Lake Resources shares: Is the bottom here yet?

It's been a treacherous journey for this lithium company. Time to be greedy when others are fearful?

| More on:
Businessman in a barrel plunges down a waterfall

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Lake Resources Ltd (ASX: LKE) share price has been under intense pressure over the last year. As a result, the lithium explorer's shares are now a shadow of what they once were, racking up an explosive 92% dumping from their April 2022 highs.

At one point, the upcoming lithium explorer boasted a market capitalisation of nearly $4 billion. However, a lowered production forecast and cratering commodity prices have taken their pound of flesh, reducing Lake Resources to a valuation of $241 million.

Now worth a fraction of its former self, has the Lake Resources share price reached rock bottom, or are there more lashings ahead?

Is there more downside for Lake Resources shares?

Straight off the bat, I have no special fortune-telling abilities. Where the Lake Resources share price goes from here is anyone's guess. However, we can form an educated view based on the available information.

Two key factors will arguably drive shares in this ASX lithium company in the medium term: the lithium price and project development. Shares in established mining companies tend to move based on production and profits, but Lake Resources is not yet at that stage.

Instead, Lake is busily working on assessing and developing its first site, the Kachi project. Hence, investors will likely be keeping close tabs on the feasibility and financing of the Argentina-based deposit.

On 31 October, Lake Resources presented at the International Mining and Resources Conference (IMARC). Attendees were reminded that the company targets lithium carbonate production in the third quarter of 2027 — four years from now.

Source: Liontown Resources capital raising presentation

The wait might be worth it if the estimated resource size is accurate. Lake believes Kachi holds 2.9 million tonnes of lithium carbonate equivalent, ranking it above Mineral Resources Ltd's (ASX: MIN) Mt Marion mine, as shown above.

However, it also infers a long — likely costly — road still to conquer before Lake Resources reaches production. The downside risk is in meeting the funding (and associated costs) over the next four years.

The company's latest quarterly report noted seven full quarters' worth of funding. If you disregard the available debt portion, relying solely on cash, Lake Resources would have one full quarter of juice in its tank.

The argument for buying now

One could argue now is the time to pull the trigger on Lake Resources shares despite the execution risk ahead, namely because of the rampant consolidation taking shape in the lithium industry lately.

Recent weeks have witnessed billionaires and big corporations buying up ASX lithium shares in droves. Liontown Resources is a prime example of a pre-production lithium company attracting a $6.6 billion takeover bid, which has since fallen through.

It's worth noting that most of the interest surrounds Australian-based deposits. In comparison, Lake Resources is situated in Argentina — another jurisdiction that supports mining developments but perhaps not as attractive as outside investors see Australian projects.

What I'm waiting to see

Personally, I'm holding out to review the company's phase 1 definitive feasibility study slated for release next month. This document should shed further light on the economics and estimated costs of bringing Kachi to life.

At this stage, plenty of unknowns make it incredibly hard to value Lake Resources shares. For now, I'm putting this ASX lithium share into my 'too-hard' pile, as Warren Buffett would say. That isn't to say the company can't succeed.

Motley Fool contributor Mitchell Lawler 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.

More on Opinions

A happy boy with his dad dabs like a hero while his father checks his phone.
Opinions

1 market-beating, dividend-paying ASX stock that's a steal right now

I’m bullish about the long-term of this stock.

Read more »

A woman has a thoughtful look on her face as she studies a fan of Australian 20 dollar bills she is holding on one hand while he rest her other hand on her chin in thought.
Dividend Investing

Is the 9.2% dividend yield on Fortescue shares too tempting to pass up?

Is a 9.2% dividend yield too good to be true? Here's what I think.

Read more »

Cubes placed on a Notebook with the letters "ETF" which stands for "Exchange traded funds".
ETFs

Why I'd still call the FANG+ ETF a buy

The US tech giants have been great performers.

Read more »

A man sleeps in a bed with white sheets while holding a teddy bear and a smile on his face.
Opinions

This ASX stock is 13% of my portfolio and I don't lose a second of sleep over it

I feel very confident about the future of this business.

Read more »

Two people comparing and analysing material.
Opinions

Are AGL or Pilbara Minerals shares a better buy?

Both of these companies could benefit from the changing energy landscape.

Read more »

A humanoid robot is pictured looking at a share price chart
Opinions

'Defining trend this decade': 6 tips for buying AI stocks

Henry Fisher of CMC Invest discusses the rapidly rising artificial intelligence investment theme.

Read more »

Hands reaching high for a trophy with a sunset in the background.
Investing Strategies

3 reasons I'm still buying ASX stocks in July despite record prices

There are many reasons not to invest. A new high is not one of them.

Read more »

Smiling man working on his laptop.
Dividend Investing

Why I keep buying shares of this 5%-yielding ASX dividend stock

Here's why I bought shares of this blue-chip stock when they were yielding over 5%.

Read more »