Lithium developer Lake Resources [ASX:LKE] signed a conditional framework agreement (CFA) with South Korean battery manufacturer SK O for the offtake of up to 25,000 tonnes per annum (tpa) of lithium from LKE’s Kachi Project in Argentina.
The CFA includes a 10% investment by SK On in LKE via the issue of new ordinary shares.
LKE shares were up 3% on the news in late afternoon trade.
LKE shares have been down 45% in the past six months.
Source: tradingview.com
LKE and SK On’s new offtake deal
The key terms of the conditional agreement with SK On include:
- ‘A strategic investment of a 10 percent stake in Lake (20 trading-day VWAP prior to 12/10/22)
- ‘Offtake of 50 percent of Kachi project lithium product up to 25,000dmt (LCE)
- ‘Initial five-year term plus option for a further five years
- ‘Offtake priced on an agreed market price formula based upon the average quoted price in the quotation period’
Like LKE’s recent CFA with WMC Energy, the conditional agreement hinges on LKE’s Definitive Feasibility Study (DFS), Lilac demonstration plant results, financial due diligence, and Kachi’s product specifications.
SK On is an affiliate of SK Group. SK develops batteries for major automotive companies such as Ford, Hyundai, and Volkswagen.
LKE’s Executive Chairman, Stu Crow, believes the agreement will strengthen LKE’s longer-term shareholder base, adding equity to the company’s debt facilities and development.
‘The CFA delivers a long-term strategic agreement with SK On, one of the world’s pre-eminent lithium-ion battery producers with a major growing presence in the North American market.’
David Dickson, LKE’s new CEO, expressed the belief that the CFA will enable Lake to expand its environmentally friendly production processes while also opening the door for SK On to participate in some of LKE’s other projects.
Dickson hopes to work closely with SK On to ensure an ongoing supply of high-quality lithium can be used for SK On’s battery manufacturing for major EV vehicle producers.
Jinsuk Ryu, SK On’s Vice President, commented on the new agreement with Lake Resources:
‘SK On is very pleased to execute this CFA with Lake, a clean lithium developer, which can allow SK On to secure a stable lithium supplier for its U.S. supply chain.
‘Lake fits particularly well with SK On’s ESG policy as it utilises environment-friendly direct lithium extraction technology for production of lithium. With this CFA, both Parties will strengthen mutual partnership to advance opportunities to secure sustainable sources of raw materials in the future.’
LKE’s offtakes exceed production capacity
If you were keeping tabs on the conditional offtakes Lake Resources has signed, you’d notice that the lithium developer now has agreements for lithium exceeding its planned Kachi production capacity.
LKE’s April 2020 pre-feasibility study results mentioned an annual production target of 25,000tpa at Kachi from 2024.
But over the past year, LKE has signed:
- 25,000tpa non-binding memorandum of understanding (MoU) with Ford
- 25,000tpa non-binding MoU with Hanwa
- 25,000tpa CFA with WMC Energy
- 25,000tpa CFA with SK On
In January this year, LKE announced that Kachi’s base production case would rise to 50,000tpa in the upcoming definitive feasibility study and the final investment decision.
LKE said the DFS would be expanded to 50,000tpa due to anticipated resource estimates increase.
So, under the initial PFS base case of 25,000tpa, LKE’s recent agreements exceed production capacity by 300%.
Under the revamped 50,000tpa case, LKE’s agreements still exceed production capacity by 100%.
How would this get resolved if LKE meets its conditions precedent and the offtake partners line up to receive Lake’s lithium?
Lake does have an aspirational target of reaching 100,000tpa production by 2030.
But that’s what the target is so far — aspirational.
Will the CFAs signed with WMC Energy and SK On take precedence over the MoUs signed with Ford and Hanwa?
Have the MoUs with Ford and Hanwa lost potency for LKE’s management?
I guess we will have to wait and see how these matters unfold.
Lithium and the EV revolution
In 2021, lithium stocks dominated the ASX — eight of the 10 best-performing stocks on the All Ordinaries in 2021 were lithium stocks.
But lithium stocks haven’t fared as well in 2022, with many of last year’s high-flyers trading well below their 52-week highs.
Is it too late to tap into the lithium sector as we approach 2023?
Money Morning has recently published a research report which may answer such questions.
The research report also profiles three overlooked ASX lithium stocks.
Access the research report here.
Regards,
Kiryll Prakapenka,
For Money Morning
