Lithium’s NexGen? – Neo Lithium

For those who read my report on lithium, you know that I think the future is bright. Due to the attention that lithium has received, however, many moose pasture projects have entered the market and pose a real threat for those who don’t perform their due diligence and dig into the real story behind a prospective investment.

Today, I’m excited to share with you a lithium company whose project has the 3rd best lithium grades in the world, the lowest concentrations of impurities in the business, and the cash to PUSH it all the way to a feasibility study, which is currently set for Q3 or Q4 of 2018.

This company is Neo Lithium. At PDAC this year, I had the chance to speak to Carlos Vicens, Neo’s CFO and just recently I exchange emails with CEO Waldo Perez. This report is a culmination of the notes I took from the conversations as well as my due diligence.

Let’s take a look:

 

Neo Lithium (NLC:TSXV)

MCAP – $124 million (at the time of writing this report)

Shares Outstanding – 88.6 million

Fully Diluted Shares – 109.6 million

  • $25 million bought deal Private Placement closed on February 22, 2017
    • 7 million shares at $1.10 and a full warrant at $1.40 for a period of 18 months

Cash Position – $39 million as of September 30, 2016

Insider Ownership – 20%

  • Refer to SEDAR and SEDI for the most accurate information

 

 

Neo Lithium’s People:

  • Neo is led by President and CEO, Waldo Perez. Perez has 28 years combined experience in academia and within the mining industry. He has held senior positions with Barrick Gold, IAMGOLD, Latin America Minerals and Lithium Americas Corporation. Perez is highly respected by his peers for his geological knowledge and experience in lithium brine exploration. His intellectual acumen is further demonstrated by the proprietary lithium extraction process that he and Neo Lithium Technical Advisory Team member, Dr. Claudio Suarez-Authievre, co-developed for Cauchari Salar.
  • Neo Lithium’s Technical Advisory Team is made up of three members who have worked with Perez at previous companies and, most importantly, have lithium brine work experience in South America’s Lithium Triangle.
    • Project Manager, Martin Erroz, brings 15 years of experience to Neo, having worked for a number of different companies over the course of his career, including: Lithium Americas Corp. and Latin America Minerals.
    • Mark King is a hydro geologist by trade and has 25 years of experience in academia and the mining industry. King specializes in ground water flow and migration of constituents dissolved in groundwater, making him a welcome addition to any lithium brine team.
    • Last but not least, Dr. Claudio Suarez-Authievre, whom I mentioned earlier, brings 17 years of experience in academia and the mining industry. Suarez-Authievre has worked for SQM and Lithium Americas Corp., and is now Process Engineer Manager at Neo.
  • Neo’s CFO is Carlos Vicens, and the Board of Directors includes: Constantine Karayannopoulos (Chairman), Thomas Pladsen, Gabriel Pindar and Paul Fornazzari.

 

Jurisdiction Argentina:

  • President – Mauricio Macri
  • Macri has outlined a pro-business agenda for his government, which he has started to execute since his inauguration. His pro-business agenda is headlined with:
    • Filling his cabinet with former business executives.
    • Eliminated currency and trade controls and cut government spending
    • Cutting export taxes, most importantly on mineral products.
  • Attracting foreign investment, most importantly, repairing the relationship with the United States. As reported by Reuters on March 24, 2016, Barrack Obama stated, “Argentina is re-assuming its traditional leadership role in the region and around the world.” From the same article,Reuters reports, “The American Chamber of Commerce in Argentina said U.S. firms would invest $2.3 billion in Argentina over the 18 months, including more than $100 million each from General Motors Co., Dow Chemical Co., AES Corp. and Ford Motor Co.”
  • These are great signs for there being a change in global perspective, one that will only help future investment in the country and make it safer for our investment dollars.
  • Argentina was the host of the World Economic Forum on Latin America, April 5-7, 2017. The event brought clashes between protestors and police, and was said to be provoked by Macri’s cuts to government spending.
    • The Euronews reports, “Protesters in Argentina have clashed with police during demonstrations against government austerity measures…Left-wing politician Alejandro Bodart said: ‘Macri will open the World Economic Forum and economists from around the world will come— they are all neo-liberal. There will also be business leaders who will come to discuss how to continue stealing the riches of our people, how to continue with plans to exclude one section of society so as to enrich the same old ones.’ ” ~ Euronews

It isn’t all rosy in Argentina, but many, including Neo CEO, Waldo Perez, believe that Argentina’s future is bright. In response to my question regarding Argentina’s outlook for the future, Perez responded,

“The outlook is very positive, favourable to foreign investors and pro-business.”

NOTE: The 3Q project is subject to a 3% royalty as outlined in the 3Q Technical Report,

“Article 6th of Provincial Law # 4757, establishes a mining royalty of 3% over the mineral value at mine mouth (Boca Mina). According to the National Law for the reordering on the Mining sector, the law applies for coordinating and organizing the payment of royalties to the Provincial Tax Collectors, therefore LIEX S.A. is required to pay the aforementioned 3% Boca Mina royalty to the provincial government of Catamarca.” ~ Technical Report – page.19

I think that the risk to reward potential of Neo Lithium, from a jurisdictional perspective, is worth the speculation, because assets like the 3Q property don’t come along very often.

 

 

Neo Lithium’s Property:

Tres Quebradas (3Q) Lithium Project

  • 100% owned by Neo Lithium
  • Located in northern Argentina, 25 km from Chilean border, in the southwest portion of the Catamarca Province.
  • Within approximately 200 km of the Chilean Pacific coast – Port of Caldera (Copiapo)
  • Closet city is the town of Fiambala, which is approximately 100 km east of the project.
  • The 3Q property is accessible via a road which stretches up to the Northern Target area. In my conversation with Perez, I asked him about the property’s accessibility for trucks that would be transporting the lithium concentrate now and in the winter. He responded,

“Trucks with 15t [of] brine are already operating, transporting brine to the ponds. The [3Q] area is cold in winter but [there] is no snow near the salar, the salt precludes snow accumulation. We will operate all winter.”

  • Total property size is 350 square kilometers.
  • Exploration has been concentrated in, but not limited to, the Northern portion of the salar and brine complex, where very high grade targets have been found.
    • Northern Target area measures 20 km by 5 km
    • The latest drill results, release on March 20th, show that the project has a lot of potential to expand outside of the Northern Target.  The southern target results have lithium and potassium grades that are lower than those those in the Northern Target, but are still high in comparison to others found in the lithium triangle. Check out the news release for more detail.
  • A geophysical survey of the Northern Target reservoir supports the 20 km by 5 km area and that the reservoir extends down 100m.
    • Brine Reservoir average lithium concentration, thus far, is 895 mg/L, making it the 3rd highest grade lithium project in the world and 1st in Argentina.
    • Brine Reservoir average Potassium grade is 7,694 mg/L.
    • Salar samples contain an average lithium concentration of 784 mg/L and an average potassium concentration of 6,796 mg/L.
    • Very low magnesium and sulphate impurities, in fact, they are the lowest combined impurity content of any known salar. This is a HUGE plus for Neo, as high grades of lithium can lose their lustre when mixed with high magnesium and sulphate contents, as they affect the cost of brine processing.
    • The average magnesium/lithium ratio is 1.58 in the brine reservoir and 1.87 in the salar.
    • The average sulphate/lithium ratio is 0.67 in the brine reservoir and 0.46 in the salar.
  • Last year, the company, along with two engineering firms, Novigi Ltd. and Celimin, conducted a lithium processing test on a 0.5 tonne sample from the Northern Target area. The test concluded that the brine will not require any additives for lithium extraction and will be able to rely on solar evaporation for lithium concentrating.
    • In my discussion with Vicens at PDAC, he stated that the evaporation ponds will be located close to the northern target, yet still in range of an existing dirt road for trucks to pick up the concentrate and ship to the refineries.
    • Brine can be concentrated up to 4.6% Li with minimal reagent consumption, and up to 7% with further evaporation.
    • Pond recoveries are estimated at 25 tonnes of lithium carbonate per hectare of pond constructed.
      • Example – The area needed to extract 20,000 tonnes of lithium carbonate per year, 800 ha. This is less than a quarter of the flat property that they own.

 

Potential Fatal Flaw

The Preliminary Economic Assessment (PEA) should provide us with the best gauge as to what the upside potential is for the 3Q project.  The PEA is scheduled for Q3 of 2017, giving us very important insight in the near future.

Poor economics could leave this project to collect dust, but given what we have seen in Neo’s drill results, Li and K concentrations are impeccable and impurities are low. The biggest questions may lie in the actual size of the lithium resource and whether or not it can be concentrated.

  • A resource estimate is due in the very immediate future, Q2 2017, and should give a good indication of the PEA potential.
  • On-site evaporation testing will need to confirm that the engineering firm test results are reliable.

 

UPDATE – April 25, 2017

This update is to address a couple of potential issues that weren’t included in my original write- up for Neo Lithium.  I contacted CEO, Waldo Perez, and Investor Relations representative, Ali Mahdavi, and asked them questions that should help shed some light on these potential issues.

Question #1

Brian: Is the 3Q Project property considered a Ramsar site? If so, how do you plan to deal with permitting?

 Waldo: THE PERMIT HAS ALREADY BEEN OBTAINED. THE COMPANY IS FULLY PERMITED TO DRILL, BUILD PILOT PONDS, LABS, ROADS,  AND PERMANENT CONSTRUCTIONS AT THE SITE. A RAMSAR SITE DOES NOT IMPOSE LIMITATIONS FOR MINING, FORESTRY, INDUSTRIES OR ANY OTHER ACTIVITY. A RAMSAR SITE ONLY CONTEMPLATES WETLANDS. THE SALAR IS NOT A WETLAND AND THE TARGET AREA IS NOT LOCATED IN A WETLAND. THERE IS A WETLAND 50 KM SOUTH OF THE PROJECT.

Brian: As you describe, the permit that Neo attained was for preliminary work on the project, exploration, pilot ponds, etc. My concern is more with regards to bringing the project to production in the future; could the Ramsar designation hinder your attempts to attain a permit to extract the brine in a commercial scenario? Secondly, my concern is with the extraction of the water/brine from the salar affecting the wetlands south of the project. Is that a viable concern?

Waldo: NO, ONCE THE EXPLORATION AND DEVEOLOPMENT PERMIT IS OBTAINED, THE GOVERNMENT CANNOT DENY THE NEXT STAGE PERMIT. IT NEVER HAPPENED IN THE PAST. THERE IS MINING OPERATIONS IN RAMSAR SITES AND THERE ARE 1 MILLION PEOPLE LIVING IN ANOTHER RAMSAR SITE IN ARGENTINA. ARGENTINA HAS 5 MILLON SQUARE KILOMETERS OF RAMSAR SITES. THEY HAVE NO LEGAL PROTECTION STATUS OF ANY KIND. SO THERE IS NO LIMITATIONS ON WHAT CAN BE DONE, BUT OBVIOUSLY THE WETLAND ASPECTS OF THE SITES (AND PARTICULARLY NESTING SITES) MUST BE PROTECTED. WITHIN THE LITHIUM PROJECT THERE IS NO NESTING SITES. THE SITES IN THE SOUTH WITH NESTING SITES ARE ACTUALLY HIGHER THAN THE SALAR, SO WHATEVER IS DONE IN THE SALAR WILL HAVE NO IMPACT IN THE NESTING SITE.

 

Question #2

Brian: Will Neo’s evaporation ponds encroach upon flamingo nesting grounds?

Waldo: NO. FLAMINGO NESTING AREAS ARE 50 KM AWAY.

 

Question #3

Brian: Why is it primarily the Northern Target that sees the high lithium grades? Why isn’t the grade more uniform across the entire system?

Waldo: MOST LIKELY BECAUSE THE INFLOW OF HOT SPRINGS WITH LITHIUM IS FROM THE NORTH, CREATING A LITHIUM GRADIENT. ALSO THE LAKE IS A NATURAL EVAPORATION POND, INCREASING LITHIUM GRADE IN THE NORTH

 

Question #4

Brian: Will high iron levels brought into the salar by the hot springs and 3Q river prevent the brine from being concentrated into battery grade lithium carbonate?

Waldo: THERE IS NO IRON IN THE BRINE. IRON PRECIPITATES OUT OF THE SALAR. THE RED COLOUR YOU SEE IN THE HOT SPRING IS MOSTLY A BACTERIAL EFFECT.

Brian: My reference to high iron levels is from what I read in the Technical Report, page 38;

“High levels of dissolved iron and manganese are present in the discharge of the Tres Quebradas River, and widespread rust-coloured precipitate of iron hydroxide can be seen in the diffuse flow issuing from the alluvial fan (Photo 6.1). The thick occurrence of this material throughout the discharge zone indicates the flow is anoxic (strongly reducing) prior to discharge. Elevated levels of manganese in this discharge may be the source of the dark colouration noted for Laguna Tres Quebradas.”

Since it is a closed system, will these high levels of dissolved iron impact the brine ability to be concentrated into battery grade lithium carbonate?

Waldo: THE HIGH LEVELS REFER TO GEOCHEMICAL ANOMALIES FOR FRESH WATER COMPARISON. THERE IS BARELY ANY IRON IF YOU COMPARE THIS TO THE IRON CONTENTS OF PEGMATITES. THIS IRON AND THE MANGANESE DISSOLVED IN BRINE HAS NO SIGNIFICANT IMPACT IN THE PROCESS, ACTUALLY, ALL PRECIPITATES IN THE FIRST STAGES OF EVAPORATION.

 

Environmental issues can quickly become costly or even prevent a mining project from getting started. In Neo’s case, CEO, Waldo Perez, gives a very direct answer to my questions regarding the Ramsar site designation and its possible future ramifications.

You be the judge. Neo has a ton of positive characteristics, many of which I believe make it a world-class lithium deposit. That said, these potential environmental issues could have an impact on Neo’s future if they don’t play out as Perez suggests.

 

Despite these potential flaws, I’m extremely encouraged by what I see in Neo Lithium:

  • A management and technical team led by Waldo Perez, which has been together for a number of years but, most importantly, have done it before with Lithium Americas.
  • 3rd highest lithium concentrations in the world.
  • Lowest Impurities of any known salar– Magnesium and Sulphate.
  • Short term PUSH from a resource estimate in Q2 of 2017 and a PEA in Q3 of 2017.

 

I believe that in the not-too-distant future, the 3Q Project will be considered lithium’s equivalent to uranium’s world-class Arrow Deposit. I’m a buyer and am optimistic about lithium’s future but, even if I wasn’t, I would still believe that Neo Lithium’s 3Q project is world-class, making it a great addition to anyone’s portfolio. I look forward to the news that’s to come in the remainder of 2017.

 

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Until next time,

 

Brian Leni  P.Eng

Founder – Junior Stock Review

 

Disclaimer: This is not an investment recommendation, it is an investment idea. I am not an investment professional, nor do I know you and your specific investment criteria. Please do your own due diligence. I have NOT been compensated to write this article and do NOT have a business relationship with Neo Lithium. However, I do own shares in Neo Lithium. Please check SEDAR for the most accurate data regarding Neo Lithium information and analytics.