Lake Ressources (ASX: LKE) shares are down another 20% today, following yesterday's fall of 20% in LKE. The problem is that update to their plans they released yesterday which we said could be summed up as “less lithium, later, less profitably.” Given that the aim of mining - of having a company at all - is to make profit it's not a huge surprise that the bloom is coming off this share. As we've also said before about Lake Resources there's a bigger question overhanging matters. What's the lithium market going to be like when they do get material to market?
Yes, obviously, we all know the world is gasping for that white gold and all that. The electrification of the global economy - not least the global car fleet - is going to require a huge expansion in lithium availability. But this is leading some into error. For there are those who think that there's actually a shortage of lithium out there that can be used. This is not so. Even Tesla's Master Plan 3 gets this right - to electrify the world will require about 20% of lithium resources. Resources are, roughly speaking, the lithium that we know is out there, in forms and minerals we know how to process. A reserve is when we've proven all of that, in detail, on this specific deposit. A reserve is when we know but haven't proven. Neither a reserve nor a resource addresses stocks in minerals we don't know about, or which we don't know how to process. Total availability is always vastly greater than resources.
Lake Resources share price from ASX
But if there's no shortage of actual lithium then the shortage can only be of people currently extracting it. A problem that can be solved by the application of more effort and capital. Which is exactly what Lake Resources is doing of course. But so, also, are hundreds of other companies. No, literally, hundreds of companies are exploring for, delineating, working upon, lithium deposits. Which is what leads to us at least thinking that the long term direction of the lithium price is down. Back down to where there are normal profits, not excess ones driven by scarcity.
There's no doubt at all in our minds that Lake Resources has a good operation, a decent deposit. We also don't doubt that it is possible to extract that lithium at a very good price - brine operations do tend to be lower cost than hard rock. However, we do think - please note, think, not insist - that beginning production in 2027, the latest plan, is going to mean pushing material into an already oversupplied market - with all the implications for prices and revenue that has.
Basically, our view is that the Lake Resources delay just makes the entire project less interesting.