The report assigned the company a 12-month price target of A$0.73 per share and highlighted the potential for a value to rise towards A$2.31 per share within three years as Kachi progresses, with de-risking of expansion adding additional value.
Analyst Di Brookman said: “Using a NPV8, we value LKE on a risked basis at $0.98/share today and trading at 75% of value yields a 12-month target of $0.73/share.
“As announcements are made, the project value will increase as will the 12-month target. “As Kachi progresses through its list of catalysts the model will de-risk through time.
“Within 3-years, value could rise towards $2.31/share, approaching its PFS value.
“De-risking of an expansion option could add additional value.”
Disruptive lithium extraction technology
The report stated: “LKE is using disruptive lithium extraction technology to produce lithium for sales into the US, Europe and Asia.
“With its clean tech partner Lilac Solutions, LKE is moving fast to bring a low carbon, low water, low waste, no acid products, light footprint, low-cost and high value project to market.
“With the DFS due early 2022, construction could start mid 2022 and production of high purity lithium could commence early 2024.”
Kachi emissions, water and waste footprints will be low with no mining or evaporation ponds required and its 99.97% battery grade lithium carbonate, which enables improved battery performance, is expected to achieve premium pricing in a rising market.
Demand could quadruple by 2030
The report notes that Benchmark Minerals Intelligence (BMI) expects global battery capacity could grow from 184 gigawatt hours in 2018 to just over 3,000 gigawatt hours in by 2030 – and lithium output would need to grow from 0.3 million tonnes in 2019 to around 2.4 million tonnes per year by 2030 to meet this demand.
“As product demand has not been matched by capital investment and with lithium, demand expected to quadruple by 2030 and if all cars on the road today would convert to LIB, then lithium would need to increase 30-fold.
“With recent supply cutbacks and delays due to COVID-19, the market has not developed new supply to meet demand in the mid-term, which will place upward continued upwards pressure on pricing.
“To deal with this reality and given lithium is the central tenant of the cathode chemistries those battery cells with less of the expensive components like nickel, cobalt and aluminium will likely grow in demand.
“With most of the existing lithium production contracted it is clear that many new projects need to be developed and fast.
“Hard rock does do faster but not with the benefits or scale up of Direct Lithium Extraction. “We suspect more of these types of lithium extraction projects will occur driven by a greener and less wasteful footprint.”
ESG premium price outlook
Ultra-high-quality lithium with a high ESG footprint would be likely to receive a premium price in a tight green lithium carbonate world, with a paradigm shift to the e- mobility megatrend brought about by ESG/green investment and the desire to localise supply chains in the shortest time possible.
However, with next to no development in recent years the market is not ready to meet demand and this is being reflected in growing pricing pressure.
Currently, lithium prices are rising strongly in China and with few projects under construction or expansion it is considered buyers could pay around US$3,000/tonne premium for the cleaner, consistently high-quality lithium for use in battery cathodes.
BMI expects global battery grade lithium carbonate prices to hit highs of about US$16,100/t, in 2024.
The company recently refreshed Kachi’s Pre-Feasibility Study (PFS) to reflect a price rise of around 40% to US$15,500/tonne over 25-years.
This increases the NPV8 by 110% to US$1.58 billion or A$2.02 billion – with Lake currently trading at A$324 million or just 18% of Kachi’s NPV.
Upside and scaling potential
The Kachi project has an indicated JORC resource of 1.01 million tonnes LCE and an indicated and inferred JORC resource of 4.4 million tonnes LCE, and resource upside still exists as only 15% of the current lease has been explored.
In addition, further upside exists at Cauchari (LKE 100%) which is proximal to Ganfeng and Orocobre’s producing assets.
Potential for a phase-2 expansion exists if the current resource can be further upgraded by drilling that is currently underway.
At this stage, the project has enough resource to support 4 modular driven expansions each at the rate of 25,000 tonnes year.
The report states: “ESG & e-mobility megatrends collide as investors pursue low emissions, low waste and socially aware investments.
“The challenge is to find those investments that are disrupting the view that mining is just a dirty business.
“Cleaner/low emissions footprints and high quality products are also better placed to secure off-take agreements and funding.
“A fact not lost on investors.
“LKE is one of these companies.”
The company is presently funded through to construction, which is expected to commence mid 2022, followed by 18 to 24-months of construction and production expected in early 2024.
Story by ProactiveInvestors
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