. Kind of changing a little bit. One of the things that's impressed me through the demonstration plant is that we have produced a large number of samples. And when we test the samples, we are getting very consistent results, which I think is impressive. So maybe kind of, maybe some comments on why that is. I mean, it's a positive. And then a second question, which I kind of put you on the spot here, but when we published the DFS, as you know, we've been designing the plant for the purposes of DFS using a lithium content of 204 milligrams per liter. And as a result of our exploration and evaluation work, we've seen higher levels of lithium in our brines 250 upwards. So kind of, a couple of questions there. Any commentary around why we're seeing consistent samples? And then any thoughts and views of what does it mean having a better quality of brine? I mean, I get a lot of questions around, well, does it improve your CapEx, does it improve your OpEx. My response to that has been it's very early on and we'll see more of that as we go through the next stages of feed and design. But any color you could share on those 2 points would be helpful.

Yes. Great. So on the battery-grade lithium carbonate, the Lilac technology processes the brine and then produces a lithium concentrate. So that's either lithium chloride or lithium sulfate. In the case of Kachi, we produce lithium chloride. The lithium chloride that we produce is very low in impurities, so it can go into a downstream process, which will also happen on site, where it's converted into lithium carbonate. That downstream process is the conventional lithium carbonate process. But because our impurities are so low, we're able to simplify and remove costs, both capital and operating costs associated with that final lithium carbonate step. For example, the boron and the brine flows through the ion exchange process. We reject typically 99.9% of the boron. So you only get very small traces of boron coming through to the lithium chloride that doesn't interfere with the downstream lithium carbonate process and that allows us to eliminate capital-intensive parts of the downstream process like a boron sold an extraction plant, which is required where you're using evaporation ponds. So the first point is a reduction of impurities. And then the other part is flexibility in terms of feedstock. We've tested this technology across a wide variety of different brines that includes oilfields in the United States, where you have calcium concentrations as high as 50,000 milligrams per liter of calcium. And even with calcium up to those astronomical levels, the amount of calcium that comes through into the lithium concentrate is quite low. So, when we look at the impurity levels at the Kachi Project, they look quite low by comparison. And even if we had a doubling of the calcium concentration from one well to the next, at the Kachi Project, that's still much less calcium than we've seen at other projects and handled successfully. In other words, you might be able to -- even if you increase the calcium concentration by 50x on the brine side, you would only get maybe a 2x jump in calcium on the downstream side. So it's a very resilient and flexible process. And that's ultimately what leads to that consistency. We can change the brine. The downstream of the plant doesn't change. To the next question, on the DFS side, yes, so we've designed the DFS plant, the overall project, the DLE plant as well to a brine concentration of 204 milligrams per liter. That is a large volume of brine that needs to be pumped in. Even if your recoveries are high, like we're achieving over 80% lithium recoveries, that's fantastic for brine at this level, but it's still a large volume of brine that needs to be pumped from the well field. So the cost associated with putting in those pumps and those pipelines, et cetera, do add up. When you increase that to 250 parts per million or higher, you're downsizing the number of wells you need, you're downsizing the length of pipe that you need to lay and it does add to capital efficiency. So I think one of the areas where there's a great opportunity to improve the capital cost is on the well field configuration. And there's a number of opportunities there, which you kind of put as much engineering as we can into the DFS. But ultimately, there's always more optimization that can be done and having these higher lithium concentrations is certainly helpful for that.

That's extremely helpful and hopefully, our shareholders appreciate the opportunities that are there. So just getting to my last question because we've taken quite a bit of your time and this has been hopefully, interesting for our shareholders to hear from me. But just my last question, and it's a question I get from shareholders is, okay, finish the demo plant, help us the DFS, based on the time line, first production is still targeted for the back end of 2027. So from now until then, what will Lilac be doing in the background, whether it's involved in developing Kachi. But I guess more importantly, as I look at it and looking at the work goes on in Lilac and also visiting your facility several times, I mean what would you say to our shareholders, what Lilac will be doing for the next 2 to 3 years? My view is as a company that you are is that you're going to continue to look at ways of how you can improve the efficiency of the process and obviously, look for ways to, as you said before, reducing capital costs and OpEx cost. But I'll throw that question over to you.

Yes, sure. So we're continually making improvements to the technology to further reduce capital and operating costs. Over the last 2 years, we've made some big strides forward in extending the cycle life or the ion exchange beads and then also reducing the amount of acid required. So we're getting quite efficient with the asset usage and that has some benefits. Beyond the Kachi Project, we're quite busy working on some large-scale lithium projects in other countries around the world and busy in the United States as well. We particularly like the Kachi Project because of the very large-scale resource there. So this is a really exciting project for us.

Dave, thanks, and I really appreciate, as I said, the time that you have given to us today. Just before we let you go, any last comments that you could share with our shareholders.

Yes. I just wanted to thank you for the time today. We've really enjoyed collaborating with you, David, and your team. I think the level of professionalism that you all have brought to project planning and engineering has just been really refreshing and productive. So thanks for the partnership, thanks for the time today and the opportunity to share some more details on Lilac and our technology with your investors and excited about the future.

Thanks, Dave, and I said thanks for your time, and I'm sure sometime during this year, we'll hopefully be inviting you back to join our webinar as we update the shareholders based on the progress at Kachi. So once again, thanks.

Thanks again, and see you soon.

See you soon. Okay. So just kind of a change in topics. It's been obviously 5 weeks, I think, since the last webinar, so I thought I'd take the last piece of time of this webinar just to bring shareholders just up to date and what we been doing over the last few weeks. Obviously, we had the holiday period. But from an operational basis, we talked about this at the last webinar, our big focus has really been on items around demobilization of the Kachi facility, taking it into minimum crude. Drilling work, as you know, is now complete. The work around the demonstration plant is now complete. So a lot of focus now in the company is really around the mobilization and other DFS has been published is all about cost cutting and we'll share more details of that over the coming weeks. Also in progress is the preparation for the submission of our EIA. We have indicated that sometime the end of Q1 and the team are working on that and that is still in progress. So that really is the main operational items that are ongoing today. From the delivering Kachi and I use a term strategic delivery in Kachi and I'll let Don talk a little bit later. So there's a number of things involved in that, obviously interface with our banks, looking at the process that we announced with Goldman, looking at our balance sheet for 2024 and obviously through to FID. So a lot of work is now being kicked off on that front. I would like to talk more about it. But what I'd like to do is actually use this time to introduce Don Miller. As you see Don joined us some, I think, 6 weeks ago, some of that time is obviously over the holiday period, but we have been extremely impressed about how quick Don has got himself up to speed with not only Lake Resources business, but in particular, the Kachi development and what it's going to take to strategically deliver this project for a number of aspects from obviously raising capital interfacing with the banks, and Don has spent a lot of time with Goldman Sachs as our adviser that we brought on, particularly for this looking at the strategic partner process. So what I'm going to do is hand it over to Don, let him introduce himself and say a few words and maybe just bring you up to speed where we are. I will highlight, though, on the strategic delivering part of Kachi, obviously, we're in the early stages since the DFS was only complete some 4 or 5 weeks ago. So with that, Don I'll let you speak.

Thank you, David. It's an honor to be here and glad to have a chance to talk to our shareholders and really excited about being part of the Lake team and get to work with all the executives you pulled together and really do my part as we move into this next execution phase post the filing of the DFS. Before I kind of jump in and update everybody on what I've been doing for the last as you highlighted the last 6 weeks or so, kind of contextually similar to David and much of his team, I've spent over 30 years in Houston in broadly the energy space, various subsectors therein. But I would say the relevance to where we are with Lake today and particularly the lithium market backdrop is just like you have, having experienced a number of ups and downs in the energy space, both with the price of oil and the impact on the space as well and the price of natural gas. So I think from my experiences in those industries, in those sectors, whether it's upstream, service, midstream or downstream, as you really tend to focus on those things you can control that are within your control. And so I would say, just as you alluded to, as we've successfully filed the DFS, turning our attention to now real project execution, financing and as you mentioned to me when you hired me, that was really why you hired when you did was you're now at that phase where there's a lot of money to be raised and it really leans into my prior experiences, I mean, notably my first job in Houston was part of the Citibank, the global energy team really focused on the upstream and trading companies and pipelines and the like. So a real focus on cash flow, liquidity and the importance therein. So again, jumped in with both feet and happy to be part of that team.

Well, it's good to have you onboard. And just for our shareholder benefit, I mean we're still in, obviously, January, but we have got to work quick. Goldman has now launched the process of looking at a strategic partner and coming into Kachi, Don and I with Scott Munro, we made a trip to Europe last week where we were able to engage with both the supporting banks for the financing both JP and Citi, and we're also able to spend quite a significant amount of time with UKEF to really update all of those stakeholders on the results from the DFS. So very good meetings, very good discussion and still very good support from those parties. But a lot of our focus is now is really getting -- moving on to process with Goldman Sachs looking at everything from, as we said earlier in the release, mainly on the strategic partner, but also looking at are there any other capital structures, et cetera, that we should be looking at as a part of the overall process of delivering the Kachi development. But in fairness to Don, he really has jumped in quick and he's got up to speed very quickly on what it's going to take to obviously deliver Kachi through as we go through 2024. So that's kind of really all for me. There were a few other questions that we did receive from shareholders. We're very appreciative of the questions. I will touch on one of them that's interesting is, it's one of our shareholders did ask the DFS, is it a bankable DFS or not? And I guess, back at that time, we never used the term again. And that was mainly driven from the fact that we, from Lake Resources side, really wanted to go and explore the opportunity to seek potentially better agreements with regards to the offtake and what that could bring to support and bringing in a strategic partner. So I know those questions have been asked a couple of times, but I really just wanted to highlight that that's why it hasn't been referred to as bankable. So that's really a decision taken by our side. It's not a negative decision. We just wanted to really explore more the market by going to a wider group just to see what were the opportunities of leveraging what is the crucial asset here and others the offtake from Kachi. But I just wanted to address that. Most of the other questions I think we have addressed, particularly, we did have a lot of questions in regards to Lilac and the Lilac technology and really pleased that Dave Snydacker could join us today. And hopefully, our shareholders enjoyed listening to Dave and getting his insights into both the Lilac technology, but also the work that's been done specifically with Kachi. So with that, I will hand it back over to Karen.

Well, thank you so much, David and Don and Dave Snydacker, a special thank you to you for being our featured guest today. I think that we will absolutely be having you back at the course of the year as we continue to make progress at Kachi and we have more to talk about. But thank you to our shareholders for listening and for your questions. I do believe that we've covered most of what was asked. And as I said, if there's a follow-up, please send them to me, [email protected]., and I will be happy to try to respond to you with a comprehensive answer. Thank you, all again for listening, and we look forward to speaking with you soon.