Lake Resources NL (ASX:LKE) (OTC:LLKKF) is incredibly undervalued as per a new research report by Orior Capital’s Simon Francis, a former top-rated metals and mining analyst in Asia with Macquarie, Credit Suisse and HSBC.
This research highlights the potential value of Lake’s Kachi Lithium Brine Project in Argentina following the recently released pre-feasibility study (PFS) concerning its sustainable and scalable direct extraction process.
The Hong Kong-based analyst highlighted Kachi’s ‘significant and sustainable competitive advantages’ including its ability to produce a 99.9% lithium carbonate battery-grade product with low impurities, based on a sustainable process, as sought by electric vehicle (EV) makers.
Francis' research references the production of the samples from the pilot plant modules as being a critical value catalyst for Lake.
The report also highlights the growing global demand for lithium as EV penetration increases, yet challenges to supply are expected to result in growing supply deficits by the mid-2020s, particularly for battery-grade products.
Valuation of 29 cents per share
Noting that ‘Lake looks incredibly undervalued’ Francis said: "Despite robust financial metrics, the advantages of direct extraction and the excellent long-term outlook for lithium, Lake Resources is trading at less than 2% of NPV.
“Canadian company Standard Lithium, which is also developing a direct extraction project is trading at ~20% of attributable NPV.
“In February 2020, Orocobre paid an estimated 16% of NPV to acquire Advantage Lithium.
“Valuing Kachi at 15% of NPV and Lake’s other projects at say, A$25m, suggests a valuation of A$0.29 per share. This is ~9x the current share price."
Shares today have been as much as 14% higher to 4 cents and are up from 2.5 cents at close on March 24.
Pilot plant progress
Following Lake’s recent release of the Kachi PFS, the company has intensified discussions with downstream participants and financers.
Lake is also processing lithium brine samples from Kachi at its technology partner, Lilac Solutions’ direct extraction pilot plant module in Oakland, California.
Lilac has been limited to basic services while ‘shelter in place’ restrictions are in place, but these are currently planned to be lifted next week, which will allow Lilac to resume full operations and allow other service providers to re-open, that are critical to Lilac’s operations.
Substantial investment in renewable energy
The importance of new projects capable of producing a battery-grade product has been highlighted by recent investments announced by Europe in battery minerals, including France (US$8 billion), Germany (more than US$1 billion) and the European Union (US$88 billion).
China, the world’s biggest EV market, has also extended state subsidies and tax breaks for ‘New Energy Vehicles’ while South Korea’s US$110 billion ‘New Green Deal’ includes substantial investment in renewable energy.
EVs have been prioritised as automakers reopen, according to discussions in the sector.