Lake Resources (ASX: LKE) shares are down 20% on the release of an operational and planning update. The news from which is not good, thus the decline in the LKE share price. Effectively, there's going to be less lithium, the lithium's going to be later and the profit margin is being squeezed. These are not things that anyone really desires. It's also possible to go one stage further and start to think that Lake Resources might miss the boat entirely. Lithium brines should still be fine, but to miss the current roaring market for the output would be, let us say, a shame.
The announcement by Lake Resources: “Lake Resources Announces Two Phase Development to Targeted Production of 50Ktpa Battery Grade Lithium Carbonate
Phased approach of 2 x 25Ktpa plants de-risks project execution and accelerates
time to first lithium production with clear milestones. Confirmed ~37% increase in Measured higher grade resource, supporting 25+ years of supply life. Potential Kachi resource expansion to 8.1 million tonnes LCE supports further expansion opportunities.” and lots more in a similar vein. It's necessary to really read the releases - we've mentioned before that reading corporate releases is an art form - to grasp what is really being said.
Lithium production is going to be later than previously thought and, in that first stage, in smaller volume than at first thought. By moving to a smaller overall plant it will be possible to build a second train to expand in the future - thus the capital costs are lower in gross, but higher per unit produced.
Lake Resources share price from ASX
Lithium from brines is near always going to be lower production cost that from hard rock, or spodumene, mining. We really are pretty certain that lithium demand is going to continue to rise in coming years. So these changes are not a fatal blow to the project. But Lake is going to be later to market with less material in this first phase. Capital costs are also up - therefore we've three reasons wy the LKE share price gets marked down.
There's also the one more reason why it all becomes less attractive. Which is that while we are really very certain about increased demand in the future we're also really very sure about increased supply. And there's a significant risk that supply is going to rise faster than demand. That will crash the price - it's entirely possible that those later into production will entirely miss out on the scarcity value that is. Given that predictions, especially about the future, are difficult it's not possible to be certain about this. But delaying first production out to 2027 could take Lake Resources beyond that event horizon.
There's no doubt the lithium is there, that it's extractable. It's the timing and price that can be got for it that's in question. This is something we've pondered before about Lake Resources.