LKE valuation

I am trying to assess the potential value of LKE. The PFS created for Kachi project in 2020 does not reflect the true potential value of the company for many reasons:

1. It was made only for 1 of LKE’s 5 projects

2. The targeted resource size of Kachi is much larger than what is in the PFS

3. It was made with a very conservative LCE price estimate of $11k for 99.9% LiC, other companies, like VUL use higher price estimates ($15k) for lower grade products.

4. The DFS used a very conservative production estimate of 25.5 ktpa, which would use only 20% of the estimated resources in 25 years. Many companies are using much larger %, e.g. GLN used 60% in its PEA. LKE already hinted in their presentations that this number could be raised to 50 ktpa, and that would be still conservative compared with GLN e.g.

5. LKE”s Lithium Carbonate has been since verified to have 99.97% purity which commands higher price even compared with the 99.9% LiC.

6. Lithium prices have gone up substantially in the last 3 months (e.g. 99.5% LiC spot price in China went up by 86% in USD terms)

7. Lithium prices are expected to further rise due to the expected shortage of Lithium supplies, the huge demand raised by EVs and ESS, government supports (EU, USA Biden’s New Green Deal of $2 Trillion in 4 years, China, etc.) and the long development times of Lithium mines. A new Lithium super cycle is forecasted by many.

Based on my researches I came up with a pricing model. The one that I post in this message is the first version, and I used several assumptions making it, which I will detail below. Any comments are welcome to further enhance the model.

My assumptions were the following:

1. Production for the 4.4 Mt resource of Kachi could increase to 50 ktpa

2. LKE management targets an 8-17 Mt resource size in Kachi, this would basically double or quadruple the DFS resource size. I am detailing NPV estimates for these 3 scenarios in Kachi: 4.4 Mt, 8.8 Mt, 17.6 Mt. I am assuming the same yearly production size for each 4.4 Mt resource chunk.

3. For the other 3 brine projects together I am calculating based on the size of their area with an estimated production of 70% of the Kachi project (480 km2 vs 705 km2). This is a very rough estimate, if anyone has a better way to estimate it, it would be welcome.

4. LKE has a hard rock project in Catamarca, I am assuming zero value for this project. This project however could be sold by LKE, or could be spun off, hence it could add value to the company, could substitute for a CR e.g.

5. Based on the Orior Capital research published in 2020 about LKE, every $1.000 increase in the LiC selling price would add $187 million USD to the post tax NPV per 25.5 ktpa production level.

6. LKE is expecting cost reductions because about 40% of the Opex is related to energy, and they are investigating the use of solar energy, plus there can be also DLE process improvements. I am not calculating with any of these possible cost reductions.

7. I provide 3 scenarios for the average LiC selling price: $15k, $20k and $25k.Considering the high quality of the LiC of LKE, the previous LiC spot prices of China, the expected Lithium price increase, and a huge demand forecasted for the next decades, I think these price points are reasonable scenarios. Current price of the 99.97% LiC is about $18.8k USD.

8. I am expecting that about 75% of the battery demand will be high longevity battery by 2030, so there will be a huge demand for high quality Lithium. About half of that demand will come from ESS, and another 25% will come from high utility vehicles such as trucks, buses, robotaxi, company car fleets, etc. 99.5% LiC which is now considered Battery Grade might become Technical Grade based on the Orior Capital research.

9. Tesla alone expects 3 TWh battery production in its own factories and another 3 TWh from its suppliers by 2030 or sooner. The current expected Lithium demand reports that I have read are way below this level, I am expecting an upward adjustment in the forecasts in the next years. Just for Tesla alone about 4-5 million ton per year LCE will be necessary by 2030.

10. I assumed 1.14 billion LKE shares, this number could increase if there will be any further CRs. I assumed 1.3 USDAUD conversion rate for the sake of simplicity, and that the SP will reflect 100% of NPV. These assumptions don’t impact the NPV calculations, only the share price estimates

All imho, DYOR.

Here’s the table with the calculations: