Lake Resources (ASX: LKE) recently disclosed a significant delay and cost escalation for its primary lithium project, the Kachi project in Argentina. This announcement led to a 20% drop in the company’s share price as it revealed a six-year delay in the project and a substantial increase in costs. The first production phase, originally scheduled for 2024, has been postponed to 2030, with the cost estimate more than doubling from $544 million to between $1.1 billion and $1.5 billion.

CEO David Dickson’s Response to the Challenges

David Dickson, the company’s CEO, has agreed to pay a civil penalty of $US 100,000 to the SEC due to issues related to his previous role as the CEO of McDermott International, a New York-listed company. Despite these challenges, Dickson asserts that Lake Resources has effectively mitigated the project’s risks, expanded its lithium resources, and established a realistic timeline.

Increasing Demand for Lithium Amid Project Delays

The delay in the Kachi project comes at a time when there’s an increasing demand for lithium chemicals, expected to drive the industry’s sales to over $10 billion annually within the next decade. This demand is primarily fueled by the rapidly growing production of batteries for electric vehicles. Despite these market conditions, Lake Resources’ revised plan now includes a phased expansion to 50,000 metric tons per year by 2030. However, the first phase of production has been scaled back to 12,500 metric tons by late 2027, a significant reduction from the initially projected 50,000 metric tons. This delay, along with the reduced output in the initial phase and the increased capital costs, has put pressure on the profit margin. There are now concerns that Lake Resources may miss the current lithium market boom due to these setbacks.

The Kachi Project: A Pilot for Direct Lithium Extraction

The Kachi project serves as a pilot for direct lithium extraction (DLE), a novel technical process that uses significantly less water but is yet to be fully commercialized. Lake is aiming to secure 70% of the project’s funding from export credit agencies and a contribution from its technology provider, Lilac Solutions, which is backed by Bill Gates. The company is also considering offering equity and seeking financing from its customers, which include South Korea’s SK Innovation battery unit SK On and battery materials trading house WMC Energy, a 10% stakeholder in the developer.

Future Prospects Amid Challenges

Despite these challenges, the extractability of lithium at the Kachi project has been confirmed, ensuring a supply life of over 25 years. However, the timing and achievable price for lithium are now uncertain. The delay in production could potentially push Lake Resources beyond the peak of the lithium market, where supply is projected to outpace demand, potentially leading to a price crash and diminishing the scarcity value of lithium.

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Sources

• https://www.afr.com/companies/mining/lake-resources-says-its-flagship-lithium-project-will-be-6-years-late-20230619-p5dhos
• https://www.marketscreener.com/quote/stock/APB-RESOURCES-18138344/news/Lake-Resources-delays-lithium-carbonate-output-to-2027-hikes-costs-44138097/
• https://www.dhakatribune.com/financial-markets/2023/06/19/lake-resources-down-20—less-lithium-later-less-profitably