American Lithium (TSX-V: LI) - Uranium Spinout Has Two Benefits

American Lithium Corp. is developing world-class lithium projects in the Americas and also has one of the largest underdeveloped uranium projects globally. The company has a near-term focus on mining-friendly jurisdictions and has an advantage when it comes to geographic and geological diversity in the development of world-class, scalable projects. American Lithium is a developer of advanced lithium projects in the Americas focused on Nevada and also some really high-grade, high-quality projects in Peru.

Matt Gordon caught up with Simon Clarke CEO, and Director, American Lithium. Mr. Clarke brings over 25 years of experience in building companies and implementing successful capital markets and growth strategies focused on mining, energy, and energy technology. Most recently, Mr. Clarke was the Founder, CEO, and Director of M2 Cobalt Corp. (cobalt/copper exploration in East Africa), which was acquired by Jervois Global in June 2019. Jervois is a world leader in the development and mining of cobalt and nickel projects and is operating cobalt and nickel refineries, benefitting from a market capitalization exceeding CDN$1Bn. The transaction involved Mr. Clarke remaining with Jervois for 12 months as a Director and Senior Executive. Mr. Clarke was also a Co-founder, Executive, and Director of Osum Oil Sands Corp. a company valued in excess of US$1Bn at its peak market capitalization. Osum grew its production to approximately 20,000 bopd (barrels of oil per day) before being acquired by Waterous Energy Fund for around CDN$400M in 2021. Mr. Clarke benefits from extensive experience and knowledge of the battery metals space spanning more than a decade. This includes his past senior executive roles with M2 Cobalt and Jervois Mining, as well as advisory roles in the vanadium exploration/development sector. Mr. Clarke holds an LLB and Diploma in Legal Practice from Aberdeen University, Scotland.

Company Overview

American Lithium Corp. (formerly known as Menika Mining Ltd.) is a mining and exploration company focused on the development of its world-class lithium projects located in the Americas. The company is listed on the Toronto Stock Exchange (TSX-V: LI), the OTC Markets (OTCQX: LIACF), and the Frankfurt Stock Exchange. (FSE: 5LA1). The company was founded in 1974 and is headquartered in Vancouver, Canada. Lillooet Mining Ltd., Exploraciones Macusani S.A.C, and Minergia S.A.C are the company's subsidiaries.

American Lithium is a lithium developer focused on the Americas with 2 large lithium assets, one located in Nevada and the other one in Southern Peru. The company also has one of the largest undeveloped uranium projects in the world located in Peru.

The Market Landscape

According to the company, it is in a much better position than it was 12 months ago. It has continued to drive the project forward and is currently dealing with the macro factors that are out of its control. It is caught up in a risk-off trade. The lithium sector is currently in a nascent stage. This aspect makes most companies junior by definition. When there’s an ongoing global risk-off trade, no one is focused on specific companies. The company continues to advance all 3 of its projects.

The main difference in the current market cycle is that the commodity prices are at their highest levels. Normally, stocks follow the commodities. But in the current conditions, the stocks have come off and the commodities are higher than ever. At the same time, the uranium sector is seeing a healthy run as well. American Lithium is focused on building the company and moving its assets forward.

Lithium Operations

American Lithium has continued to drive forward the understanding of both its lithium assets, developing the ability to extract lithium at economic prices. While this process took some time, the company has now moved back on the ground in Peru. Here, it has started drilling at the Falchani asset once again, moving the project forward. The advent of covid caused a bit of a stalemate which was further compounded by changes in the government. Currently, the company is observing a period of stability where it can get back on the ground and drive the project ahead.

In Nevada, the company concluded a major drill program, which has helped it in understanding the deposit better. The drill program is feeding into finalizing the company’s maiden PEA (Preliminary Economic Assessment) on the project. The company had the flexibility to carry out the PEA last year, however, it wouldn’t have the same quality that people have come to expect from American Lithium.

The company has also carried out extensive work on the met side. It is working with ANSTO (Australian Nuclear Science and Technology Organization), the best lab in the world. The big nuclear group has moved largely into lithium. The lab has a detailed understanding of uranium mineralogy along with lithium hard rock, brines, and clay stones. Working with ANSTO has enabled the company to reach the final stages of its PEA. Following the Plateau Energy Metals Inc. acquisition, the company now has a well-integrated first-rate team. Since the industry is in its nascent stages, there aren’t a lot of good technical teams out there.

American Lithium has a strong balance sheet. It anticipates that the markets will observe a correction in the near future. At the same time, commodity prices continue to be at peak levels. The company is cognizant that the demand for lithium and uranium is growing, while the supply continues to tighten. The fundamentals remain strong against that backdrop. If this wasn’t the case, the company would have taken a more cautious approach. It is moving ahead with the plans and the budget. While recent market updates haven’t received the attention it deserves, the company anticipates that when the markets turn, it will gain recognition for its efforts.

In a post-covid world, everyone has come off in the sector. American Lithium has come off more than most, making it a better buying opportunity. Due to covid and market-related challenges, the company took longer to conduct a PEA on the TLC project. The PEA is expected to be the catalyst that will help the company with re-rating.

American Lithium is drilling in Peru and is bringing in the by-products at Falchani. The project is going through a Feasibility Study on the environmental side. The company anticipates that at some point, people are going to take notice and recognize that American Lithium is likely the most undervalued company among its peers. The current hard rock assets are trading at 0.5-0.6 times the NAV (Net Asset Value) at the moment. The company has been successful in proving that it can extract lithium at highly economical prices.

At the TLC project, the company has already completed drill operations for 2022. The results will be factored in the PEA, which is expected by the end of the year. In case of unforeseen delays, the company expects to complete the PEA by early 2023. While there are certain aspects that the company cannot control, things seem to be moving along nicely. The company is in the final phases of project modelling and economics. It has updated the mine plan based on the latest resource at TLC, which has grown quite significantly in recent times. Within the next 2-3 months, the company is looking to publish a resource update along with a PEA.

In Peru, the company is looking forward to the drill results from the Falchani asset. The company has already announced that it can bring in potash on the flow sheet. It is doing the same with cesium and it is looking to update the already robust PEA in Q2, 2023. Based on the Falchani PEA, moving the LCE (Lithium Carbonate equivalent) price from $1,200t to $1,700 still ends up being cheaper in the current environment. Most PEAs in the lithium space are coming in around $20,000, leading to the doubling of the NPV. According to the company, there are going to be a lot of major value-creating steps that will take place in the coming months, which, in turn, will enable the news flow to start percolating.

American Lithium has been involved in the industry for a number of years now, and it is yet to see a supply forecast on lithium that has been hit. Notably, lithium is a tough commodity to extract and it’s even tougher to extract lithium economically. Brines can be a difficult operation and melting pegmatites to form a spodumene is extremely challenging. As a result, these projects tend to take a lot more time to come online. As the demand for EVs (Electric Vehicle) continues to skyrocket, companies including GM are pushing things faster on the US side.

The company anticipates that the effect of China’s lockdowns in recent times has put the market in a lull. When China comes out of the situation, the lithium market is expected to be ratcheted up to another level. The current spot prices for the commodity continue to be very high. In order to understand the underlying theme, one needs to look at the forward contract prices that SQM and Albemarle have put forward. Within a 2-year span, the prices have moved from $10,000/t-$12,000/t to $20,000/t and are currently well into the $40,000/t and $50,000/t range. While these contracts are ongoing, the question arises whether the long-term pricing will stay in its current position or not. The company anticipates that at some point, the market will go through a balancing phase which will cause the prices to come down.

Looking at past numbers, it is easy to see that in the current operating environment, the OpEx (Operational Expenditures) have gone up by 50% when compared to 1-2 years ago. A large number of OpEx reports from 1-2 years back are already outdated. According to the company, even the most conservative commentators anticipate the lithium prices to be north of $18,000-$20,000 over the next 20 years.

When American Lithium acquired Plateau Energy Metals Inc, the carbonate prices were in the $6,000/t-$6,5000/t range. Realistically, the market is going to take a while to balance out, and even then, the demand cycle will continue to grow as new lithium sources come online to meet the supply. There are a lot of big players that are involved in the lithium space. All the automakers are now getting involved in downstream operations.

American Lithium has a lot of credibility in the market, a large portion of which is credited to its team. The experience gained at Falchani showcased that the company can take a very unique style of mineralization to battery grade in a relatively short time period. Had it not been for covid and the political changes in Peru, the company would have already completed a Feasibility Study.

The company is working with ANSTO and DRE (Design Research Engineering), one of the leading global engineering firms. Through collaborated efforts, the company continues to improve its understanding of the mineralogy of the Falchani and TLC projects. This led to a report proving that American Lithium can produce lithium economically, as it continues to move through the development cycle.

Albemarle's Silver Peak asset is located 1km away from American Lithium’s operations. The former has some of the best geologists in the world. Albemarle is fantastic on the chemical side of the operations along with the metallurgy, process, and project building. Companies need groups like Albemarle and American Lithium for their expertise in finding lithium assets, proving and de-risking them, and demonstrating that if not battery-grade lithium, at least technical-grade lithium, can be extracted economically. A bunch of majors is currently looking at the lithium sector. The M&A (Mergers and Acquisitions) activity is expected to heat up in the lithium space.

Uranium Operations

People often believe that the uranium business is as complex as lithium due to nuclear energy and radiation. However, the Macusani project is largely a straightforward business. It is a great asset that is expected to see continuous growth. At Macusani, the company is looking to realise some value in its stock prices. It has taken a bunch of tax advice and has looked into placing the uranium concessions in a separate vehicle once the market is finally ready. While spinning out the uranium business, the company intends to have a cross-management team across its assets.

According to the company, there are a bunch of milestones upcoming for the Macusani project. It believes that it's better for the uranium business to be its own vehicle, especially since the company intends on additional drilling and re-doing the PEA. The company has worked extensively to determine the ideal strategy to build returns for shareholders and also get some value for the company.

Based on the tax advice, the company is looking to spin out the asset in a way that will be well-received by the market, leading to a lot of growth for the new company. Uranium as a commodity is easier to process. The Macusani project has high-purity uranium that is hosted at the surface. The amount of acid required to recover the uranium is very small, making it an economically strong project with a low CapEx (Capital Expenditure). Once the project is spinned-out as a separate company, it can move very quickly through the Feasibility Study. From a scale perspective, the company intends to place the uranium asset into a separate vehicle that will continue to hit milestones, build value, and go through the development cycle.

Ever since the Macusani project was acquired by American Lithium, the company has continued to improve its understanding of the asset. It is important to note that it took the company 20 years to build the district. The district faced a lot of challenges following the Fukushima Nuclear Disaster. The company intends to continue monitoring the markets and figure out the ideal time to spin out the asset. If market conditions continue to be challenging, the spin-off could happen early next year. However, if the timing is right, the company could make an announcement in 2022. Following this, it would take a few months for share re-organization and a plan of arrangement to take place. The company would prefer to spin out the asset sooner than later. Currently, it is waiting for the markets to turn.

Interestingly, before the Fukushima incident, the Macusani project had a 10Mlbs resource along with a $125M market cap. Currently, the project has a 125Mlbs resource with a robust PEA. An updated PEA would further strengthen the project, which is expected to generate a good following in the market.

According to the company, the investors that are looking to gain exposure to the Macusani project should buy the stock and hold it. When compared to its NAV, the company is the most discounted in the market in its current position. One of the reasons for this is a large retail base that doesn’t have the patience to hold. For the lithium business, the company has a very large asset base, and the projects are all moving forward in the right direction. The company believes that it is in a much stronger position compared to last year.

To find out more, go to the American Lithium website