Lake Resources signs another offtake but investors should brace for heavy dilution

Wed 12 Oct 22, 11:26am (AEST)
A snapshot of a brine lake containing lithium where material has been mounded into small humps on the surface of a brine system
Source: iStock

Key Points

  • SK On will take a 10% investment in Lake and purchase up to 25,000 tpa of lithium from Lake
  • The agreement is subject to a set of conditions including Kachi's DFS and the results of Lilac's demo plant
  • Subject to various conditions, Lake has to-date handed out 45% of the company

Lake Resources (ASX: LKE) is moving expeditiously for offtakes and equity partners, signing its second conditional framework agreement in the past week.

The conditional agreement brings on board South Korean-based EV battery maker, SK On, for the offtake of up to 25,000 tonnes per annum of lithium for an initial five year term and a 10% equity stake in Lake via the issue of new ordinary shares.

The agreement is subject to a set of conditions including the completion of the Kachi Project's definitive feasibility study (DFS), Lilac's demonstration plant results and other due diligence.

Lake's Executive Chairman Stu Crow said the agreement "strengthens Lake's long-term shareholder base and adds to the equity component required for the drawdown of debt facilities for project development."

Heavy dilution

Subject to conditional agreements and performance milestones, Lake Resources has handed out 45% of the company to date. This includes:

  • Lilac Solutions: A maximum of 25% in the Kachi Project

  • WMC Energy: 10% in Lake

  • SK On: 10% in Lake

If such conditional agreements and milestones are met, current investors can expect rather heavy dilution.

The investments from conditional offtake partners WMC Energy and SK On is viewed as 'de-risking of the project for financiers and investors.'

But for now, Lake is taking on more risk as these agreements are subject to a set of conditions like Kachi's DFS and the performance of the Lilac demo plant. To-date, Lake has shown a poor track record of sticking to its schedule.

Another sizeable offtake

This is the second conditional offtake agreement in the past week, at a time when Lake is trying to figure out whether or not they can produce clean lithium at scale.

The company said the offtake with SK On for 25,000 tonnes per annum of lithium represents 50% of Kachi's expected production.

However, Lake has also signed a few other agreements in the past few months, including:

  • Non-binding MoU with Ford for 25,000 tpa

  • Non-binding MoU with Hanwa for 25,000 tpa

  • Conditional framework agreement with WMC Energy for 25,000 tpa

Whilst the offtakes are conditional and/or non-binding in nature, that's still 100,000 tonnes of potential offtake on the table for Lake. Or, 200% of its expected lithium production.

Lake Resources N.L. (ASX LKE) Share Price - Market Index
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Written By

Kerry Sun

Content Strategist

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

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