Why is the Lake Resources share price crashing 19% on Monday?

Things are going very badly for this heavily shorted lithium developer.

Key points
  • Lake Resources shares are being hammered on Monday
  • This follows a disappointing production update from the lithium developer
  • Investors will now have to wait longer for less production and at a much higher cost

The Lake Resources N.L. (ASX: LKE) share price has started the week with a huge decline.

In morning trade, the lithium developer's shares are down 19% to a 52-week low of 38.5 cents.

A man stands in front of a chart with an arrow going down and slaps his forehead in frustration.

Image source: Getty Images

Why is the Lake Resources share price crashing?

Investors have been selling Lake Resources shares today after the heavily shorted company released a bitterly disappointing operational update for its Kachi brine project in Argentina.

According to the release, the company has developed a clear path to battery grade lithium carbonate production in 2027, which is much later than expected.

Phase one is targeting 25,000tpa battery grade lithium carbonate, structured as two 12,500tpa trains. After which, a phased expansion to 50,000tpa by 2030 is being targeted.

The company previously had "Target 100", which was targeting 100,000tpa of production by 2030 from its projects in the Lithium Triangle. It was also expecting 50,000tpa in production by 2024.

Now, investors will have to wait an extra three years for 25,000tpa.

High costs

While the costs have not been finalised, it is looking likely to be a very expensive operation. Management estimates that phase one has a capital cost of US$1.1 billion to US$1.5 billion with a run rate operating cost of US$4.70 to US$7.10 per kg.

The company's pre-feasibility study result for 25,500tpa had capex of US$544 million and lower costs per kg. It also had a higher post-tax net present value (NPV) than the low-to-mid range of its new pre-tax NPV.

All in all, it isn't a surprise to see the Lake Resources share price crash on the news.

'De-risks project execution'

Lake Resources' CEO, David Dickson, remains positive. He said:

The plans announced today to the ASX show a clear path to battery grade lithium carbonate production in 2027 and phased expansion to a target of 50ktpa by 2030. Our new, phased approach de-risks project execution while ensuring battery grade lithium carbonate comes to market in a cleaner, efficient way.

We have validated the major commercial process systems for the Kachi Project and the ability to produce high-quality, battery-grade lithium carbonate from Lake's brine resource using Lilac DLE technology.

A definitive feasibility study (DFS) for phase one is targeting completion later this year in December 2023. Whereas the DFS for phase two, for another 25,000tpa battery grade lithium carbonate, is targeting completion by the fourth quarter of 2026.

Dickson also revealed that its project stakeholders are supportive of the plan. He adds:

We have consulted with our project stakeholders including our debt providers and offtake partners, and they are supportive of the phased plan.

Finally, the company revealed that independent testing of lithium carbonate produced from the Kachi Project in Argentina has confirmed grades and purity greater than 99.8%.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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