Much to the relief of its long-suffering shareholders, Lake Resources N.L. (ASX: LKE) shares are having a strong session on Friday.
At the time of writing, the lithium developer's shares are up 11% to 20 cents.
Investors have been buying Lake and other ASX lithium shares today amid a broad market rally following a strong night of trade on Wall Street.
Unfortunately, while today's gain is undoubtedly great, it doesn't change much on a longer-term basis.
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What if I'd bought Lake Resources shares almost 18 months ago?
It wasn't that long ago that the market was in love with Lake Resources shares and saw huge promise from its Kachi operation in Argentina.
Especially after the company signed a memorandum of understanding with auto giant Ford Motor Co (NYSE: F) for 25,000 tpa of lithium from Kachi. This led to Lake Resources shares climbing as high as $2.31 in April 2022.
If I had invested $2,000 into the company's shares at the peak, I would have received 866 units.
Today those shares would have a market value of just $173.20. That's over $1,800 of my hard-earned money gone in less than 18 months.
Thankfully, I didn't invest in Lake Resources shares.
What went wrong?
Investors have been selling off this ASX lithium share for a number of reasons. The most recent was its significantly lower-than-expected production guidance and higher costs. The latter is so high that it really calls into question whether the Kachi project is even viable.
Lake Resources expects to deliver lithium carbonate production of 25,000tpa in 2027. This compares to its previous guidance of 50,000tpa of lithium carbonate production by 2024.
As for costs, management estimates that its phase one plan 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 results for 25,500tpa had a capex of US$544 million and lower costs per kg.
Lake Resources currently has a market capitalisation of ~$270 million. This means it will need over 4 times its market capitalisation in funding to cover its phase one plans. Securing that kind of massive capital in the current macroeconomic climate is incredibly difficult. Even highly profitable digital sectors are feeling the squeeze; if a cash-rich crypto casino or a successful fintech unicorn has to fight for favorable institutional loan terms right now, an unproven mining operation with ballooning costs faces an exceptionally steep uphill battle.
