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Lake Resources down -12% following dispute with Lilac Solutions

By Market Index
Wed 14 Sep 22, 1:34pm (AEST)
Sword fight
Source: Unsplash

Key Points

  • Lake Resources was the worst performing company on the ASX 200 at noon
  • Lake is at odds with earn-in partner, Lilac Solutions, over the dates by which key milestones must be reached
  • Assuming milestones are not achieved by September 30, Lake may exercise its rights to have the dispute resolved either by agreement of both Lake and Lilac or by arbitration

After rallying strong since mid-July, Lake Resources (ASX: LKE) was the worst performing company on the ASX 200 at noon, after the lithium developer disclosed a dispute with its earn-in partner, Lilac Solutions.

The spat between Lake and Lilac is over the dates by which Lilac must achieve key milestones outlined in its flagship Kachi Pilot Plant agreement signed one year ago.

To the uninitiated, Lake’s Kachi Project is located in Argentina’s Catamarca Province at the southern end of the Lithium Triangle, a world-renowned province responsible for 40% of global lithium production.

Where does Lilac Solutions fit in?

Lilac, a lithium extraction technology company, was chosen as an earn-in partner based on its low-cost production process, offering higher lithium recovery rates, plus environmental and water source considerations.

Lilac designed and built a lithium extraction process plant for the Kachi project and successfully delivered this plant to Salta, Argentina in April.

This plant is designed to produce a lithium chloride concentrate, with a production capacity of 40 tonnes per annum of lithium carbonate equivalents. 

Why are Lake and Lilac at odds?

The agreement states that Lilac will earn up to a 25% stake in the Kachi project assuming certain milestones are reached by an agreed date.

While Lake expects the milestones set out for Lilac to be achieved by September 30, Lilac maintains it has until November 30 to do so.

What milestones?

Lilac is expected to complete at least 1000 hours of operations (including uptime, maintenance, monitoring, and other work that constitutes operations).

Lilac is also expected to produce a lithium carbonate feed totalling at least 2,500 kg of lithium carbonate equivalents from onsite operations.

What will Lake do next?

Assuming milestones are not achieved by September 30, Lake may exercise its rights to have the dispute resolved either by agreement of both Lake and Lilac or by arbitration.

Meantime, work continues on progressing the DFS and Lake plans to update the market in due course on both progress on resolution of the current dispute.

Share price rally

Since slumping to a low of $0.58 mid-July, Lake’s share price jumped to a high of $1.59 mid-August before bouncing back to $1.11.

The market reacted favourably to the recent appointment of new CEO David Dickson who has a proven track record in successfully delivering multi-billion-dollar resource projects.

Current disputes with Lilac Solutions aside, Dickson is expected to fast-track Lake’s key projects and marketing milestones in North and South America.

Consensus on Lake, an S&P/ASX300 company, is Strong Buy.

Based on Morningstar’s fair value of $2.64 the stock appears to be significantly undervalued.

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Lake Resources share price over 12 months.

 

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