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

Welcome, everybody. My name is David Dickson, Managing Director and CEO of Lake Resources. The purpose of today's webinar is for me to give some commentary on the updates that we gave to the market today, particularly regarding to the work around the DFS and the updated DFS. So I would draw your attention to what's been posted today. We've had an update on our ore reserve and obviously an update on the DFS, which you'll see is a DFS summary. So as I talk through today, I'll be referring to a lot of data points that you can see from those documents. There is also a presentation on the website. And again, I would draw your attention to look at those slides as I talk through some of the updates as a result of the work that's been done over the last coming months. But just to remind everybody why we're updating the DFS, and we've talked about this before on several occasions is that since posting the DFS back in December 2023, obviously, we've had a number of changes, things such as an upgrade on the quality of our brine in regards to lithium content. And if you recall back to the original DFS, our lithium content was -- DFS is designed around the lithium content of 205 milligrams a liter and the DFS update that we're providing today is based on 249 milligrams per liter. I'll also draw your attention to that if you look at our ore reserve update today, you'll see that we actually have had a further increase on our brine content up to close to 270 milligrams per liter, but the DFS update is based around the 249 milligrams a liter. So when you look at the ore reserve, there are some further opportunities for further savings in both CapEx and OpEx. The other reason for updating the DFS is that if you recall back middle of 2024, our DLD technology partner, Lilac, updated their technology to, what we call, Gen4. And there's a lot of benefits from Gen4 that I'll talk about later. But what you'll see in the presentation is there are significant savings both in CapEx and OpEx. Other reason updating DFS, well, it's now been 18 months since we original DFS. So supply chain costs will naturally grow on. Global inflation is still remains relatively high. So as we have looked at our updated CapEx and OpEx, we've taken into consideration the impact on supply chain costs over the last 18 months to 2 years. We also have completed the power FEED. We announced that to the market a number of weeks ago. So again, bringing that into the update. And then lastly, addressing the financials based on the lithium price. And if you recall, the original DFS, we were looking at over $30,000 a tonne. That was information provided to us by Wood Mack. And you'll see in the presentation today, and I'll talk about it is, obviously, we've reduced that number based on the data that we have being provided by, in this case, benchmark minerals. So as a result of the work, pleased to say that we've had a good reduction in our capital costs, around about 16%. I'll touch on that a little bit later. Less so on the OpEx. A lot of that is really driven by the cost of power, and I'm going to get into that a little bit more detail as we go through this. But as a result, the financials are still good, projects in a good place, and we believe that Kachi is an attractive offering for potential offtakers and partners who want to come into the lithium space. So talking about CapEx first. So on the CapEx, if we looked at where we were before at $1.377 billion, and I'm talking in U.S. dollars, when we looked at supply chain costs, we saw an increase of $46 million. Now looking at the improvements with regards to the upgrade in the brine, the improvements in the technology and some of the other advancements that we've looked at through this period, we've got a reduction of $266 million against that new number. Ultimately, that gives us a new CapEx number of $1.16 billion. So that's about a 16% reduction from where we were previously and actually a 19% reduction if you consider supply chain cost increases over this last 18 months. So quite a significant shift in our capital number. Big savings, what are the big numbers in there. One, DOE is nearly $100 million of that. So again, demonstrating the good work that's been done by Lilac and their technology advancements since we completed the original DFS. We also have had improvements with regards to -- with the upgrade in the brine, we've been able to reduce the number of wells and if you look at the presentation, you can see we've got a significant drop in both the number of production and injection wells. And again, if we take the next step of looking at what the CapEx would be closer to 270 milligrams per liter lithium content, then we can see further reductions in the number of wells. That hasn't been taken into consideration yet in the update that we've given today to the market. We're also looking at changes in some of the supply chain and selection of equipment, particularly pipelines. And again, you can see in the presentation, a significant reduction by moving to different materials. And then a number of other savings, as I said, reduction in the number of wells. On the construction side, some particular savings, and again, I'll touch on that later. With regards to Lilac, obviously, people are always asking the progress of Lilac. I think what they've done over the last couple of years has been excellent. And not just working with the resources, Lilac are working on a number of other projects with other customers. So the big shift has been since we had original DFS is recovered from 80% to 90%, an improvement on the cycle performance of the beats, nearly double in terms of the performance. And as a result, with all this, it really reduces the number of units and nearly a 50% improvement. So very happy with that. This Gen4 that Lilac talks about, although we didn't demonstrate that at our own demonstration plant, this work has been done at other projects and one in particularly in Huhui, where Lilac developed this technology. So I think a lot of good work has been done by Lilac over the last 2 years to further enhance the technology. On the construction side, some slight changes. If you recall, previously, we were talking about a 2-phase type development or 2-train development of 12,500 tonnes each. Because of the work that's been done on the power and the shift of the timing of the project to the right, we believe that we can have power early enough in the project that would allow us to integrate those 2 trains. Now it doesn't provide a huge amount of saving when the reduction of CapEx, but certainly, we can look at changes in cost of labor by more integrating those 2 phases. So that's kind of aware from the construction side, but not a big shift, roughly time line same as before, kind of 33 months from FID to first lithium, but not a big shift, but certainly opportunities to reduce our cost for the construction. Moving on to the OpEx. We didn't see as much shift in OpEx and all of it really being driven by the cost of power. I'm going to get into that a little bit detail. But certainly from what you would call the nonpower elements of the OpEx, we saw a significant savings. So again, going back to things like Lilac, use of reagents and a number of other items, we're able to reduce, what I would call, the nonpower element of the OpEx by 30%. So a lot of it in the DLE, some savings in labor, a lot of savings in other consumables. But we saw obviously a significant increase in the power and again, talk about that a little bit later. What we did see though was a significant reduction in the power requirements as we've been through the -- with the improvement in the brine and the improvement on the DLE technology. But unfortunately, the last piece that we need to work on is the power element. And if you look at the overall OpEx today of roughly just under $5,900 a tonne, 55% of that today is taken up by power. So a little bit more, and we put some more detail in the presentation with regards to power. So for those of you who follow the story, we completed the power FEED a number of weeks ago, but you would have seen in the public, there's a lot of data and discussion around the extension of the grid within Argentina from Huhui, Salta, all the way through to Catamarca. And there's a lot of discussion and a lot of information being given in the press. And if you look at it today, the extension of the grid requires 2 stages. So there's the first stage, which takes the power line all the way down to the aid of Hombre Muerto, where there's a number of projects. And then Phase 2 is from there all the way to Kachi. So as I said, we have done the FEED work, but today, we're still working with YPF Luz with regards to the commercial aspects of what that is. So if you recall from my previous presentations, I've always said we'll focus on the power FEED and then that will lead us into a discussion around a power purchase agreement, and that is still in its early days. So the numbers we've taken into the OpEx today are the latest numbers that were in our discussions, but we still have a long way to go before we finalize the power element. So a few things I want to highlight in the power. One, we had a significant reduction in our power requirement, went from 82 megawatts down to 57 megawatts. So obviously, a big plus and again, that's driven by the improvements on the brine and the technology. And what we've done for assumptions in our power pricing today is we've taken into the cost of us picking up partial cost for Phase 1. And if you look at the slide in our presentation is a map that demonstrates where this power line goes, you can see the number of projects. And what we've done because it's still early stages is we've assumed that Kachi is going to take the full cost for the second phase. Now you could question, is that conservative at this stage? I would like to say it's a prudent position to take. And I believe as time progresses, we'll start to see some opportunities where we can improve on that. But from what we know today, this is a position that we've taken on our power cost. In addition, there are alternative energy sources that could supplement the power from the grid. And again, that will take more time for the team to work through. But today, I think what's important to tell our shareholders is we have a solution for the power. We know what the costs look like, but we also believe that there's opportunities that we can improve on those power costs. And that will take some time for us to complete, and that has likely continued to progress up until the point of moving to final investment decision. Moving to the financials. So firstly, talking about Argentina. As you've seen, significant improvements in Argentina since the new President took over some 18 months ago, and in particular, the introduction of the RigI bill, which was approved back in August of 2024, which allows a number of changes with regards to corporation tax, acceleration, depreciation, import duties, et cetera. So that was all put through in August of last year. And the good news is that 2 other lithium companies, obviously, Rio are obviously the largest getting their approval on their RigI charter or contract earlier this year and then more recently, Galan, who got the approval of their rig contract. So it demonstrates that the government and the provincial governments within Argentina really want to drive through and encourage investment into these areas. So I think as a company, we're encouraged by that. Regards to the market with the fundamentals, not a lot has changed. Everybody is still forecasting deficit on supply/demand occurring towards the end of this decade. We have taken our data from Benchmark Minerals. And their forecast and some are just under demand have been roared about 3 -- just under 3 million tonnes by the end of this decade and growing further as we go further on. A lot of it driven by, obviously, EVs, but a lot of discussion in the marketplace about the demand with regards to battery energy storage systems, which is probably the largest growth market in the U.S. today. And I think at this stage, we're still trying to understand what the size of that market looks like. There are some very optimistic forecast that says that the battery energy storage could actually overtake the demand for EVs. We're still at early stages, but the fundamentals are still telling us is that while the market is tough today is that by the end of this decade, there's going to be a significant demand and some more supply projects need to come on. So taking all that into consideration, we updated our financials based on the latest numbers from a benchmark. So our long-term financials are based on just over $21,000 a tonne. That is obviously a significant drop from where we were at the original DFS, which is obviously well over $30,000 a tonne. But obviously, 18 months ago, the market was in a different place from where we are today. But even at $21,000 a tonne, our financials are still strong. So even though NPVs come down -- and our NPV pretax is now down to $1.5 billion with a pretax IRR of 22.5%. So fundamentally, the economics of this project remain very strong. And so we'll see how things progress, and we'll see how the market develops over the next coming months or next year. But everything is really all based around what happens with lithium pricing. I think I've said before, when I look at where we stand now today, the CapEx and OpEx, I believe we are competitive. I look at comparisons of both Rio and a company called Eramet. Eramet $1 billion -- just over $1 billion for 24,000 tonnes. Rio have quoted $2.5 billion for over 50,000 tonnes. So when you look at where we are at $1.16 billion for 25,000 tonnes, I think we're competitive, and I think we're aligned where the market is. We also updated today -- a couple of other things that we also updated today our ore reserve. The main shift there is that we've got a further increase in our lithium content. As I said earlier, we have updated the DFS based on 249 milligrams a liter, but the latest ore reserve, we're now up to close to 270 milligrams per liter. We haven't updated the numbers to suit that. But based on the improvement that we've had, I'm sure shareholders can do some numbers to work out what the potential savings could be from that. And we also demonstrated the fact that we have got, again, a further reduction in the number of wells, which means a reduction in the number of pipelines, which means a reduction in the number -- the amount of power that we need. A couple of other items before I finish. The EIA, the Environmental Impact Assessment approval. We've been working on this now for over a year. We submitted this back in March 2024. We're hoping for that to be completed and approved by middle of this year. That still has not happened. And I want to highlight is at this stage is that Lake Resources does not -- we do not dictate the timing. So we're really dependent on the provincial government of Catamarca to drive through the approval process. And I think I've highlighted before, the challenges for a lot of these provinces is having access to resources with the right knowledge and competency to evaluate these new projects, DLE is still a new technology. And so these provinces in Catamarca relies on third-party companies who are taking a look at it. So Today, we're not driving that schedule. That schedule is being driven by the government. We are in constant dialogue with the government. We're constantly supporting them, trying to help them through their process. But we're hoping that we'll see the approval before end of the year, maybe sooner. And that will -- we said before, means that this project is now shovel-ready and ready to go to work. And lastly, before I finish and move to questions, we recently updated the 5B or issued our 5B for the end of the year, for the end of June. You'll have seen there that our cash position was just over $12.2 million. We also $12.4 million sorry. We also highlighted that post that, we completed the last stage of our ATM with 65 million shares that created another -- produced another $2.1 million. So pro forma at the end of June, we're looking at a cash position of $14.5 million. Again, no debt, which would indicate that we've got cash well through the year into 2026. From a cost basis, you can see our costs continually come down, and I've said this before, now that we're getting through the end of this DFS update and the EIA approval, hopefully soon, is that will then create further opportunities for us to cut our costs. But I think we've got the right culture at the moment of managing our costs and obviously preserving our cash. So as everybody knows, we kicked off this process back in May. And the purpose of this process is to look at what are all the options to Lake Resources in the market today, everything looking at partnering on the asset, potential sale of the asset, looking at where Lake Resources is potential investment in resource. That process continues on. There's not much I can really say today because, obviously, it's a confidential process. But again, a reminder why we're doing it. We've seen other moves in the market, some assets being sold. We talked about lithium Chile selling their asset to an Asian buyer for a significant sum of money. There was a public offer to Gallon for their asset in Argentina. And so when we look at these things, we said, hey, how does that impact the value of Kachi and Lake Resources. But today, I can't really offer any update because, obviously, it's a very confidential process. And that will continue on until we feel that we've got what is the best. If you look at Kachi, we've said this before, and it quite often gets lost in a lot of discussions. But when you look at where we are even looking at our ore reserve update with 11.1 million tonnes of LCE, we've got to remind ourselves that Kachi is one of the largest deposits in Argentina, one of the largest projects. And we talk about 25,000 tonnes per annum. But based on what we're seeing, we know that the expansion capabilities for Kachi are there. So we've got to make sure we don't forget about that. And that's why we like to emphasize the attractiveness of Kachi for -- to develop what could be potentially a large hub for lithium development. As I said on the earlier commentary, and I've said this in a number of presentations before, we're always looking at where do we compare against our peers. The obvious ones today based on the data that's in the market the ones I mentioned earlier, both Rio with Rincon and Eramet, who just went into production at the end of last year. And not going through the numbers again, but you can see from the numbers that they have published and the numbers that we have published is that certainly we are competitive, and we're certainly in the ballpark of where these competing projects are. So I think for anyone coming in, they can see that Kachi in itself, even without getting into expansion capabilities, is certainly competitive cost per tonne compared to our peers. So shareholders are always asking what is the -- what are the next milestones or the next piece of news. So now that the DFS update has been complete, ore reserve has now been updated, our focus is really on things such as EIA approval. And as I said earlier in the commentary, hoping to complete that before year-end. Completing our strategic review of Kachi. And again, the time line of that could be over the next coming months. But again, kind of macro market driven, and we've seen how volatile the lithium market can be. We will continue to do technical and commercial work with regards to the power supply. So as I talked earlier, we have a solution for power. We have initial costings for power, but we still got a lot of work to do to optimize it and to improve our OpEx number. And I believe there are opportunities as we go through this next period. And then really just kind of working towards getting this project to FID, and that needs partners that needs financed and we need to complete those other activities that I just discussed. So for shareholders, that's the news to look out for over the next coming months is that summarize an EIA, strategic review, update maybe on the power side and then hopefully taking this project to a final investment decision.