- What is the cost of production per tonne compared to equivalent quality from brine projects in Argentina? (there are several for comparison) - will we have to discount our price to compete ?
Once fully up and running, based on a lithiumcarbonate price of US$11,000/t and C1 cash costs of US$4,178/t, the project is expected togenerate a margin of US$174m pa over C1 costs, representing a margin of 62%. The post-taxNPV8 is US$748m.
The PFS is based on a conservative price assumption of US$11,000/t LCE throughout the projectlife; other companies have used prices that are 16% to 40% higher than this.
A lithium price of US$13,000/t wouldmean a higher NPV8 of US$1,122m.
A 99% product contains ten timesthe impurities of a 99.9% product. Current price indications from Chinese traders are US$5,500/t for99% product, ~US$10,000/t for 99.9% and US$25,000+/t for 99.99%
Comparing cost of production for "equivalent quality from brine projects in Argentina" is difficult since none are targeting "battery" grade LiCO3 (99.9% or greater). The rest are targeting "technical" grade 99.4% or 99.5%. Only Standard Lithium in Arkansas USA are targeting battery grade - 99.9 or greater
Please see page 12 of research done by HK based analyst - Simon Francis from Orior Capital LTD.
- What is the comparative capital cost per tonne? (there are several for comparison).
Again, a like for like comparison is difficult since the grades are not alike.
Additionally, all companies are using different "contingency" numbers. Ranging from $47mil - $91mil. LKE being the highest @ US$91mil.
Nevertheless, LKE is sitting slightly higher than the middle of the pack @ US$21,333 initial capex/t. Range US$15,950 - US$28,150.
Upfront capital costs are broadly in line with the cost of other projectswith similar scale.
"Huge" is a term frequently used by posters on this site. Kachi ranks 7th in Argentina (total iindicated and inferred)
Not sure about Kachi's ranking in Argentina, but the resource is ranked top ten largest globally.
From Kachi JORC dated November 2018)
The indicated resource is 1,005,000 tonnes Lithium Carbonate Equivalent (LCE) from brine with an average lithium concentration of 289 mg/L The majority of the resource is inferred - 3,394,000 tonnes LCE from brine with an average lithium concentration of 209 mg/L
Correct
Brine bearing sediments remain open at depth and laterally; there is an opportunity to expand theresource with additional drilling both to depth, and to cover a wider area. Management has anexploration target of 8m tonnes to 17m tonnes LCE, which would be of a similar scale to globallysignificant lithium players.
I have seen no reference to an drilling other than the 15 holes completed to November 2018 which provided those estimates. The inferred resource and concentrations maybe more or less than indicated
The Lilac process makes possible the recovery of lithium from brine with low lithium concentrations that would not be economical using evaporation ponds. However as can be seen the cost per tonne of LCE using the Lilac process at Kachi is somewhat higher than from evaporation ponds with higher Li concentrations.
Incorrect.
Despite the obvious advantages in terms of chemical purity, and production times, the Kachiproject has similar capital intensity as evaporation pond projects. In terms of operating costs. the project has C1 cash costs of US$4,178/t. This is similar to expectedcosts at Standard Lithium’s direct extraction project at Lanxess.
It is higher than many evaporationpond operations, though these typically produce a 99.4-99.5% lithium carbonate product.
Arguably, it is less important to be cost competitive with evaporation pond operations becauseevaporation ponds are difficult to scale-up, face increasing environmental questions, and are unlikelyto be able to meet the expected rapid growth in lithium demand. This is born out in the global lithiumproduction data over the past 3-4 years. Growth in output from Australian hard-rock sources has faroutstripped production growth from evaporation ponds. It is much more important to be costcompetitive when measured against hard-rock sources. Kachi achieves this.
The pilot plant will have roughly 1,000xthe scale of earlier bench tests carried out on Kachi brines. The commercial plant modules will beonly 3x the scale of the pilot plant modules.
Logically using the Lilac process the lower the concentration (of the inferred resource) the higher the production cost per tonne will be. The same would apply to the evaporation process i.e the lower the concentration the higher the cost per tonne The brine supply wells at the Standard Lithium–Lanxass project have a lithium grade of 168 mg/L,and E3 Metals’ feedstock is at a grade of 86 mg/L lithium. Lake’s indicated resource at Kachi has agrade of 289 mg/L. Compared to other brine resources, these might be considered ‘low-grade’. Thatmisses the point. In industrial chemistry, ‘low impurities’ is king.
There is a clear trend in companies demonstratingthat direct extraction technologies can produce 99.9% lithium carbonate products with lowimpurities. These products will see increasing demand from battery makers in future.
However IMO both the indicated and inferred resource estimates are academic and theRECOVERABLEresource is the true basis for valuation. Are the resources to recover 100% of the resource proven. That should be available from the full"technical"version of the PFS if it is available. Over what period of time will the resource be recovered. Will lithium batteries still be in use at the end of (say) a 40 year life of mine. Will the capital be available to accelerate the rate of recovery.?
Another difficulty in comparative analysis arises from different recovery rates. According to the feasibility studies of sixlithium developers, recovery rates vary from 52% (Neo Lithium) to 90% (Standard Lithium). Theexpected recovery rate at Kachi is 83%. Lake Resources is expected to recover a third more of theirlithium resource than Neo Lithium will theirs.
With long project lifetimes, different recovery rates, and differing portions of resource being mined, itis difficult to draw meaningful conclusions from EV per resource metrics. The preferred approach, EVper tonne of production capacity, largely eliminates these issues.
Lake Resources is currently trading at an estimated EV/t capacity of US$518. This representsan 85% discount to the average valuation of four lithium developers (excluding AdvantageLithium) and a discount of 88% to the valuation that Orocobre paid for Advantage Lithium. (That iswith no value attached to the Lake’s other assets).
Reference: Research done by HK based analyst - Simon Francis from Orior Capital LTD.
I trust this is useful.
LKE Price at posting:
3.4¢ Sentiment: Buy Disclosure: Held
(20min delay)