13-07-2019 A Look At The Lithium Clay Projects | Seeking Alpha

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A Look At The Lithium Clay Projects

Sep. 12, 2018 1:54 AM ET5 comments | 8 Likes
by: Matt Bohlsen

Summary

Traditionally, the process of extracting lithium from clay was considered too hard and
too expensive; however, this appears to be changing now.

Lithium clay projects are showing potential with impressive PFS results, low
operating expenses, and very fast lithium extraction methods.

A look at the major lithium clay projects globally.

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This article first appeared on Trend Investing on July 10, 2018; therefore, all data is as of
that date.

Traditionally the process of extracting lithium from clay was considered too hard and too
expensive. However, in more recent times, several lithium miners have been focusing on
extracting lithium from clay cost competitively. Several have shown promise at small scale,
and have published Preliminary Feasibility Studies [PFSs] with very competitive costs of
production, suggesting lithium from clay may in fact have a good future. Only time will tell
for sure if these projects will succeed and can deliver on their low cost estimates. But if
they do succeed, there can be several advantages - The key being no need for a lengthy
evaporation process and hence a fast source to obtain lithium.

The recent superb US$2.6b Net Present Value [NPV] result for Lithium Americas'
(NYSE:LAC) Thacker Pass lithium clay project has acted as a catalyst to renew interest in
the lithium clay projects.

A summary of types of clay and similar projects

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Source

A look at the major lithium clay projects

Bacanora Lithium [LSE-AIM:BCN] [GR:2F9] (OTC:BCLMF) - Formerly Bacanora
Minerals - Price = GBP 87.00

Bacanora Lithium owns the Sonora Lithium clay project in Mexico. Sonora is regarded as
one of the world’s larger known clay lithium deposits. The company has a 100% interest in
the La Ventana concession and a 70% interest in Mexilit and Megalit.

The Measured & Indicated Mineral Resource estimate is over 5 million tonnes [Mt]
(comprising 1.9 Mt of Measured Resources and 3.1Mt of Indicated Resources) of lithium
carbonate equivalent [LCE], with an additional Inferred Mineral Resource of 3.7 Mt of LCE.

On December 13, Bacanora Minerals announced: "Feasibility Study estimates Net

Present Value of US$1.25 billion and Internal Rate of Return of 26% for the Sonora
Lithium Project." Highlights include:

Strong economic potential of two-stage open-pit operation at Sonora: Stage 1 - 17,500

tpa for 4 years; Stage 2 - 35,000tpa.
Estimated Project pre-tax IRR of 26.1%; NPV of US$1.253 billion (at 8% discount rate)
with a simple Stage 1 project payback of four years. Revenues are based on a flat
US$11,000/t for battery grade Li2CO3 over LOM, significantly below the current
Li2CO3 price range of US$12,000 - 20,000/t. Low estimated LOM operating costs of
US$3,910/t of Li2CO3-lower than the new lithium brine operations being reported in
Argentina.
Average LOM annual earnings before interest, taxes, depreciation and amortisation
('EBITDA') estimated at US$229 million per annum.
CapEx Stage 1 US$420m, and Stage 2 US$380m."

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Off-take partner ('Hanwa') of Japan has agreed in principle to extend their initial lithium off-
take partnership for a further 5 years at a rate of 17,500 tpa of lithium carbonate, on the
same commercial terms as the initial 5-year off-take.

The company is currently running pilot plant operations for operator training and
production of battery grade lithium samples for delivery to selected customers. The
process plant design comprises a pre-concentration stage to produce an initial
concentrate prior to roasting. The concentrate is subsequently heated in a kiln, at
approximately 950 degrees celsius, in combination with re-cycled sodium sulphate
(‘Na2SO4’), which is a by-product produced from the Sonora lithium plant, to produce an
intermediate lithium sulphate (‘Li2SO4’) product. This sulphate material then undergoes
hydrometallurgical treatment, filtration, cleaning, precipitation and packaging, to produce a
>99.5% Li2CO3 final battery grade product.

Market cap is GBP 116m. Analysts' consensus is a hold with a price target for BCN of
CAD 2.14, representing 38% upside.

Upcoming catalysts include:

2018 - Possible project funding completed (US$150 million debt funding already
secured).
2020 - Plan to commence production ramping to 17,500 tpa, and in stage two 35,000
tpa.

Investors can view the company's latest presentation here.

Bacanora Lithium is looking likely to be the first lithium clay project to enter production, as
they appear to be close to securing full project funding and have 100% of Stage 1 off-take
secured with Hanwa (5 + 5-year terms).

Note: Bacanora also owns 50% of the Zinnwald project in Germany.

Global Geoscience Limited (OTCPK:GSCCF) [ASX:CYP] [GR:4G1] - Price = AUD

0.34

Global Geoscience 100% owns the Rhyolite Ridge lithium-boron project in Nevada, USA.
Rhyolite Ridge is one of the very few lithium-boron deposits globally, and the company
states they have the "largest lithium-boron resource in North America."

The resource is near-surface, and contains 4.1 Mt of contained lithium carbonate and
11.3Mt of boric acid. Lithium grades are quite high and range from 1,800ppm Li in the
Searlesite resource and 1,657ppm in the lithium-only clay resource.

* Indicated and Inferred Resource

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The company states:

The unique combination of the boron-bearing mineral searlesite (clay-poor) and the
lithium-bearing mineral sepiolite in a low-clay host rock has provided attractive
processing routes with high recoveries of both metals. Unlike most other
sedimentary-type lithium deposits, the lithium-boron mineralisation at Rhyolite Ridge
has low clay content.

Potential for long-life, low-cost open pit with simple processing. Strong economics
from lithium and boron co-products.

The processing flow sheet can be viewed here on page 12. Target lithium carbonate cash
costs are US$3,500-4,500/t.

Source

Grid power is 20km from site, and the company has secured access to 1.2 giga litres of
water p.a.

Market cap is AUD 507m. Analysts' consensus is a hold with a price target of AUD 0.50,
representing 39% upside.

Upcoming catalysts include:

Q3 2018 - Pre-Feasibility Study [PFS] due.

H2 2019 - Feasibility Study [PFS] due.

Investors can view the latest company presentation here, and a video here.

The main advantages for Global Geoscience are two revenue streams (Li + B), large
100% owned high grade resource, no need for expensive roasting, and their USA location.

Global Geoscience Rhyolite Ridge ore shown in the background

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Source

Cypress Development Corp. [TSXV:CYP] [GR:C1Z1] (OTCQB:CYDVF) - Price = CAD

0.34, USD 0.25

Cypress Development Corp. is optioned to 100% own their flagship Dean & Glory Project
in Nevada, USA. The project is located immediately east of Albemarle’s (NYSE:ALB)
Silver Peak mine. Cypress has discovered an extensive deposit of lithium-bearing
claystone adjacent to the brine field. The clay is from volcanic ash that fell into a lake bed
and metamorphozed into clay.

Note: Some final small payments are due to the land owner (US$30K in September 2018,
US$75K in January 2019 and US$50k in September 2019. Remaining share issuance
related to the option agreements amount to 800,000 shares staged over 3 releases
between now and September 2019). There is a 3% NSR to the land seller (with a 2% buy
out option for $2 million in favor the original property vendor).

The Indicated & Inferred resource is very large with 6.54MT of contained LCE @888mg/L
in clay ore.

Source

Metallurgical tests have shown the claystone (illite and montmorillonite clays) is weak acid
leachable with lithium extractions over 80% in 4 to 8 hours, with mineralization tested by
drilling over a seven-kilometer trend. Cost of production should be competitive and I
expect it to be similar to their larger market cap neighbor Global Geoscience at around
~$US3,500/t-4,500/t LCE (and possibly lower if they build their own acid plant for ~$50m).

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Their clay ore will require no roasting, just an acid leach is required, and only ~8 hours to
produce either lithium carbonate or lithium hydroxide. CapEx is not yet known but my
estimate is ~CAD 300-320m (~50m higher if they have their own acid plant).

CEO Bill Willoughby says that while their grades are not as high as some clay peers, their
ore is easier to mine and process than others (requires less acid), which brings them back
to being highly competitive. Also due to being a soft clay (not hectorite clay), there is no
need for expensive roasting.

Access is good with a road running through the property. Power costs will be reasonable
at an estimated ~6c/kWh. Water is a concern. The company states: "Until we have the
PEA in hand and additional funds to pursue our options, we aren't actively looking to
acquire water rights at this time. Instead, we're identifying ways to minimize use, including
reclaiming process water and opting for dry-stack tailings as opposed to a tailings pond."

Currently, it is still a bit early for off-take partners, but it is worthwhile remembering the
Tesla (TSLA) gigafactory is nearby.

Valuation is exceptionally low (considering the very large resource), with a market cap of
just C$20m. Cash on hand as of June 2018 was $C800,000. I was unable to find any
analyst price targets.

Upcoming catalysts include:

End July 2018 - Preliminary Economic Assessment [PEA]

H2 2018 - Further metallurgical test results
H2, 2018 - Preliminary Feasibility Study [PFS].
2021/2022 - Possible 20ktpa+ LCE producer.

Cypress Development's clay at their Dean & Glory Project in Nevada

Source

Investors can read more on Cypress Development Corp. here, and in my article "Cypress
Development Corp. Is A Very Promising Lithium Clay Developer In The USA."
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Cypress Development Corp. seems very similar to nearby Global Geoscience at a fraction
of the market cap (~25 x cheaper). Their grade is lower and they don't have the boron co-
product; however, they have a similar if not larger resource. One to watch closely,
especially with the PEA due the end of July. Lots of potential here.

Post-publication update

On September 6, Cypress Development Corp. announced: "Positive Preliminary

Economic Assessment [PEA] for Clayton Valley Lithium Project, Nevada." (Post-tax) Net
Present Value of $US1.45 billion at 8% discount rate, and 32.7% internal rate of return on
after-tax cash flow.

Added to this was a very large resource estimate increase: "Updated Resources from May
1, 2018 estimate:

Indicated Resource of 831 million tonnes at 867ppm Li, or 3.835 million tonnes lithium
carbonate equivalent (LCE).
Inferred Resource of 1.12 billion tonnes at 860ppm Li, or 5.126 million tonnes LCE."

An outstanding result.

Lithium Americas [TSX:LAC] [GR:WUC1] - Lithium Nevada Corp. - Thacker Pass -

Price = CAD 6.84, USD 5.22

Apart from their 50% JV with SQM in Cauchari, Argentina, Lithium Americas 100% owns
Lithium Nevada Corp. and their Thacker Pass lithium clay project located in Nevada, USA.

The resource is large with a current M&I resource of 5.982 million tonnes of contained
Lithium Carbonate Equivalent [LCE], at a very high grade of Lithium of 2,917 ppm. Mineral
reserves are also large with 3.1mt of LCE @ 3,283ppm Li, supporting a potential 46-year
mine life as used in the Pre-Feasibility Study [PFS] shown below.

Source

On June 21, Lithium Americas announced: "Lithium Americas announces Preliminary

Feasibility Study results for the Thacker Pass Project." Highlights shown below.

Pre-Feasibility Study summary

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The key figures in the table above (apart from the very impressive post-tax NPV 8% of
USD2.6b, post-tax IRR 29.3%) are the CapEx of US$581m for Phase 1 (US$1.059b both
phase 1 and 2) and the US$2,570/t Li2CO3 cost of production (after by-product credits).
That places the project in the top quartile for lowest lithium production costs globally (for
all types of lithium projects). Also notable is the large production target of 60,000/tpa LCE
with a 3-year ramp-up.

An important point to consider is that Lithium Americas has Ganfeng Lithium (the global
leader in lithium extraction) as their partner.

Access and infrastructure are good with a paved highway to the site, rail nearby (trans-
loading facilities are only 60 miles away for phase 1, and in phase 2 the company will build
rail to the plant site), and a 115 kV power line over site. The company states, "Lithium
Nevada has existing fully-certificated water rights within the Quinn River Valley (located 25
km east of the proposed mine site at the Lithium Nevada Project) totaling approximately
1,000 acre-feet annually, which is expected to be sufficient for a large-scale lithium mine
and processing facility."

Lithium Americas' market cap is currently CAD 606m. Analysts' consensus is an

outperform with a price target for LAC of USD 9.77, representing 87% upside.

Upcoming catalysts:

Q3 2018 - Pond construction and filling at Cauchari-Olaroz. Potential off-take deals for
Thacker Pass (Ganfeng Lithium would be a strong possibility).
2019 - Cauchari-Olaroz plant construction.
2020 - Stage 1 Cauchari-Olaroz lithium production of 25ktpa.
2022 - Possible 2022 lithium clay producer from Thacker Pass Nevada (full ramp by
2025).

Investors can view the Thacker Pass presentation here, or my latest article "An Update On
Lithium Americas."

Lithium Americas' Thacker Pass is a potential 2022 lithium clay producer. Having the
backing of Ganfeng Lithium and the cash flow of Cauchari (with SQM) make Lithium
Americas a solid reward/lower risk play.
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Plateau Energy Metals [TSXV:PLU] [GR:QG1A] (OTCQB:PLUUF)

Plateau Energy Metals has a "tuff" ore that is a light, porous rock formed by consolidation
of volcanic ash. The company tends not to call it a clay but it follows similar acid leaching
processes, so should be included as a good option additional to the above group. They
also have uranium. You can read more about them in my linked articles below.

Plateau Energy Metals Has A Very Promising Lithium And Uranium Project In Peru
Plateau Energy Metals Executive Chairman Ian Stalker Talks With Matt Bohlsen Of
Trend Investing

Others
Alset Minerals Corp. [BNRJF] [TSX: ION], Infinite Lithium Corp. (OTCQB:ARXRF)
[CVE:ILI] formerly Alix Resources (TSXV:AIX), Novo Litio (OTCPK:NLIOF) (formerly
Dakato Minerals).

Risks
Lithium prices falling.
The usual mining risks - Exploration risks, funding risks, permitting risks, production
risks, project delays.
Metallurgy risk - Extracting lithium from clay is traditionally very difficult. Different types
of clays will have different lithium extraction methods and hence costs. Those that can
avoid roasting will save costs, and those that can produce acid cheaply for leaching
will also reduce costs significantly as acid can be up to 50% of the processing costs for
some clay projects.
Management and currency risks.
Sovereign risk - Bacanora is in Mexico and the other 3 discussed are in Nevada USA.
Stock market risks - Dilution, lack of liquidity (best to buy on local exchange), market
sentiment.

Conclusion
There are several types of lithium clay projects; therefore, the metallurgy and hence the
cost of production are crucial. Some have less clay content, and some have better clays
that are easier and cheaper to extract the lithium from. Most use a sulphuric acid leach, so
acid costs are a key factor. Investors also need to be mindful of risk as extracting lithium
from clay is a new area. Estimated extraction costs will need to be verified at scale, which
will take time. Until then I see the lithium clay sector as a high risk-high reward sector.

The high reward can come as projects can be large with large production volumes (large
profits) and very fast processing times (<1 day) compared to lithium brines (18 months for
evaporation). Also, many lithium clay projects are currently very cheaply valued due to
uncertainty/newness of the lithium clay extraction method and its cost-effectiveness.

With this in mind, I think high risk-high reward investors can look to take a small position
now and watch this story unfold. My top picks for now would be Lithium Americas (solid
reward/lower risk) and Cypress Development Corp.

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As usual, all comments are welcome.

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Disclosure: I am/we are long LITHIUM AMERICAS [TSX:LAC], CYPRESS DEVELOPMENT CORP. [TSXV:CYP],
PLATEAU ENERGY METALS [TSXV:PLU]. I wrote this article myself, and it expresses my own opinions. I am not
receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose
stock is mentioned in this article.

Additional disclosure: The information in this article is general in nature and should not be relied upon as personal
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Editor's Note: This article covers one or more microcap stocks. Please be aware of the
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