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27/11/19

07:14

Post #: 41650425
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Originally posted by Jojo84: ↑

Hi Suw.

Thanks for this post. Have my focus on the EV market myself..I have done a review of the Lithium market regarding EV
Hopefully you might find some of this interesting. Was having problems creating a thread so I responded to your post as it was the most relevant. Sorry about the length..

The review intends to do the following.
- Establish the amount of Lithium per KWh.
- Establish the trend for EV sales per year against LME.
- Review the amount of Lithium produced in LME.
Lithium Metal Equivalent. (LCE is 5 x greater comparatively)
- Determine and review the future demand of Lithium.
- Determine Lakes potential market share based on full production capacity and commodity spot price of Lithium.
- Provide summary higlighting the importance of EVs from an
Investors point of view and context.

LITHIUM PER KWH.
This is an important factor in determining the amount of Lithium required per car. As provided by a Michigan University Lecturer batteries require 80g per KWh. However it was noted that in reality due to Coloumbs law it is around 160g required.
Teslas vehicles reflect this as for a 75KWh battery has 12kg of LME. (0.160kg x 75 = 12kg). This equals 0.012 Tonnes

For this review I will use 0.012Tonnes to represent an EV to correlate with Lithium. Please note Tesla requires 63kg of LCE for 75 KWh battery therefore factor of 5 for LME to LCE.

(I know there are some batteries with more or less KWh but will use this as a guide only to provide context for later on.)

TREND FOR ELECTRIC VEHICLES (FROM 2016 -2018)
Referring to EV volume.com and Statista. Will multiply the number of EVs sold against the correlating value of 1 EV of 0.012Tonnes.
2016: 775 000 (x.012) = 9300Tonnes of Lithium
2017: 1 200 000 (x 0.012) = 14 400Tonnes of Lithium
2018: 2 080 000 (x 0.012) = 24 960Tonnes of Lithium.

From this we can ascertain an exponential factor of approximately 1.65. This is important in making predictions based on current trends. Determines timelines and keeps the finger on the pulse.
i.e 775 000 x 1.65 = 1 200 000

REVIEW OF LME PRODUCTION..
Production of Lithium as per statista.com

2010: 28 000T (140 000T LCE)

2016: 38 000T (164 000T LCE)
2017: 69 000T (345 000T LCE)
2018: 85 000T (425 000T LCE)

2010 is important because it indicates what was required globally before global mass production of Electric Vehicles. One can also see the impact EV production had on Lithium production from 2010 to 2016. 775 000 EV required an addtional 10 000T of Lithium in 2016 from 2010. Thus 28 000 T to 38 000T from 2010 to 2016 in Lithium production.

In review of the picture tells a bleak story. We are in over supply. In 2018 if we add 24 960T with 2010 general global consumption of 28 000T This = 52 960T. We are in excess of 32 000T. That is equal to 160 000T of LCE. This effectively is an oversupply of about a factor of 2. Therefore the spot price for Lithium should have halved from 2016/17 as there is twice the supply over demand. And that is exactly what has happened.
This now makes sense. In order for current Lithium Mining producers and capitalists to get a return on the current costs they need to scale back production to protect the spot price. Therefore if capitalists funded the juniors now this would absolutely flood the market and the spot price would drop even further. If it drops by a factor of 3 which would be around $8000 per Tonne from 2016/17 then this would barely cover the operating cost, for hard rock miners especially..

So to summarise, this is the fundamentals of economics turning its gears. The more in supply and the greater the surplus the less value a commodity will have. The surplus needs to be reduced i.e. scale back mining. There must be funding restrictions in order to protect the spot price so that current producers do not fold. For sophisticated and institutional Lithium investors it would be self cannabilising to invest. Unless the demand and market increases.

We all know what can increase the demand. EV production and sales. But what the hell is the timeline?

FUTURE DEMAND OF LITHIUM (2019-2025)
In order to determine the timeline attention has to be given to the rate at which EVs are sold. Will continue with the timeline above based on an exponential factor of 1.65 and EV lithium equivalent of 0.012.

2019: 2 080 000 x 1.65 = 3 432 000 EVs
3 432 000 x 0.012 = 41 000T of Lithium
2020: 3 432 000 x 1.65 = 5 662 800 EVs
5 662 800 x 0.012 = 68 000T of Lithium
2021: 5 662 000 x 1.65 = 9 343 000 EVs
9 343 000 x 0.012 = 112 000T of Lithium
2022: 9 343000 x 1.65 = 15 417 000 EVs
15 417 000 x 0.012 = 185 000T of Lithium
2023: 15 417 000 x 1.65 = 25 440 000 EVs
25 440 000 x 0.012 = 305 250T of Lithium
2024: 25 440 000 x 1.65 = 42 000 000 EVs
42 000 000 x 0.012 = 503 700T of Lithium
2025: 42 000 000 x 1.65 = 69 250 000 EVs
69 250 000 x 0.012 = 831 000T of Lithium.

Is this trend true in any way?

Benchmark minerals has mentioned that there will be a demand squeeze on Lithium next year in 2020. If we add the 2010 Global demand prior to electric vehicles of 28 000T with 68 000T expected for EVs in 2020, this gives a total demand of 96 000T which will exceed 2018 production output of 85 000T. One can also see that in 2019 there will still be an excess of Lithium based on 2018 mining output. Therefore it appears 2020 is a potential turning point consistent with benchmark minerals predictions. However I don't believe it would be hard for current miners to supply 2021. It is another painful 2 years ahead.

By 2022 we will need double what was produced in 2018. Subsequent years will require new mines to come online to meet demand as the big players wont be able to ramp up quick enough.

69 000 000 million vehicles by 2025?
VW believes it will produce 5 million Electric vehicles by 2025. This would represent a 14% market share which is high. They have started construction in Tennesse. EV manufacturing.
As a guage Toyota sold the most vehicles at $8 million in 2018 giving them a market share of 10%. EVs could reach 69mill based on these comparatives and using VW as a benchmark.

80 million vehicles are sold globally so this would represent an almost 90% EV takeover on car sales by 2025. The netherlands are already 50% car sales being electric and its 2019 not 2025.
There is promise.

If you add up all sales of vehicles from 2019 to 2025 you will find that it represents a paultry 6% of all vehicles in the world based on Elons numbers of 2.6billion vehicles global. So on that scale it seems realistic. Again 69million seems reasonable.

The first indicator is to find out how many Electric vehicles will be sold in 2019 to prove the trend is real. Will it be around 3.5million vehicles? What news supports these trends?

So what will Lake represent in market share?

LAKE RESOURCES MARKET SHARE FOR KACHI (2023)
Assuming they reach full capacity by 2023 of 100 000 Tonnes LCE per annum which equates to 20 000T of Lithium. LME.
2023: @ 305 250T + 28000T = 333 000T
20 000T/333 000T x 100 = 6%. Market share.

2024: @ 503 700T + 28 000T = 531 700 T
20 000T / 531 700T x 100 = 3.8% Market Share

2025 @ 831 000T + 28000T = 869 000T
20 000T / 869 000T x 100 = 2.3% Market Share

100 000T per annum is what the big boys are also targeting as production. Therefore by 2023 we will need 15 mines representing 90% of market to produce 100 000T each per annum LCE with the remaining to be produced by smaller players. Remember 100 000T = 20 000T in LME.
Lake, just with kachi alone easily puts them inside the top 10. based on volume alone. Their predicted market share again seems reasonable on this analysis. What it reinforces is they will be needed.

The commidity price in 2016/2017 is important to take note:
in 2016 there was a total of 38 000T produced by mines when the market needed 9300T + 28 000T for 2010 which is around 38000T. At this point supply and demand had reached parity. The spot price at this point was $25000T LCE.This is the benchmark.https://roskill.com/market-report/lithium/

This would mean.
1T LCE /0.063T LCE per EV= 15 EVs per Tonne.
$25000/T ÷ 15 equates to around $1666 (roughly $2500 AUD) per vehicle for Lithium. This would equate to around 4.2% of build cost per vehicle with a 75KWh battery at a price of around $40000 US.
4.2% i believe is high relative to the rest of the vehicle and profit margins is too large and would expect this to be negotiated down by battery manufactuers given that the new mines only exist and rely heavily on the EV market. I also believe the reason the spot price was at $25000T was because there were no choices In mines. Battery manufacturers now have choices due to oversupply. So I speculate that offtake agreements will be set at fixed commodity price of 2% @ $800 US per EV which is $12000/T with the promise of funding. Thinking very conservatively here.
This is the price I expect at parity between supply and demand.

THE POTENTIAL IN LAKE.
So to evaluate Lake, lets assume a commodity price of say $12000 per Tonne at parity of supply and demand at full capacity by 2023.

@ 100000T = $1 200 000 000 Revenue.
@ 2600T opex = $260 000 000
-$250 000 000 Capex debt
= $740 000 000million
@ 40% Tax (Guessing)
=440 000 000 Net.
@530 530 000 outstanding shares
= 83 cents per share at 100% return.
if the market decides its okay with a 15% return then the stock could be selling at about $5.53c per share by 2023. Anything over this price will mean its over priced. This is also assuming that Lake will choose to pay its debts in full.

Ignoring the debt then the market could decide to pay up to $8.
on the promise of higher dividends.

If Lake decides not to payout and use the money to develop their other mines then this would mean it is a stock potentially worth a minimum of $24 per share by 2028/29 peaking at $40 to $50 based on withheld revenue ignoring any adjustment for inflation. SQM has hit these share price values based on Lakes potential output

IN SUMMARY:
Lakes current value is fair.

Lets create a hypothetical. They have the desired management, Amvest is gone and Lilacs full production plant is humming. And tomorrow they can start selling. What will the implications be?

Very bad..

The spot price is low to the point that if it goes lower than there is a chance that current producers could fold with nowhere to turn for funding and this will be due to adding to additional Lithium in the supply chain. Why should we care?

Well lets assume Lake and other junior miners adds more to the pile. Other companies fold due to lower spot price that cannot cover their OPEX.. By the time EVs begin to ramp up they will find immediate problems with their supply. They then cannot sell enough EVs to cover their OPEX due to supply constraints. And then they fold. It was one of the contributing factors that lead Tesla from being 6 to 8 weeks from bankruptcy in 2018. Supply from all competitors will matter and needs to be protected.

With Kachi it is only going to supply at best 20 000T of LME per annum. (100 000T LCE). Once EVs hit that point of inflection it will need 15 mines operating at full capacity minimum by 2023. Double that by 2025 should the trend continue to materialise.This reinforces the above regarding protecting current producers.

The take away here is that there is nothing wrong with Lake or its management good or bad. If EVs were band would you jump on here and moan about Amvest? Hell no! Sell... Lake wouldn't be worth anything. The current EV sales don't even warrent Lake being a business. EV market matters. If Tesla had failed I would not have bought Lithium.. They proved EVs were profitable. Really important when deciding to invest in Lithuum.

For me it is about focusing on yard sticks. How many EVs are sold per year. Should the current trend be validated by the end of this year at 3.5million electric vehicles and next year it hits 5million and 2021 at 9million vehicles then we have hit the crucial point of the S curve whereby it will accelerate very quickly. What is currently happening is a new emerging market and right now it is experiencing growth pains in all departments.

2022 is when the EV market will mature by my best estimate. Lithium will be there for the ride. This may mean if Lake secures their funding next year. They would have timed their run to absolute perfection.

At a time of very little news for Lake. My intention is to draw the attention towards the market to provide another avenue of discussion and alternative perspectives. If you read through the comments a few seem to have thrown fundamenrals out the window.

There is a saying about investing. Its 10% intellect and 90% pain.
If your careful with the 10%. It will make the 90% worth its while.

Expand

Originally posted by Jojo84: ↑

Hi Suw.

Thanks for this post. Have my focus on the EV market myself..I have done a review of the Lithium market regarding EV
Hopefully you might find some of this interesting. Was having problems creating a thread so I responded to your post as it was the most relevant. Sorry about the length..

The review intends to do the following.
- Establish the amount of Lithium per KWh.
- Establish the trend for EV sales per year against LME.
- Review the amount of Lithium produced in LME.
Lithium Metal Equivalent. (LCE is 5 x greater comparatively)
- Determine and review the future demand of Lithium.
- Determine Lakes potential market share based on full production capacity and commodity spot price of Lithium.
- Provide summary higlighting the importance of EVs from an
Investors point of view and context.

LITHIUM PER KWH.
This is an important factor in determining the amount of Lithium required per car. As provided by a Michigan University Lecturer batteries require 80g per KWh. However it was noted that in reality due to Coloumbs law it is around 160g required.
Teslas vehicles reflect this as for a 75KWh battery has 12kg of LME. (0.160kg x 75 = 12kg). This equals 0.012 Tonnes

For this review I will use 0.012Tonnes to represent an EV to correlate with Lithium. Please note Tesla requires 63kg of LCE for 75 KWh battery therefore factor of 5 for LME to LCE.

(I know there are some batteries with more or less KWh but will use this as a guide only to provide context for later on.)

TREND FOR ELECTRIC VEHICLES (FROM 2016 -2018)
Referring to EV volume.com and Statista. Will multiply the number of EVs sold against the correlating value of 1 EV of 0.012Tonnes.
2016: 775 000 (x.012) = 9300Tonnes of Lithium
2017: 1 200 000 (x 0.012) = 14 400Tonnes of Lithium
2018: 2 080 000 (x 0.012) = 24 960Tonnes of Lithium.

From this we can ascertain an exponential factor of approximately 1.65. This is important in making predictions based on current trends. Determines timelines and keeps the finger on the pulse.
i.e 775 000 x 1.65 = 1 200 000

REVIEW OF LME PRODUCTION..
Production of Lithium as per statista.com

2010: 28 000T (140 000T LCE)

2016: 38 000T (164 000T LCE)
2017: 69 000T (345 000T LCE)
2018: 85 000T (425 000T LCE)

2010 is important because it indicates what was required globally before global mass production of Electric Vehicles. One can also see the impact EV production had on Lithium production from 2010 to 2016. 775 000 EV required an addtional 10 000T of Lithium in 2016 from 2010. Thus 28 000 T to 38 000T from 2010 to 2016 in Lithium production.

In review of the picture tells a bleak story. We are in over supply. In 2018 if we add 24 960T with 2010 general global consumption of 28 000T This = 52 960T. We are in excess of 32 000T. That is equal to 160 000T of LCE. This effectively is an oversupply of about a factor of 2. Therefore the spot price for Lithium should have halved from 2016/17 as there is twice the supply over demand. And that is exactly what has happened.
This now makes sense. In order for current Lithium Mining producers and capitalists to get a return on the current costs they need to scale back production to protect the spot price. Therefore if capitalists funded the juniors now this would absolutely flood the market and the spot price would drop even further. If it drops by a factor of 3 which would be around $8000 per Tonne from 2016/17 then this would barely cover the operating cost, for hard rock miners especially..

So to summarise, this is the fundamentals of economics turning its gears. The more in supply and the greater the surplus the less value a commodity will have. The surplus needs to be reduced i.e. scale back mining. There must be funding restrictions in order to protect the spot price so that current producers do not fold. For sophisticated and institutional Lithium investors it would be self cannabilising to invest. Unless the demand and market increases.

We all know what can increase the demand. EV production and sales. But what the hell is the timeline?

FUTURE DEMAND OF LITHIUM (2019-2025)
In order to determine the timeline attention has to be given to the rate at which EVs are sold. Will continue with the timeline above based on an exponential factor of 1.65 and EV lithium equivalent of 0.012.

2019: 2 080 000 x 1.65 = 3 432 000 EVs
3 432 000 x 0.012 = 41 000T of Lithium
2020: 3 432 000 x 1.65 = 5 662 800 EVs
5 662 800 x 0.012 = 68 000T of Lithium
2021: 5 662 000 x 1.65 = 9 343 000 EVs
9 343 000 x 0.012 = 112 000T of Lithium
2022: 9 343000 x 1.65 = 15 417 000 EVs
15 417 000 x 0.012 = 185 000T of Lithium
2023: 15 417 000 x 1.65 = 25 440 000 EVs
25 440 000 x 0.012 = 305 250T of Lithium
2024: 25 440 000 x 1.65 = 42 000 000 EVs
42 000 000 x 0.012 = 503 700T of Lithium
2025: 42 000 000 x 1.65 = 69 250 000 EVs
69 250 000 x 0.012 = 831 000T of Lithium.

Is this trend true in any way?

Benchmark minerals has mentioned that there will be a demand squeeze on Lithium next year in 2020. If we add the 2010 Global demand prior to electric vehicles of 28 000T with 68 000T expected for EVs in 2020, this gives a total demand of 96 000T which will exceed 2018 production output of 85 000T. One can also see that in 2019 there will still be an excess of Lithium based on 2018 mining output. Therefore it appears 2020 is a potential turning point consistent with benchmark minerals predictions. However I don't believe it would be hard for current miners to supply 2021. It is another painful 2 years ahead.

By 2022 we will need double what was produced in 2018. Subsequent years will require new mines to come online to meet demand as the big players wont be able to ramp up quick enough.

69 000 000 million vehicles by 2025?
VW believes it will produce 5 million Electric vehicles by 2025. This would represent a 14% market share which is high. They have started construction in Tennesse. EV manufacturing.
As a guage Toyota sold the most vehicles at $8 million in 2018 giving them a market share of 10%. EVs could reach 69mill based on these comparatives and using VW as a benchmark.

80 million vehicles are sold globally so this would represent an almost 90% EV takeover on car sales by 2025. The netherlands are already 50% car sales being electric and its 2019 not 2025.
There is promise.

If you add up all sales of vehicles from 2019 to 2025 you will find that it represents a paultry 6% of all vehicles in the world based on Elons numbers of 2.6billion vehicles global. So on that scale it seems realistic. Again 69million seems reasonable.

The first indicator is to find out how many Electric vehicles will be sold in 2019 to prove the trend is real. Will it be around 3.5million vehicles? What news supports these trends?

So what will Lake represent in market share?

LAKE RESOURCES MARKET SHARE FOR KACHI (2023)
Assuming they reach full capacity by 2023 of 100 000 Tonnes LCE per annum which equates to 20 000T of Lithium. LME.
2023: @ 305 250T + 28000T = 333 000T
20 000T/333 000T x 100 = 6%. Market share.

2024: @ 503 700T + 28 000T = 531 700 T
20 000T / 531 700T x 100 = 3.8% Market Share

2025 @ 831 000T + 28000T = 869 000T
20 000T / 869 000T x 100 = 2.3% Market Share

100 000T per annum is what the big boys are also targeting as production. Therefore by 2023 we will need 15 mines representing 90% of market to produce 100 000T each per annum LCE with the remaining to be produced by smaller players. Remember 100 000T = 20 000T in LME.
Lake, just with kachi alone easily puts them inside the top 10. based on volume alone. Their predicted market share again seems reasonable on this analysis. What it reinforces is they will be needed.

The commidity price in 2016/2017 is important to take note:
in 2016 there was a total of 38 000T produced by mines when the market needed 9300T + 28 000T for 2010 which is around 38000T. At this point supply and demand had reached parity. The spot price at this point was $25000T LCE.This is the benchmark.https://roskill.com/market-report/lithium/

This would mean.
1T LCE /0.063T LCE per EV= 15 EVs per Tonne.
$25000/T ÷ 15 equates to around $1666 (roughly $2500 AUD) per vehicle for Lithium. This would equate to around 4.2% of build cost per vehicle with a 75KWh battery at a price of around $40000 US.
4.2% i believe is high relative to the rest of the vehicle and profit margins is too large and would expect this to be negotiated down by battery manufactuers given that the new mines only exist and rely heavily on the EV market. I also believe the reason the spot price was at $25000T was because there were no choices In mines. Battery manufacturers now have choices due to oversupply. So I speculate that offtake agreements will be set at fixed commodity price of 2% @ $800 US per EV which is $12000/T with the promise of funding. Thinking very conservatively here.
This is the price I expect at parity between supply and demand.

THE POTENTIAL IN LAKE.
So to evaluate Lake, lets assume a commodity price of say $12000 per Tonne at parity of supply and demand at full capacity by 2023.

@ 100000T = $1 200 000 000 Revenue.
@ 2600T opex = $260 000 000
-$250 000 000 Capex debt
= $740 000 000million
@ 40% Tax (Guessing)
=440 000 000 Net.
@530 530 000 outstanding shares
= 83 cents per share at 100% return.
if the market decides its okay with a 15% return then the stock could be selling at about $5.53c per share by 2023. Anything over this price will mean its over priced. This is also assuming that Lake will choose to pay its debts in full.

Ignoring the debt then the market could decide to pay up to $8.
on the promise of higher dividends.

If Lake decides not to payout and use the money to develop their other mines then this would mean it is a stock potentially worth a minimum of $24 per share by 2028/29 peaking at $40 to $50 based on withheld revenue ignoring any adjustment for inflation. SQM has hit these share price values based on Lakes potential output

IN SUMMARY:
Lakes current value is fair.

Lets create a hypothetical. They have the desired management, Amvest is gone and Lilacs full production plant is humming. And tomorrow they can start selling. What will the implications be?

Very bad..

The spot price is low to the point that if it goes lower than there is a chance that current producers could fold with nowhere to turn for funding and this will be due to adding to additional Lithium in the supply chain. Why should we care?

Well lets assume Lake and other junior miners adds more to the pile. Other companies fold due to lower spot price that cannot cover their OPEX.. By the time EVs begin to ramp up they will find immediate problems with their supply. They then cannot sell enough EVs to cover their OPEX due to supply constraints. And then they fold. It was one of the contributing factors that lead Tesla from being 6 to 8 weeks from bankruptcy in 2018. Supply from all competitors will matter and needs to be protected.

With Kachi it is only going to supply at best 20 000T of LME per annum. (100 000T LCE). Once EVs hit that point of inflection it will need 15 mines operating at full capacity minimum by 2023. Double that by 2025 should the trend continue to materialise.This reinforces the above regarding protecting current producers.

The take away here is that there is nothing wrong with Lake or its management good or bad. If EVs were band would you jump on here and moan about Amvest? Hell no! Sell... Lake wouldn't be worth anything. The current EV sales don't even warrent Lake being a business. EV market matters. If Tesla had failed I would not have bought Lithium.. They proved EVs were profitable. Really important when deciding to invest in Lithuum.

For me it is about focusing on yard sticks. How many EVs are sold per year. Should the current trend be validated by the end of this year at 3.5million electric vehicles and next year it hits 5million and 2021 at 9million vehicles then we have hit the crucial point of the S curve whereby it will accelerate very quickly. What is currently happening is a new emerging market and right now it is experiencing growth pains in all departments.

2022 is when the EV market will mature by my best estimate. Lithium will be there for the ride. This may mean if Lake secures their funding next year. They would have timed their run to absolute perfection.

At a time of very little news for Lake. My intention is to draw the attention towards the market to provide another avenue of discussion and alternative perspectives. If you read through the comments a few seem to have thrown fundamenrals out the window.

There is a saying about investing. Its 10% intellect and 90% pain.
If your careful with the 10%. It will make the 90% worth its while.

Expand

jojo84

Encore ...refreshing, thank you.

For those who did not notice it is called F.U.N.D.A.M.E.N.T. A.L.S

LKE Price at posting: 3.0¢ Sentiment: Hold Disclosure: Held
2 Upvote

0 Great analysis

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