Lilac Solutions, Inc. (LKE.AX) Earnings Call Transcript & Summary

Good evening for most of you, and good morning for some of you, and thank you for joining us today. My name is David Talbot. I'm Managing Director and Head of Research at Red Cloud Securities. I'm delighted to host a special Red Cloud webinar event on lithium tonight. Cleaner lithium for an electric world, we are going to talk about the Lake Resources and Lilac Solutions partnership to develop the Kachi lithium project. We will hear from Lake Resources Management, including Stu Crow, the Chairman; Stephen Promnitz, Managing Director; and David Snydacker, CEO for Lilac Solutions. During today's webinar, they will go over today's exciting news that just hit the wires, I'd say, about half an hour ago about the partnership between the 2 companies. And then we're going to take some questions. You can take your questions into the chat box at any time, and we will get to as many as we can. But before we kick things off, first, we need to discuss the fine print. During this Lake Resources webinar, forward-looking statements may be made. I direct listeners to their forward-looking statements. It's outlined on Page 2 of this corporate presentation, and that can be found on the company's website, lakeresources.com.au. For Red Cloud Securities, I'd highlight this webinar as for informational purposes only. It should not be considered a solicitation or recommendation to buy or sell securities. We note this call does not consider the particular situation or needs of individual investors and participants should rely on their own investigation and seek their own professional advice before investing. So please see our most recent research located on the Red Cloud website for specific disclosures on Lake Resources. Now we are excited to have Lake Resources and Lilac speak to you today. Lake is a company, it's not a mining company. It describes itself as part of the high-quality chemical industry to produce chemicals needed for lithium-ion batteries. The Kachi lithium project is based in Argentina. The properties in the lithium triangle relatively close to Hombre Muerto mine owned by Livent, and they've already demonstrated a path to production. It's a large resource, suitable for long life production. And they are going the simple direct lithium extraction route using ion-exchange as we'll hear more of tonight. And that's one method that's used in water treatment plants around the world but it's been used in mining for over the last 40 years. Over half of all uranium production is via ion-exchange. And the company is probably most proud of its lithium carbonate purity and its small environmentally friendly footprint. Now we also might be introducing the audience to Lilac Solutions. Lilac is positioning itself to be a potential technology partner within -- with lithium brine investors. Salt brines host the majority of lithium's reserves in this world, and Lilac has developed a new ion-exchange technology to extract lithium from brines without the need of evaporation ponds. So this helps reduce the environmental footprint, accelerate development, increase recovery and yield and essentially yield a high-purity lithium product. Now as I said, ion-exchange is not used -- is not new. I've been talking about it for 20 years in the uranium space. But Lilac's ion-exchange beads and modules are really all about unlocking this potential new growth for the lithium industry. So you are all familiar with the energy transition underway with the current growth in EV and storage solutions. We have seen battery materials pick up in pricing this year, particularly in the lithium sector. And we need ways to produce that material and scale up in a quick manner, and that's why we are here today. So with that, I'm going to turn it over to Stephen to kick off today's webinar. Stephen?

Thank you so much, Dave, and thank you all for tuning in to this webinar at relatively short notice. We recently released this presentation on the ASX platform, and it will be available on our website at lakeresources.com.au in the coming minutes. And we specifically have adjusted this to deal with today's announcement, which is a detailed partnership between Lilac Solutions and Lake Resources to develop the Kachi lithium project. Now as Dave Talbot mentioned, I will be making forward-looking statements. This is available on our website. So please consider this prior to -- for the consideration of the company and the investment. So what is today's announcement about? For those who've been following the Lake Resources story know that we have been partnered with Lilac Solutions for some time. But what's important about today's announcement is, first of all, it formalizes the arrangement in a detailed agreement that will stand at test of time through the debt financing. It also provides funding from Lilac and their backers directly to this project at the asset level to ensure its development. And that investment comes in the stage process whereby Lilac demonstrates to the entire investment community, debt and equity investors that this process not just works, but it works at scale, and it works at very high quality thresholds. And with that, then they will invest. So as you've heard from me before, we have looked at different ways to ensure that this project gets fully financed. And we've been fortunate this calendar year that the equity markets have opened up, and so we have had access to equity. The debt markets are slowly opening up for lithium, and we have announced expressions of interest with export credit agencies to provide 70% of the debt. And we could have then sourced the support of somebody from the supply chain. However, the discussions from both debt and equity investors have focused around the technology of Lilac. And so the great thing about today's announcement is Lilac is basically putting its money where its mouth is. It says, we know that this works. Lake knows that it works. We're going to demonstrate that it does work at scale with quality will progressively earn into the project at the project level. And once that's complete, we're going to put circa of 50 million -- the pro rata equity investment together with Lake's to get this project up and running and producing. And the beauty of the production, as you've heard from me before, is this product ticks 3 key boxes going forward: one is that we're going to be able to produce a very high-quality product, and that delivers a high margin; two, that product has a much smaller ESG footprint, and that is very important for offtakers now; and then three, the other thing with this is it's scalable. It's a modular process. And with the demand that's coming, we have to have ways where we can actually deliver into that demand. We're looking at 8 to 15x increase in lithium production required in 10 years over last year, and we need to be able to deliver that. And this is a way to do it. And so by partnering with Lilac further, the funding that Lilac delivers comes via Lilac, but it's essentially from the tech space. And if we see the tech space now starting to support climate technology and investment in environmentally-friendly upstream battery material supply, we're actually going to revolutionize this industry. So the benefit of being a truly independent clean lithium producer that's scalable, then we can actually engage and finalize offtake agreements together with Lilac to deliver these ESG benefits into the supply chain, it's an exciting step forward. So you've heard from me about what Lilac is about cleaner lithium, higher margins doing that using this cleaner technology with tangible, measurable orders of magnitude, ESG benefits and a clear pathway to production and financing. We're in the middle of the lithium triangle, as Dave Talbot mentioned, we're literally just down the road from Livent's operation, which has been operating for the longest time in Argentina since 1997, and they actually use a hybrid process involving another form of direct lithium extraction using absorption beads. But we've gone down the path of partnering with Lilac because we're able to return the brine back to its source and have lower water usage. And so with that, I want to hand over to Dave Snydacker, the CEO of Lilac Solutions, to talk about their technology, the differences with the traditional evaporation process and the benefits both from a technological perspective, efficiency and ESG. Dave?

Thank you, Steve. And I'm just so excited to be joining Lake Resources team today to make this announcement and really want to echo the points made by Steve about the opportunity with this Kachi resource. It's a fantastic resource, a large deposit. And the timing is absolutely perfect with the lithium market taking off under pressure from electric vehicle manufacturers. So the Lilac technology has been developed for this application. We've developed an ion-exchange process to produce lithium directly from this brine and then return the depleted brine back underground to protect the environment. We're dramatically reducing the environmental impact while yielding a high purity products, the battery-grade material, which is so desperately needed by Tier 1 battery makers and Tier 1 automakers. We're doing this with a process that is faster, more effective at recovering the lithium and modular and so can be scaled up quickly. First of all, on environmental impact. We are reducing this dramatically by orders of magnitude. Most investors in the lithium space are familiar with evaporation ponds, which have been an environmental crisis at many sites in the desert where water is scarce and pumping of brine into ponds and removal of the water to the atmosphere has led to environmental impacts. We're reducing the surface footprint, and we're reducing the water impacts. And when the lithium is recovered with the Lilac process, that residual brine is pumped back underground to maintain the natural state of the environment and to avoid these water impacts. Greenhouse gas emissions are also an incredibly important aspect of the electric vehicle supply chain. One of the major factors driving vehicle electrification, of course, is greenhouse gas emissions. And it's important that the supply chain be low carbon. Now most lithium production today is coming from hard rock resources, which require roasting at high temperatures and other very chemical- and energy-intensive processing to recover the lithium. And that's contributing a large environmental impact on the CO2 side. The Lilac technology is driven by electricity. So we're able to use clean power, and this site has a fantastic solar resource for renewable power generation on site and that allows us to remove carbon emissions from the production process. Our executive team is bringing together the different industries surrounding lithium, bringing experience from batteries and advanced materials from upstream oil and gas from the private equity side, and from community engagement in South America where we have experience, building partnerships, working with local communities. Our investors are coming from some of the most successful technology companies ever to exist, and we're very excited to have that support and to bring that to bear on the Kachi project. So we have backing from breakthrough energy ventures and the engine as well as lower case, lower carbon capital and the prime impact fund, and we'll be making an announcement in coming days on our next round of funding and ramping up our teams to deliver on-site at Kachi.

Thank you very much, Dave. So the following slides many of you have heard before, but I just want to run through it for some of those who are new to the audience. Basically, the Kachi project is large and imminently able to be expanded. We've essentially drilled down in the southwest corner with 15 holes and defined a resource, of which only 20% is needed for 25 years of production at 25,000 tonnes per annum. This resource is open laterally. It's open at depth. We announced this back in late 2018. We actually have the rigs back here at the moment. And the aim is to upgrade the resource for the definitive feasibility study and also for an expansion to 50,000 tonnes per annum production. And the key benefit here is not only is it large, but we pretty much control this entire basin on a 100% basis. We've also got a clear pathway to this expansion. If we go back 9 months ago, we were looking at the pre-feasibility study only being 25,500 tonnes per annum, with the size of the demand, the interest from off-takers and also now the scale of the debt support that we can secure through export credit agencies, we are actively looking at a 51,000 tonne per annum expansion study, which would occur soon after we get into production. And with the demand there and the depth there and Lilac alongside, we can actually deliver that. This is basically what the plant would look like as a mockup. And I want to direct you to the right-hand side, the letter A, that warehouse or shed is essentially where the 50 to 60 ion-exchange modules sit instead of around 20 or 25 square kilometers of evaporation ponds that we would need to deliver the same thing. And as an expansion, it's essentially would sit right alongside this. But the rest of what you see here in this mockup is pretty much what you would see in any other brine project. So the only bit that's new is just the front end. We've also demonstrated that this product is high purity. We've demonstrated using a third-party Hazen Research late last year, but we needed to demonstrate it in batteries. Some of the offtakers have also demonstrated this, but we wanted an independent third party. Novonix has done that and has demonstrated this performs like Tier 1 products, but in nickel-rich batteries, not just in LFP. And one of the benefits of high quality is that, that produces a high margin. And so we capture that. We need all of this lithium in the demand. And so please don't misunderstand me. I'm not saying there's anything wrong with the preparation ponds or with hard rock, but the benefit of using direct extraction is you could choose a consistent high-quality product. And so that margin actually flows to us rather than somebody else in the supply chain who needs to reprocess it before it's actually used in cathodes and batteries. And that then flows into the financial metrics of our prefeasibility study. This has got at a project level, an NPV8 of about USD 1.6 billion on operating cash cost of around $4,100 a tonne and producing an annual EBITDA line of $260 million a year for every year for those 25 years. Our recent debt announcements have demonstrated that if we add in the estimated principal and interest payments, we could be looking at free cash flows after the first 12 months. We could be looking at free cash flows of circa USD 200 million a year. Now as we look at the expansion, those operating costs have come down due to scale. And so the cash that this starts to throw off is pretty impressive, and we'll be talking about that in a few months' time. Recently, we mentioned the project finance support, and it was really quite notable to be able to announce this prior to the completion of the definitive feasibility study. Here, the U.K. export credit agency, UKEF, has indicated that they are prepared to finance this project to approximately 70% of the total finance required, and that includes the cost of political risk insurance and commercial risk insurance. And so -- and furthermore, this is long tenor debt. So we're looking to 10- or 11-year debt or 8.5 years after the commissioning. And this is going to be going out at interest rates between 2% to 6%. So not the sort of 15% plus, plus than a normal start-up we're looking for. Furthermore, they've also indicated their support for the expansion cuts. So this is pretty exciting. They have indicated that they are prepared to work alongside other export credit agencies. And so we may be announcing more about that soon. And so if we look at the project status, we've got a major resource, high cash flows. We're looking to get out the DFS and the environmental social impact assessment out to then trigger that debt that has been discussed. The successful testing we've done at the pilot plant will then be built on with the demonstration plant that Lilac will be bringing to on-site. We've demonstrated the purity. We've demonstrated the ESG benefits. We're going to do that at scale. This is really a project that's well financed and ready to go. And so in that production time line, you can expect quite a lot of news moving into the second quarter next year with the definitive feasibility study environmental structural impact assessment vetted down, that then triggers the financing together with offtakers. The discussions with offtakers continue. And with the recent increase in pricing, we're just trying to determine the sorts of commercial deals that will work. Working jointly now, [indiscernible] with Lilac will assist in those offtake discussions and then moving into construction in the second half of next year for production in 2024. Just corporately, at a Lake Resources level, we had AUD 26 million in the bank at the end of June. That's around AUD 35 million, AUD 40 million now. And we're anticipating that to be somewhere between AUD 70 million to AUD 80 million come late October with the conversion of some of the bonus options. And then the attached option that goes with those if they were in the money due next year, that would add another AUD 70 million in June next year. So the company is quite well financed, market capitalization of AUD 0.5 million, around USD 400 million. And being that as it may, there's still a lot to go versus our peers. We consider that Standard Lithium who recently up listed in the New York Stock Exchange is probably our closest peer. They are about 6 or 9 months ahead of us, having run their demonstration plant for a little longer. They now have a market value in Aussie dollar terms of around AUD 1.3 billion versus around $550 million. So there's quite a bit to go there. And given that sand lithium only owns 30% of the project, I think there's quite a bit of upside just on a here and now basis. And as we continue to derisk it with debt financing, with Lilac support and with the equity that's coming in from option conversion, I think there's plenty of upside here on a here-and-now basis. And we're pleased that some of the analysts who are covering us see the same. We do have other projects. We've got 3 other brine projects as well, Cauchari, Olaroz, Paso, we've identified these have similar brines to the projects in production. I do want to fly Ganfeng from Lithium Americas, this will be one of the largest projects on the planet right next door at Cauchari, as they move into 40,000 tonnes per annum production this year and then ramping that up to 60,000 tonnes per annum. So we're in the right area, and you'll be hearing more later this year about the next projects. We've also added to our Board with an experienced energy natural resources Laura in Buenos Aires and we're expanding our team on the ground to ensure that we can deliver this project in a reasonable time line. So essentially, we're going to be delivering the world's highest purity lithium. We're using that with Lilac's technology. They've put their money where their mouth is, and they're going to back this thing. We've got the debt support for it, and I have to reemphasize the efforts, this is in greenwashing. These are very significant benefits that the electric vehicle space is looking for to be in their supply chain. So thank you very much. I'm going to hand it back now to Dave Talbot for the Q&A session.

Okay. Thank you very much, everyone. Yes. We've got a lot of questions already. So thank you, Stephen and David for a great presentation. So we remind anyone that still wants to get a question in -- complete the questions into the chat box at any time. So I guess Lilac is going to earn into a potential ownership position into the Kachi project. Why do this deal with Lilac right now, Steve?

Okay. So as you've heard from me previously, we were previously concerned about securing the right offtake partner and particularly the debt financing. We can see that offtakers desperately need scalable products now and particularly of high quality. So that risk has been ameliorated. The debt, as long as we just do what we say we're going to do, that debt is going to be available. The equity markets have opened up and by progressively increasing our treasury position with options, we've dealt with that. But the market continues to talk about the technology. Now at both Lilac and Lake, we're very comfortable with it. When we moved from bench-top testing to pilot scale, we could see that this worked well. And the great thing about a modular process is what happens in 1 or 2 modules happens in 20 or 50 of them. Your scale-up risk is ameliorated. Be that as it may, the market sees this as something that needs to be addressed, and we understand that. Furthermore, with the debt providers now coming in during the due diligence, we're going to need to both show a very detailed agreement between our parties because this is a real partnership. Lilac is here for the life of the project. We're not just licensing their technology. They're going to be there operating these modules allowed for the project. So the best way to do that was to actually then say, wouldn't it be great if Lilac and their back is actually invested directly in the project, that ameliorates that perception of risk. But instead of putting the money upfront, actually demonstrate that it can do all of those things that it says it can do to the entire market, even though we're quite comfortable with it and then put that money in at the same time is we're bringing the debt providers through our definitive feasibility study and through the environmental social impact assessment. And I have to say that ESIA is very much of interest to the debt providers and Lilac will be able to add more of that data together with what we're generating with Hatch and [indiscernible]. Dave? Snydacker?

Yes. This timing is really fortuitous. We've seen major announcements from all the automakers on going electric over the last 12 months. And they finally come to terms with the importance of lithium in their supply chain. I think as recently as 2 years ago, when you spoke with the big automakers, you didn't hear the sense of urgency. They didn't see the potential brick wall they were about to hit with lithium supply. And now they see it and they're taking action to avoid it. And so this is the time to bring on large new projects, meet that need for the automakers. And the Kachi project is a globally significant resource, and we're well positioned to do that. So we couldn't be more excited to join this project.

Okay. Thank you very much, guys. And I wanted to just clarify for some listeners that Lilac is really investing in the project. Lilac is not investing in Lake Resources, correct? There is no ownership changing hands in Lake?

Correct. That's correct, correct.

Okay. Thank you. Now does Lake still need to raise equity if Lilac is proportionally funding 25% of the CapEx and the debt is funding 70%? And does anything change on the debt side is the debt still coming for 70% of the project, regardless of ownership?

So first of all, on the debt, they have committed to support the project at 70% of total -- up to 70% of total finance required. Now that is subject to due diligence and the things that we said that we would do, definitive feasibility study, environmental, social impact assessment takers, which we're going to do anyway. So that part doesn't change. On the equity side, as I mentioned before, come end of October, we'll have about 80 million -- AUD 70 million, AUD 80 million indicatively in the bank by that stage. So let's say that's USD 55 million. So if the market's created for some reason, okay, we'd need to come back and find the final 1/3 of the equity that's required to get the project going. Given the equity markets at the moment and given that this project will be significantly derisked in 6 to 9 months' time, we could access that. However, it's our view that weekly bonus options we announced in August that the attached one-for-one option at $0.75, which will be issuing in October. That comes due in June, and there's every reason to believe that they will be well in the money, and that adds another AUD 70 million to the treasury. So if that goes as we anticipate, the project is basically financed.

Okay. Thank you very much. And I have a couple of questions, requests here for photos. Can you please send us photos of on-site progress? I personally own a lot of shares. We can see drill rigs, concrete slabs, piping. So anything that we'd be expected from a mine site? So your shareholders are requesting some updates -- some visual updates there. So does Lake Resources have plans to list on NASDAQ? And what can you say to U.S. investors trying to exercise some options right now?

Okay. Two things. So our intention is to uplift on a U.S. main board, NYSE and NASDAQ somewhere prior to financial close. And we've got a slight preference for NASDAQ just because it's more tech-heavy. And we do have a technology clean tech climate tech solution here. So we believe that would meet that audience in a better way. However, the timing of that, I'm sorry, it's a -- it is a process, and it will take some time to get through that and we'll update the market when we get closer to that time. On the particular bonus option issued for U.S.-based investors, we established a nominee with Lodge Partners. We wanted those bonus options to go to everybody. Unfortunately, U.S. securities exchange legislation is not easy to navigate and the particular bonus option that we announced didn't have an easy fit. So that's why we set up this nominee structure. So at least the benefit could flow to those holders if not the actual shares themselves. And if you go onto our website, you will see a link to the prospectus and to Lodge Partners where that can be dealt with. And we're going to be announcing more about that with a little video on a how to with an FAQ.

Perfect. Okay. Steve or Stu, it looks like your exec management team is all male. Now how would you reassure investors you have adequate or thorough diversity? Or are you actively recruiting at the moment?

If you want me to start on that and then Stu will also engage. So at a board level, we recently added a female lawyer from Buenos Aires. So we had both in-country experience Spanish, English and a number of other languages, familiar with this sector, and she is at a Board level. And as we move forward, we'll be looking to expand that. On our team on the ground, we generally don't detail all of our team because we have had key members of our team poached in the past to be very blunt. But there we also have one of our senior geologists actually comes from the local town. And so our share is not just trained in the sector, but actually comes from the local village, which we're reasonably proud of. Be that as it may, we're expanding our team and meeting environmental guidelines is important, meeting social community -- comes and also diversity, water management, training of local people, this is all part of our process going forward, and you're going to see more of that over the next 12 to 15 months as we move up construction. Stu?

No, I've got nothing to add. Thanks, Steve.

Okay, guys. Now how do you value the project right now? If Lilac is buying 25% of the project, some online have already pointed out that this looks like a $200 million valuation for the project. But I think this is more about derisking, improving the technology works for your asset, using someone else's money.

Stu?

Yes. It's been quite clear. Lilac aren't buying 25% of the project. They are earning in by delivering their experience and expertise with their technology as a starting point. They're contributing $50 million to part of the equity component of the project finance. And if you look back at those slides that Steve presented earlier, where you see a net present value in excess of USD 1.5 billion, I think that's probably a more fair assumption of valuation and look at the cash flows that will come from this project in production, which the contribution of Lilac's $50 million to that equity component to represent their share of the project at 25% of the Kachi project. I suspect would be a far better way of looking at that. Steve, Dave?

Absolutely, right. From the Lilac standpoint, we're bringing technology and operations teams and raising corporate equity on the Lilac side to ramp up the technology, ramp up the teams, get that delivered on site. So the funding is only a piece of the earn-in as Stu said.

Yes. One of the great takings about this transaction is that we're actually now aligning breakthrough disruptive clean climate tech to the lithium space. We're aligning that with a major resource and the upstream end of the battery material supply chain. And we're doing that with funding that's coming out of the tech space, not out of mining and natural resources or energy. So this is new money from people who've made serious money by disrupting things in other parts. They have supported electric vehicles and their whole supply chain, and we're going to see more of that. That's what I think is really important. For example, 12 months ago, we were actively trying to get members of the battery material supply chain. And that's a logical place to source your money from. But how do you value their addition to the project. It's not just the money they bring as people say, oh, well, that's a seal of approval on the supply chain. But we know we can source that. So what better thing than to actually deal and derisk with the areas that have caused certainly perceptions of concern amongst the investor community and actually deal with that. And it just makes the whole project much more viable, easier to finance and from an investor perspective, considerably derisked.

Yes. Okay. Now the prefeasibility study covers about 22% of the resources that's open at depth and laterally. If Lilac is earning into the -- is Lilac earning into the total project or really just the resources or reserves covered under the PFS?

So Lilac is earning into the Kachi project, and it's quite specific around that. And the debt financing will be at the Kachi project level. So that's where this is happening. And what's great about the Lilac process is because it's scalable. That's why we've been able to quite generally look at an expansion case to 51,000 tonnes per annum. And as we extend the resource and reserve potential -- I mean, there's a possibility to go again. We're trying to build in that flexibility. Now we do have to work out on the expansion case if that's going to be a second lithium carbonate train or we actually go down the hydroxide path. But you can see the flexibility that brings with a project that's got real scale. And so yes, that investment is happening at the asset level.

Okay. And did you consider any other structure of Lilac, for example, licensing fee or per unit processing charge? Maybe what would you say to someone that thinks this deal takes away some upside from shareholders?

Certainly. So the standard process or standard arrangement with technology providers is to pay a license fee. And let's say we're in the gold space, and there is a better way to extract gold. So you pay the license fee. It has a royalty structure or what have you. And so you do that. The difference here is that this is new technology to the lithium space. Lilac wants to zealously guard that IP. And so they, therefore, partner with us rather than just paying a license fee. And yes, there's costs involved in the modules and the beads on an operating cost level, but that's factored into the operating costs.

Yes. And I would just...

This is a way where you can bring that. Sorry, Dave.

Yes. And I would just add that Lilac is bringing a wealth of experience on engineering and execution. We have 25 engineers on staff today. That will double to 50 engineers over the next 6 to 9 months and bringing that engineering and operational capacity, the project is a big part of the value we add.

And Dave, is this partnership exclusive?

Yes. This partnership is exclusive within the Kachi basin. And so a large area -- and this is one of the largest basins draining into the Kachi project. So we're exclusively focused with Lake Resources on developing this joint venture for Kachi and there are other exclusivity on the aspects of the deal as well in surrounding areas.

Okay. And have you guys considered using the same technology for your other projects? Or is it a little bit too early to think about that yet?

We are using the same technology on a number of projects outside of Argentina, looking at Chile, looking at United States. The ion-exchange beads and the ion-exchange modules that we've developed and tested at other sites in the U.S. are very similar to those modules that we've piloted on the Kachi project.

Okay. And Dave, when will Lilac start putting hard dollars into the project?

Right away. We'll start constructing the final balance of plant for the pilot, delivering those systems on site. So that's a notion today.

Okay. And you're a private company. How are you going to fund this investment in the Kachi project?

So we are announcing tomorrow a large financing and stay tuned for more details on that. As Steve mentioned, we are tapping into a great wealth of experience in the Bay Area on building large companies and disrupting industries like lithium. And so we're excited to share more news on that tomorrow.

Okay. And has there been any consideration of Lilac going public?

That's a question that we get frequently and certainly something we're thinking about, but no immediate plans there.

Okay. Okay. No, thank you for that. So let's talk a little bit about the technology. Now ion-exchange is not new. It produces over half the world's uranium. I think I've said that already 3 times before. But right now, other direct extraction technologies, they use absorption beads, essentially lithium essentially sticks to the beads and you can strip them using hot water in the next step of the process. I guess this question, I guess, would be for Lake. What did you -- what made you go down this route, down the ion-exchange route?

Thank you, Doug. So we looked at absorption beads. We looked at ion-exchange. We looked at nano filters. We looked at solvent extraction. And when we first met our Lilac and went through this process, this is back in 2018, we liked their process because it was simple. You produced your lithium chloride product in a single step. It operated at ambient temperature. So we weren't going to have too many problems there because in an isolated area. But the most important thing was its low use of water. The fact that with ion-exchange in that first step as the lithium bonds to the beads, there's no other reagents involved. So you can -- with your hand up from your heart return ion back to its source saying I haven't done anything chemically to this bond apart from take the 1% out of it, which is the lithium. And so managing that water bases in -- managing that water balance in a basin was a key feature. The second thing is the process water that's used is also quite low in comparison to, say, absorption beads or solvent extraction. You don't tend to get any untrained other materials. And so any process water is also relatively low. Now if we're in a different location, we may have selected a different process. But the fact that we're in a hyper arid environment and there's no energy solution there, that's why it's best for us to use a hybrid solar energy solution and return as much water as possible. Now those tangible benefits to local communities they're really meaningful. I grew up on a farm. I was in Australia, that's always problems in sourcing water. Hell, the first time I went to Chile and Argentina, I thought it rains here once a year, once every 5 years. These guys are really struggling to get fresh water. So the last one thing you want to be doing is tapping into those supplies if you can avoid it.

Okay. So is that mainly the reason...

And then, of course...

Sorry, go ahead.

Sorry. of course, I should say, with any technology, you only know so much, but then you have to do the testing. And what we've -- the second step is that the testing we did both at bench top and then at pilot scale has worked very well. And last year, when we saw really high-quality lithium chloride coming out of pilot plant modules, we just went, this is great. This thing is working well.

Right. Okay. And that's really the reason why you're not going the conventional approach for this resource. It's water.

Can't do that anymore. It's just -- it's not -- the end users won't accept that product. Well, they will accept it because they have to, but there's a real opportunity to deliver a very clean and environmentally-sourced and produced product that will fit into the high-spec performance batteries that are now required for electric vehicles. And this product is -- it sells itself to those guys. The interest levels at the OEM and battery makers is extremely high because of the purity of the product and the method of which is -- and the sustainability of the product.

Let's break it down. Sorry, Dave, hop in. Okay. First of all, quality. You produce a consistent high quality in products and you do that very quickly. We're talking hours, not months or years, right? And that quality product means you get a high margin, so it makes the project robust financially and able to be debt financed. The second thing you're actually producing a product to the end user wants. They need high-quality products. The changes in battery technology over the last 5 years has been immense, and we're going to continue to see that. So there's going to be this demand for quality products. The thing that we've seen in the last 18 months is particularly driven by the EV makers out of the EU. They're now legislated on their carbon footprint. They have to get products going into the supply chain that have got low greenhouse gas emissions and better outcomes. And there's been a series of delegations going to Chile from EV makers out of the EU saying, what the heck are we going to do here? So we're just ahead of the curve. And we suspect that when it comes to debt financing, you might even find that's going to be difficult to get debt financing for new evaporation projects. Now as Stu mentioned, there is a huge demand. So maybe over the next few years, a few of those get financed. But that's a real risk going forward that's ameliorated by this.

I would also -- just to chime in, I would add that the recoveries that Lilac is able to get from a brine like Kachi are substantially higher. And so the amount of production is substantially higher than what you could do with ponds.

Absolutely, right.

Okay. Great. You talked about recoveries. Is recovery affected by altitude, the altitude of the project using this DOE technology?

No, there's no effect from the altitude on recovery. Altitude does affect things like the temperature of the crystallizer for production of the finished lithium carbonate. So it can have a small effect on the energy usage when you crystallize the product. But on the lithium extraction side, on the Lilac ion-exchange process, the altitude does not have an effect.

Okay. And have you guys determined how much greenhouse gas or emissions you will be saving by using the DOE method? And will that show up in the pilot plant usage? Can you...

We have been working on that. The bit that we've been working on is optimizing the energy on-site. So that then we're planning in a couple of months to cut out talk about total energy usage and the energy usage, which is from renewables, so that we can actually look at total greenhouse gas. Then we'll be looking at our total water usage and also potable water usage so we can identify that. Also waste production. And so we can go through all of those scales on what are the standard ESG guidelines that people expect to see. And then separately, we're getting a recognized participant to review that data and actually sign off to say that it is appropriate. There are a number of parties that have recently put up their hands saying they can sign off on those. But honestly, I'm not going to a big 4 accounting firm for this. We're getting somebody who actually understands this to sign off on it.

Sure. Okay. You sort of touched on a few things there, freshwater, power consumption, energy consumption. Can you maybe give us an idea how much freshwater consumption will be required, let's say, per tonne of lithium produced or even more generally?

Yes. We'll be coming out with that data in a couple of months' time. I don't want to preempt it because it is based on a range of assumptions. Suffice to say that the water usage of this process is significantly less than what we generally see in using absorption beads which is the more common commercialized technology in direct lithium extraction at the moment.

Okay. So then as far as electric power, without going out and asking you how much electricity is needed, is it going to be an onerous amount? And will the Kachi project be a 100% powered by renewable?

Our plan is not to be 100% renewable. We'd like it to be. But that will probably be somewhere around 15%, possibly 20% that is renewable energy, but we're optimizing that at the moment. Most of the energy will be solar. But as you know, this [indiscernible] operates during the day. So we've been optimizing the equipment so that more of more of the lithium carbonate is produced in the daytime hours. The Lilac process is relatively low in energy, so it can run on a 24/7 process. We're really just running pumps, moving water. The energy part of the Lilac process actually producing the reagents. And so we're going to have a chlor-alkali plant on site producing the agents in daytime hours. But as I said, we've just completed an energy optimization study, and we're now feeding that into those ESG and GHG numbers so that we can actually come out and find all of the...

Okay. I have a question about extraction and reinjection. Actually, several people have asked this. Does the brine get progressively more diluted as you take the lithium out and return the water to where it came from?

Right. This is a question we regularly get and it's perfectly understandable. The issue is to understand scale. And so how I describe it is, imagine an Olympic size swimming pool, but that pool water is brine. And we're standing down in the bottom corner with few wells pumping that out. So the impact of the depletion of lithium may have an impact over a very long period of time, 10, 20, 30 years. But honestly, we are producing out of a fairly small part of the total basin reinjecting in a different area, 8 to 10 kilometers away. So we don't suspect that lithium depletion is really going to be an issue probably in the foreseeable future of the life of this project.

Okay. And how does Lake deal with the brine being drawn across title boundaries? Somebody pointed out that the same problem, pumping oil across production license boundaries. How do you deal with them?

Yes. The beauty is we pretty much control that entire basin, 100%.

Okay. It looks like Lake has been very meticulous at using -- deploying the Lilac extraction technology. It looks like there's still a lot of work to do before you're ready to production. Production scheduled for calendar year 2024, how much is production is expected that year? And do you see any hiccups or risks of not achieving production that year?

We don't see much risk in not achieving production. And the great part about this process is pretty much -- as soon as you turn it on a few weeks later, you're actually running at full tilt. The ramp-up phase is remarkably short and you can also reduce quite a bit of lithium chloride and have that ready for the lithium carbonate plant to convert that. Our concerns going forward are actually around the global supply chains. We've seen COVID has impacted the supply of semiconductors when seeing impact on structural steel. And so one of the things that we want to do as soon as the DFS is finished, is work with Hatch and go, which are the critical supply items that we need to pre-order here. And so let's imagine we were building a gold plant. You might need to preorder the ball mill or something like that. In this case, there could be all sorts of procure little widgets that we need to secure early adjust to make certain we can actually deliver this project in time. So that's more of our concern in the delivery time line. Dave, you might want to comment on that.

Yes, absolutely. We've seen supply chains be disrupted with COVID and the economy coming roaring back. But once this project goes into construction, the commissioning and start-up phase is dramatically streamlined to what we've seen in conventional brine projects. It's been the commissioning of the ponds and the amount of time that it takes to move lithium through those ponds, which has been devastating to time lines of conventional projects and by eliminating that phase we get a much tighter time line and get that lithium to market faster.

Okay. Perfect. So how should your environmental and social impact assessment or your ESIA compared to other brine projects in the area?

Well, like other companies, we're using Tier 1 international firms. In our case, we're using [indiscernible]. But the key difference is without evaporation ponds, there is a major reduced impact on the land surface, a major significant reduction on water usage. So the ESIA is more on some of the social outcomes, ensuring that will remained appropriate flora and fauna and water basin management. They are the sorts of things that are the outcomes. So look, the study is similar in many respects, but we're going to be spending a lot on ensuring that, that water balance is explained carefully.

Okay. We're coming up to the top of the hour. So I just want to get a couple more questions here. What's the current sentiment with the local Argentinian government? And do you guys see any hurdles moving forward with the current government?

I have to say that the 3 provinces that host the brines, Jujuy, Salta and Catamarca, have been quite consistently supportive of the lithium sector, regardless of who is in power at the federal government level. The way Argentina works is a little bit like the U.S. What happens in Texas is different to what happens in California, and it's the same in Argentina. They have their own regulators, their own legislators on a province-by-province basis. But they have been consistently supportive because these are distant areas. They see benefit from infrastructure. They see benefit from training of local people. I have to say as a shout-out to the Catamarca government, they've been very supportive of this new technology with Lilac. They see it as really quite flattering that they're going to be the first province to really see this new groundbreaking technology be put into commercial operation. And they're familiar with lithium operation, having had Livent there operating since 1997. At our federal government level, they've been quite supportive of the sector in general. Look, at the end of the day, this is a U.S. dollar-denominated project. It's producing U.S. dollar export income. And that's exactly what the federal government wants to see.

Okay. Thank you very much. And I guess, let's wrap it up here. What lithium price do you expect to use within your DFS? And how much of that is considered to be premium pricing based on your high purity you expect? And how does that compare to current pricing?

Yes. Well, I'll be able to answer that question when we get towards the end of DFS. If you'd asked me that question 6 weeks ago, we would have used a different number than what we'd used today. I mean we've just seen lithium carbonate, lithium hydroxide pricing lift from sort of $11,000 to $13,500 a tonne to $17,000 to $21,000 a tonne. So we've always used a price which has a premium into it. That's part of the discussion with offtakers. We're looking to get a rise and fall mechanism in our pricing. But I could just summarize it, just say that the pricing environment is looking very positive for all participants in the lithium space at the moment.

Okay. Well, why don't we wrap it up there. I'd like to thank Steve and Sue from Lake Resources, David from Lilac and everybody for tuning in today. Great turnout, over 900 registered for this quick pop-up webinar. I just want to remind everyone that Red Cloud Securities will be hosting another webinar tomorrow afternoon, we've got Phenom Resources. So that's tomorrow, September 22 at 2:00 p.m. Eastern. Have a great day, evening, morning, wherever you are. Thank you very much.

Thank you very much.

Thanks.

Thanks for hosting. Thank you.