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

Good morning. I'm Karen Greene, Head of Investor Relations and Communications for Lake Resources. I'm thrilled to be here today with all of you to share an investor update. And joining me today is our CEO and Managing Director, David Dickson; as well as Don Miller, our new CFO, who many of you may not have met yet. Today is a great opportunity to hear from Don. And I hope that we can provide some additional color on the numerous updates we have made on the company in recent weeks. There's been a lot going on. It's been a very busy time, and we've received a lot of questions. So hopefully, we can answer those questions in today's remarks. I want to remind all of our listeners today that we have a slide presentation that accompanies the remarks David and Don will walk through. So please reference those slides as you are listening. With that, David, I'll start with a question for you. Can you just get our listeners up to speed with where the company is at and what we accomplished in 2023 and what lies ahead?

Thanks, Karen, and welcome to everyone who is obviously looking at and watching video today. Obviously, we've had a number of videos over the past and a number of webinars. But today, we thought we would do a video instead of a webinar as we give an update to all our shareholders and hopefully, some new shareholders on where we are as Lake Resources as a company. So just to recap, 2023 was obviously a very important year for Lake Resources. And in particular, completion of the DFS back in December of 2023. So it's quite a significant milestone for -- to get the company to that point. Other things that happened in 2023 which tied in with the DFS. It was always that the work that we did around our reservoir and developing the asset. And as you've seen in the number of reports and updates over that year of 2023, we did very extensive drilling work, other exploration work and a lot of the valuation work. And we're pleased to have a large resource. In fact, when you look at the first case of our project, 25,000 tonnes, we're going to be utilizing only a small part of the reservoir that we have identified to date. So clearly, a lot of expansion opportunities in Kachi for our future feeds. So really happy with what we've got on that aspect. The other thing that we did was developing the technology. And I know our number of shareholders, that was always a big question around DLE, utilization of Ion-Exchange as a method of extracting lithium from the brine. And after upgrading our demonstration plant at Kachi in Argentina, where we processed over 5 million liters of brine through the process, producing over 200,000 liters of lithium chloride. [indiscernible] to lithium carbonate battery grade. We're extremely pleased of the outcome of all that work. And today, we sit on over 1,300 kilograms of samples of lithium carbonate battery grade at 99.5% purity and above. So again, a lot of great work during that time. In addition, at the end of 2023 back in November, we also announced that we'll be retaining Goldman Sachs as an adviser to help us think about how do we strategically deliver this Kachi asset. And as part of that process, we have Goldman looking at forms of capital, but a big exercise in looking at that is how do we bring in strategic partners that will allow us to strategically deliver this paid asset. So we really want to start process post DFS, which was in middle of December, and now we're in the, what I'd call the preliminary stages of the outreach to all the potential partners. And I'll let Don talk about that as we see this video today. I'll also come back later to talk about where we are in our next step, really the purpose of today's video is [indiscernible] with the launch of our SPP. And I'll let Don into a lot more detail on that and why we're going through this raising of capital. So with that, Don, maybe I'll pass it over to you to share with our shareholders the work that you've been doing since you came on board and our plans for this year.

Thanks, David. It's a real honor to be here today with everybody. This is my first webinar since joining Lake in mid-December. We've been incredibly busy since that time, and we've got some great news to kind of walk you through. I thought before I got into the details of our capital raise, which was the news of last week, and lead into the SPP, which is being launched today, I would step back because we had several releases kind of back to back. First, I really want to talk about some of the good work that was done around reducing our expenditures. As David referenced, with the conclusion of the DFS in December, we had a natural dual roll-off of expenditures and costs into Q1. And as we had previously announced, those expenditures from quarter-to-quarter are projected to be down around 40%. So we continue to focus on those items that we can control, that being cost and liquidity. And so we were very focused on winding down and reducing expenditures when and where we can. That was subsequently followed up just in the last week or 2 with another announcement that was really more focused on additional cost cutting up and above what was naturally related to the completion of the DFS. And so as part of that, we announced a very dramatic 50% reduction in our headcount across the organization, impacted us globally in every region that we operate. And then on top of that, more typical kind of G&A expenditures really focused on what we needed to do to complete this joint venture process over 2024. So with that, we were able to actually further announce additional reduction from Q1 into Q2 as we pursue this joint venture process. And just to reassure you, those costs -- we were very careful on what cost we took out. Although dramatic, they aren't going to impact our EIA submission and they're also certainly not going to impact the joint venture process, which is really the big focus for Lake and it's an exciting time in 2024. In addition to those cost cuts, we'll also be continuing to look at other assets we might be able to rationalize. And again, the focus on all of this is further extending our runway into 2024 to give us the time to go run this Goldman Sachs, as David mentioned, Goldman Sachs process to find a joint venture partner to help fund the development of the Kachi asset. With that, I'll go into our equity raise, which was announced last week, there were really 2 components to it. One was an institutional-led raise, and the other is the SPP. And all the SPP supporting documentation will be going out this week. I actually think today. And so you should be receiving that in one form or another. I would encourage you to take a look at that. It's a great opportunity for our existing shareholders to participate, particularly if it fits with your investment profile. So again, as we think about our liquidity and the importance of maintaining appropriate runway and liquidity through 2024 to put us in the best position to execute on the joint venture and ultimately, our target of developing Kachi with a strategic partner. We did announce an institutional placement as well as the SPP, but focusing on institutional placement. It was a $15 million capital raise. And fortunately, we're able to add a number of new investors to our register -- new institutional investors to our register. And it really reflects the great work that Karen and David have been doing since both their arrivals to broaden our investor base, both from the retail side as well as the institutional side. But if you take our pro forma liquidity at the end of 2023, which was a little over $31 million, and then add in the $15 million from institutional placement, that puts us a little under $15 million on a pro forma basis as of 12/31. And again, those proceeds do not include our targeted $5 million proceeds from the SPP. So again, all this is geared towards providing the liquidity that we need to go out and appropriately pursue this joint venture as we go into the market, sourcing our new strategic partner. As we think about the strategic delivery of Kachi over the next 12 months and even beyond, first and foremost, we really had to focus on the liquidity at the Lake [ parent ] level, which we have done. And this is part of this, the SPP is an important part of this as well. And once that's complete, in parallel, we have been running this joint venture process, which I'll get into a little bit more with Goldman Sachs. But the way to think about the project level versus [ lake parent ] is at the project level, the project being Kachi again, working with Goldman, our focus is raising both debt and equity from a strategic partner. And I'll get into kind of the characteristics of a potential strategic partner that we're looking to bring in to Kachi. But the focus is again, raising both debt and equity at Kachi. And there's plenty of precedent in the market where once you find that strategic partner who would come in as perhaps equity and a long-term offtake, that then those partners would turn and also provide additional capital to fund the activities related to FID and perhaps other activities in advance of actual project development. So I would say the potential strategic partner and selection of that partner at Kachi is incredibly important for our shareholders at Lake, [ the parent ]. And so our success there is paramount as we move through 2024. Combined with that, though, and what makes Kachi so attractive has been again and heard about a lot of great work when I got here and engagement around UKEF and EDC and other ECAs to help support what hopefully will be a longer-term, multiyear project financing at Kachi. And again, earlier this year, we had an announcement in the market about Citibank and JPMorgan. They were -- they signed up in effect and signed up in the sense of providing support, openly supporting Kachi project several years ago. And then post the DFS and the recent elections in Argentina, they came back around and reaffirmed that support. So between the equity that we'll be focused on raising and the debt, we feel good about the prospects for developing Kachi and bringing Kachi to full production. Lastly, I want to just step back and also highlight the structure of our strategic partner process. And so those that might be familiar with M&A, merger, acquisition type process, very familiar process, kind of a typical 2-step process run by Goldman Sachs with assistance from the company in terms of all the information. But first looking at our potential partner universe, I would say it really falls into 5 key buckets. Some of these are natural companies that, in many ways, would be what I would describe as short lithium in the out years, meaning they're going to be selling cars or batteries. And they'll be selling cars that have obviously a lithium-powered battery as part of them. So they know at some point in the future, they're going to need vast amounts of lithium, and that's what would make Kachi so appealing to them. And then on top of that, there's lithium producers, other oil and gas companies. Again, with the brine nature of Kachi, it's a very natural, it's a very familiar type development and extraction for oil and gas companies. Then sovereign wealth funds and private equity funds, which would primarily be looking at this more from an investment perspective perhaps. But a very wide net that we're reaching out to for potential partners for Kachi. And I say partner or partners, so you can actually end up with multiple partners coming in into the equity at Kachi. From a time line perspective, these processes typically aren't measured in days or weeks, but they were actually measured in months. Because what you really want to do is go out and canvass the potential investor universe. Make sure you've got a very competitive process. Make sure you've got all the interested parties involved. So you really want to run a very robust process. From a launching perspective, we announced late November, the engagement of Goldman. That followed a lot of time spent with Goldman by the management team to make sure that Goldman was the right partner for us to go out and canvass the market. Obviously, they're very active in the space. But officially launching in January of this year, multi-process to go out to the market, test appetite, bring people into the process, sign them up under a nondisclosure agreement, give them access to needed information through a virtual data room and engage with management when and where needed. Leading to the early indications, nonbinding indications. And from that then, you typically move into round 2, which involves selecting -- down selecting a number of potential partners and carrying them through, hopefully, then to conclusion, which we estimate to be some time H3 or Q4, which then again matches very well with the liquidity. Our starting liquidity balance that we had at 12/31 matched with the funds raised through our institutional placement as well as then our SPP.

Thanks, Don. That's really helpful background. And in thinking about the strategic partner process and our recent announcement and kind of realigning the project time line. David, could you provide some more color on why that's important and why we actually thought this was a logical development?

Yes. Thanks, Karen, and thanks, Don, for providing detail for shareholders of the things that we're doing. I mean, again come back to what I said earlier. So the DFS delivery end of December 2023 was obviously a significant achievement and a significant milestone. And as Don said, that now leads to the next steps. For Kachi to move forward, there are a number of things that have to happen and particularly obviously raising the capital, and the capital has to come in the form of debt but also through the form of equity. So as part of running this strategic partner process, obviously, we're focusing on what regards to the equity side. Now one thing that we should add is as part of the process is that we have 25,000 tonnes of lithium carbonate available as part of an offtake agreement, and that will be utilized through this process to hopefully attract a wide range of people, particularly the car manufacturers and battery manufacturers to commit to the process. But you're saying all of that. So if you look at now the DFS and launching this process, what does 2024 and 2025 look like? So our first thing that we have to achieve this year is submission of our EIA, environmental impact assessment. And that will be submitted to local government by the end of this quarter. So in the coming weeks, we will submit our EIA application. That application, we feel, is going to take somewhere around about 12 months to seek approval. So that then takes us into the middle of the first half of 2025. In parallel, we are still evaluating bid to run feed for -- it's for the feed and the EPCM and also for the power activity, and that will continue to progress over the next coming months. And just to go back to what Don was saying, yes, we've made a number of cost cutting. There are a number of cost-cutting exercises in the company. But we've done it also on the basis that we did not impact the capability of the company to execute what it is that we have to do during 2024. So we still intend to evaluate the bids for feed in EPCM, and we still have the team in place to evaluate the bid for the power contracts. And we still have the personnel in place to run the strategic partner process. So [ we installed ] the capability, and we'll run our budget based on the number of people and the quality of people we need to obviously get through this process. And as Don said, we're looking at this process to complete some time in Q3, Q4 of this year. So bringing all that together. So if you think about EIA, end of Q1 of 2025, the completion of the partnering process, through the process of raising the capital, [indiscernible] are feed into, let's say, mid of 2025 and obviously, subject to a number of things coming together and a number of agreements being put in place. So that can [ upset ] our time line. Now I would add is that a lot of success for Lake was driven by the success, obviously, of this process. And as Don said, we have [indiscernible] large number of companies, covering large grids, [indiscernible] car manufacturers, [indiscernible] other producers, oil and gas, private equity, sovereign wealth, so large [indiscernible]. But what's going to drive the success that we get [indiscernible] to the process. And a lot of people are asking questions, well, how does that relate to the current market with regards to lithium? And I think as you look at this process, the companies that we are talking about, it's all about lithium demand for 2028, when we're looking to say, ramp up production 2030 onwards. And what I said to shareholders is even with lithium pricing as it stands today, that is a disconnect from what we see in regards to deficit in the lithium carbonate space by 2030 onwards. And even looking at the recent reports in this past week where people are turning out further predictions even with the down case scenario of electric vehicle penetration globally, it still tells us that the world still needs approximately 3 million tonnes of lithium carbonate by 2030. Today, the world is producing just over 1 million tonnes of lithium carbonate. So it still tells us that there is a large deficit. So what we don't know and what the market doesn't know is obviously, where companies are in regards to being [indiscernible] needs for lithium carbonate for 2028, 2031 and so on. That unknown taken with the views on EV penetration will really dictate the success of the strategic partnering process. So as Don said, we're going to large number of companies. We got a lot of work to get done. And hopefully, we'll get a resolution on that some time in Q3, Q4 of this year. I can go back on the time like VIA and to the end of Q1 of 2025, these other activities. That pushes our feet for around about middle of 2025. So that's, Karen, where we're at today.

Thanks, David. And just a general question that we're getting from shareholders as we announced the completion of the institutional raise and moving to the SPP. Why should investors take a bigger position in Lake? What is -- what closings words can you provide today that would -- that we can share with our shareholders?

Yes. I mean, I think there's 2 things. One is what is the macro and then what are specific to [indiscernible] ? And my view is that the macro environment has obviously shown a situation today, where we have potentially oversupply, and that's dictating where spot price of lithium carbonate is today and has been at a very low level now for a number of months. But everything that you read longer term around the fundamentals of investment, I would say that there's a large growth in demand on lithium carbonate to 2030 and onwards. And if you believe in the future world. Everybody is driving electric vehicles or the emerging market of energy storing systems that tells you that the demand for critical minerals, critical metals, including lithium is -- fundamentals are there [indiscernible] there, right? From a Lake perspective, I think what we demonstrated over this last year is, one, we have a great reservoir. Two, we've proven the technology [ comeback ] to the reservoir. We're also proven potential for expansion. So from a Lake perspective, we have proven that we have a very good project and with a sizable contribution to lithium demand. And based on bringing in the partners, getting with that is that we have a good and exciting project to [ build ].

Great. Well, thank you so much for that. And with that, I would like to urge our shareholders to please reach out with additional questions. Please send them to me, [email protected]. We hope this was informative and helpful. And if you have questions about the SPP, please reach out to our registrar, which is Automic based in Australia. You will be receiving information, e-mail and regular mail, and there will also be plenty of information available on the Lake Resources website on the homepage. So I encourage you to make sure you get the information on the SPP. And again, feel free to reach out to me or to Automic with any questions. Thanks for your time today.