If you hold Lake Resources, which is one of our favourite Lithium plays out there,
you must have your fingers in your mouth and asking yourself, what exactly is going on.
Didn’t we just have a new Executive Chairman and have got a recruitment underway for a new
MD? That’s clearly not resonating well enough for investors as you can see it in down 8%
on the day and a further 10.5% in premarket, which is very very painful. So in this video,
we talk about exactly what’s going on with this top lithium stock, so most of you viewers
who are holders, are better informed on the situation and how to approach your holding.
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That said please drop a quick like on the video and hit the bell,
so we can get on with it with our first stop, which is Lake Resources (LLKKF & ASX:
LKE) which is currently sitting at 40cents per share with a with a market cap of $580mn.
You can see the pain which Lake is enduring being down 8% on the day plus another 10% in premarket
trading, which when combined, is going make it a very tough week for Lake, where it would be down
over 21% in the last 5 days alone, and that’s from a stable price point of over 50cents recently.
And when you look at it over the past month, you can see that Lake has lost a staggering 62%
wiped out and this is at a time when the market seems to be stabilising at the bottom
which is a tough pill to swallow. We still remain bullish about the entire lithium
sector and so worth calling out that these falls with Lake are very company specific.
So here’s what’s new Lake which you need to be aware of.
So fresh after the resignation of Lake’s former MD Steven Promnitz, Lake has been hit by a short
seller report from J Capital Research based on their lithium tech allegations.
There’s a full PDF report here but I’ll only draw your attention
to some of the key highlights of this report which they describe as having a remote chance.
They say If Lake can get the DLE technology to work, then they plan to build a $1 bln
processing facility in a remote location in the Andes and they are also claiming to produce
“cleaner lithium”. They short sellers believe that, DLE will still use large amounts of water
and produce toxic waste. They say Lake has failed to get an operational pilot plant on site
three years after promising it would. Lake insiders have successfully sold
$8.1 mln in stock in the last year. Lake also granted 41.5 mln options
to financial institutions that published favourable research on the company.
Insider share sales have followed a pattern of Lake announcement, followed by favourable
research, stock price rise and then insider sales. Investors had been expecting the delivery of the
pilot plant to site and a definitive feasibility study (DFS) by the end of June, instead they
got the resignation of the CEO and Managing Director Steven Promnitz without a replacement.
Most explorers are working with multiple DLE technology suppliers to discover which may be the
best at working at scale. Based on their research into cooperation partners, they are sceptical that
the DLE technology developed by Lilac Solutions “Lilac” works. They have discovered that Warren
Buffet’s Berkshire Hathaway Energy Renewables (BHE) has “parted ways” with Lilac. And investors
still have no evidence that the Lilac DLE technology works at scale and if so at what cost.
They say Lake has hitched on to Lilac’s yet to be proven technology to develop its Kachi brine
project in Argentina. More than a dozen companies are working on DLE technology but few, if any,
have made it work commercially as Lilac has yet to commercialise its technology. Every brine is
chemically different and not all emerging DLE technologies will work for all brines.
Lake has a track record of failing to deliver on promises. As with the promised Lilac DLE
pilot plant, expected to be delivered in 2019, it is yet to be delivered, and it is yet to be
proven that it will work when it gets there. The definitive feasibility study, first promised to
be produced in 2020, is yet to be published, and in March this year Lake was still saying that it
would be in production in 2024 even though they are yet to raise capital to start the project.
So Lake's positive news announcements are leaving more questions than answers.
They recently announced two agreements, one with Ford and another with Hanwa. Lake claimed that
the agreement with Ford would be “de-risking the project for financiers and investors”.6
Which the short sellers do not agree with, saying that,
what they actually had was a non-binding MOU to “negotiate” an offtake agreement.
It is like saying I might meet someone for a coffee to discuss buying their car. Lake
has said this “considerably de-risks the project”. We they do not agree.
Lake put out a Pre-Feasibility Study in 2020 for a plant capable of producing 25,500 tons
of Lithium Carbonate a year. The following year, when lithium prices increased by 40%,
Lake put out an updated PFS with only one change, the price. The project NPV more than doubled,
without any significant new information being made available to investors. Since
then Lake has produced a stream of announcements about expressions of interest in financing the
project and non-binding MOUs to discuss off-take agreements.8 Following each of these announcements
the financial services companies holding options produced favourable research.
Lake is presenting itself as an environmentally friendly exploration project,
using the tag line “Cleaner Lithium for an Electric World” and stating that they have
“cleaner technology” that is “sustainable – low water/land impact”. The reality they say,
is that, the DLE technology may only halve the water requirement, compared with evaporation,
and many reports indicate that it will likely produce significant toxic waste.
And with regards to Lilac technology: Lilac, has raised $200 million from backers like Bill Gates
Breakthrough Energy Ventures which includes, as investors, but they have not achieved a
lot to date to produce a commercially viable DLE process. Lake is wedded to Lilac’s DLE technology
to produce lithium in Argentina, despite it being unproven. How damning could this be??
Lake was quick and did the right thing to respond to the report saying that the short seller,
J Capital, puts forth incorrect information on technical matters and inaccurate assertions on
Lake Resources’ progress to-date with its technology partner Lilac Solutions.
Lilac’s operating team arrives at the Kachi project site on 14th July 2022, with the
demonstration plant modules delivered on site by 20th July 2022 when commissioning will commence.
The report’s description of DLE processes does not pertain to Lilac’s ion exchange technology.
It is criticising the wrong process. There are over 50 direct extraction processes in use across
industries and Lake examined a number of different processes in order to select Lilac Solutions. With
Lilac’s proprietary ion exchange chemical process, Lake intends to efficiently deliver the large
volumes of high-quality lithium chemicals needed by battery makers. Lilac has worked
extensively with Kachi brine, generating the data needed for engineering studies.
Importantly, lithium can be produced cleanly and in a way that respects and involves local
communities and protects the environment. On the Lilac Solutions proprietary ion
exchange technology: Lake believes the DLE will become the primary method of lithium extraction
because it is the only practical way to ramp up lithium supply sustainably
and in a way that conforms to increasing ESG scrutiny on lithium projects.
The chemical techniques employed are already well-established in the water industry
and direct extraction by ion exchange is also widely used in the uranium sector.
What a come back but we need to stay tuned to see how these claims are upheld.
Seeking Alpha says investors should be Cautious Amidst this Short Report And Management Turmoil.
The CEO’s sudden resignation has created a lot of uncertainty. J Capital Research,
an activist short seller, has piled-on by issuing a short report whilst the Executive Chairman says
Lake is considering “exceptional” candidates for vacant CEO position.
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So some very very interesting and mindblowing prospects ahead for these stocks but only
consider getting in if the price is right for you and if you fully understand the risks. This
video is not financial advice, a buy or a sell recommendation, but is meant to
bring some new and exciting stocks to your attention for you to do your own research..
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