E3 Lithium (TSX-V: ETL) - Scaling up, Commercializing and Defining Economics

E3 Lithium Ltd. (formerly E3 Metals Corp.) is a lithium resource and technology company aiming to power the growing electrical revolution. Based in Alberta, Canada, the company’s combined resources, including the Clearwater project are being developed on the backbone of this mature and sophisticated oil and gas industry that will allow the company to accelerate its development.

Matt Gordon caught up with Chris Doornbos, President, CEO, and Director, E3 Lithium. Chris has expertise in developing major projects in Canada and across the world. He has a strong technical background which has enabled him to drive projects through the development stages to production. Chris has also experience in developing both public and private capital market companies. He specialises in risk management, developing and management of technical teams, and strategizing project generation to capture shareholder value. He previously served as the CEO and Director at Revere Development Corp, and a Vice President, Exploration at MinQuest Ltd. His educational credentials include a B.Sc. Honours degree along with a Professional Geoscientist Certification (PGO).

Company Overview

E3 Lithium Ltd. is a resource company with mineral properties in Alberta that is currently focused on technology development for lithium extraction from Alberta brines. It is engaged in the exploration of Clearwater and Exshaw Projects covering the Leduc Reservoir in south-central Alberta. The company was founded in 2016 and is headquartered in Calgary, Canada. It is listed on the Toronto Stock Exchange (TSX-V: ETL), the OTC Markets (OTCQX: EEMMF), and the Frankfurt Stock Exchange (FSE: OW3).

E3 Lithium is a diversified lithium development company based in Canada. The company brings significant resource and direct extraction ion exchange technology to lithium, which enables it to produce from one of the biggest up-and-coming lithium jurisdictions globally.

Notably, E3 Lithium is one of the only companies that own freehold land in the area. While freehold land is a big deal in the United States, it’s much more common in Canada. Three years back, E3 Lithium approached Imperial Oil Limited to gain access to the freehold land. While this was not necessary, the company wanted to secure the land position. This evolved over time and enabled the company to include an option on some of that freehold land, which helped it consolidate its land position in the Clearwater area. Imperial Oil Limited is currently a 5% shareholder in E3 Lithium. The former is supporting the latter with development as well.

Having Imperial Oil as a shareholder is beneficial as 70% of the company is owned by Exxon Mobil, which is responsible for discovering the aquifer in the 40s. The company produced oil in the 60s. It stepped out of production in the 90s as it marked the end of its economic life for oil. The historic aquifer has seen a comeback in Alberta with lithium. This is highly significant because the Leduc no. 1 discovery and Derricks is still in the town of Leduc. Everything here is named Leduc because it played a significant role in starting Alberta’s oil rush. It helped bring the vibrant oil industry to Alberta. The historic aquifer has produced oil in the past. Currently, the aquifer has a lithium-rich brine, which has enabled E3 Lithium in transitioning the asset into a lithium producer.

Imperial Oil has a lot of history in the area that has been largely focused on production. The reservoir and subsurface production of fluids from the aquifer has a lot of history, which also comes with a lot of data and expertise. One of the commitments made by Imperial Oil is to support the development of a lithium operation. Having a better understanding of lithium operation in the aquifer has helped both companies in significant ways. It has enabled E3 Lithium to make an informed decision. Imperial Oil is helping E3 Lithium in developing an aquifer management plan in order to develop the resource.

Ongoing Operations

When it comes to infrastructure development, there isn’t a commitment on either side. It is important to note that there’s a lot of well-built infrastructure in Alberta. While the historic aquifer isn’t producing anymore, it continues to have the surface infrastructure in the form of gas plants and treatment plans that could be utilised. Imperial Oil is helping E3 Lithium by providing assistance and valuable information to work on the pre-existing facilities and making them work in a lithium operation.

E3 Lithium has had the opportunity to analyse and interpret all the publicly available data. The company has also carried out geological work on the data. This has helped the company gain a better understanding of the deposit which has led to an increase in the resource. In the near future, the company is looking to make the resource 43-101 compliant for the M&I (Measured and Indicated). Interestingly, the key pieces of data were missing from the areas where the company is sampling from and intends to produce. The majority of the available data is from historic oil and gas production. However, in a commercial environment, the company isn’t looking to produce from the same area. It is looking to produce from the platform in the centre of the aquifer since the oil section here is a very small strip along the top edge, which is called the trap. Interestingly, the brine exists across the entire aquifer, which is 45 kilometres wide.

The company drilled 2 holes and acquired the third hole. The third hole hadn’t been sampled before. The results so far have been highly encouraging in terms of the lithium grade. This, in turn, has enabled the company to develop a full vertical profile of the lithium grade, which is spread across a much broader area. The company has carried out a production test, the results for which were announced today. This test will confirm the deposit’s ability to produce fluids. These two key pieces were integral for the company to gain confidence as it moves the resource from inferred to M&I. The work is currently assigned to a QP (Qualified Person) within the company’s consultant firm. The data is being used to complete the upgraded resource.

In order to enter commercial production, the company has been continually de-risking the project from a fundamental perspective. Upgrading the resource from inferred to measured and indicated helps reduce the project risk, as it shows that the company has confidence in the data and has carried out extensive due diligence on it. The company now has an engineering design in place, enabling it to accurately factor in the project costs.

The cost estimate in the PEA can vary by up to 50%, while the cost estimate in the PFS (Preliminary Feasibility Study) can vary by 20%-25%. The company is focused on increasing the available information, and gaining a better understanding of the asset while simultaneously de-risking the project. The company has also applied this to the direct extraction technology which is currently under development. The process comprises a proprietary material that enables lithium extraction from the brine. The ion exchange material is an absorbent that was developed by E3 Lithium. The company completed the research and development on the material in June 2021. Currently, the company is looking to scale the production of the material so that it can be produced commercially. It is looking to produce sufficient material that will enable the operation of a commercial plant.

E3 Lithium is also looking to develop a process called solid liquid separation that will enable the water to interact with the material. Here, the brine is mixed with the solid, the proprietary absorbent, and is stripped out from the brine. Following this, the resultant material is mixed with the desorbent fluid to extract the lithium, which is then used to make lithium sulphate. Next, the material is cycled back into the brine once again. The company is looking to carry out this process on a larger scale so that it can build something that is economically viable.  In the PEA, the company has outlined 20,000t, which marks phase one of the operations.

E3 Lithium had been working with a technology vendor for a year to develop a process. Following this, it announced the scaling-up of absorbent production. Both parties are working together to find a way for the vendor to manufacture the company’s material through commercially-sized equipment. This process can produce about one ton of absorbent per hour through the existing equipment, which, from a commercial perspective is highly significant.

For the pilot plant, the company would need about 750kgs of absorbent material, which will be manufactured in conjunction with the technology vendor. Once a commercial plant is developed, the vendor will design a part of the equipment so that the company can manufacture the material on-site. The last piece of the puzzle is to scale up the solid liquid separation process.

Project Economics

Each new technology or different process is assessed from an economic standpoint. All the processes are put into a process flow sheet where entire pieces of equipment are stacked together, starting from the lithium molecule, a brine, an aquifer to the lithium molecule, and a hydroxide at battery grade. As each piece is added to the process flow sheet, the company evaluates each one of them from an economic and cost standpoint.

E3 Lithium is looking to publish a PFS study within the next 12 months. As part of the study, the company will test and align all the pieces to ensure that the resultant product is battery-grade. Interestingly, the PEA  (Preliminary Economic Assessment) had a $14,000/t material price, while the spot market pricing currently sits at $75,000/t, which is a substantial jump in value. Once each of the pieces in the process is nailed down, the company will publish an all-inclusive report.

In order to deal with the inflation and rising costs, the company has decided to manufacture the absorbent material in-house. While this would lead to increased capital costs, it will reduce operating costs. While operating costs are present throughout the life of the project, while capital costs are a one-time affair. Based on the economic scenarios and a cost balance perspective, it is beneficial to increase capital costs in order to decrease operating costs. The company is looking to carry out the majority of the process in-house, which will lead to significantly better project economics.

The project PEA has 2020 material prices, which will be updated with 2023 prices in the upcoming PFS. This will take into account the inflation for the equipment pricing. Once the PFS is published, the market will be able to see the impact on the project economics in comparison to the PEA.

Licensing Considerations

E3 Lithium’s first priority is to develop the project. The real value comes from the lithium molecules in the aquifer, while the technology is the key enabler of the extraction process. Now that the company has developed in-house expertise in developing the absorbent material, it is looking to build the systems and processes to reach a point where it can start building the pilot plant. It will also be developing a lab with exact same specifications for testing purposes. The company will train the staff to operate the plant and understand the evaluation process for different metrics as it relates to brines from different companies.

The company is looking to bring in brines from other companies to Alberta and Calgary in order to test them and share insights. Having an operating pilot plant would enable the company to make informed decisions, especially when it comes to capital investment. So far, E3 Lithium has only tested two brines from different companies which it has strong relationships with. Once the pilot plant is in operation, the company will consider testing additional brines.

Cash Position

E3 Lithium has $14M in current cash flow. The company also has over $5M of warrants which are expected to be exercised by 11th February 2023. When it comes to grant funding, the United States has a lot to offer. However, the company’s major focus is on Canada, which also offers equally big grant funding opportunities. Grants have been made available to the company’s peers including Rio Tinto and GM from strategic innovation funds to develop projects. The grant funds are not limited to critical minerals but also decarbonizing the supply chain, and advancing critical minerals. It is important to note that the funds being awarded right now are separate from the $3.8Bn fund that Canada’s Federal government has outlined to support the critical minerals industry.

While the Federal government is still deciding what programs and criteria are needed to be eligible for the funds, around $1Bn is outlined for infrastructure. There are also funds that are allocated specifically for new technologies to advance critical minerals processing and get the critical minerals out the door. While the program is yet to be published, it is expected to be a $3.8Bn fund.

In the United States, the Defense Act, and the IRA (Inflation Reduction Act) consider Canada’s critical raw material as a domestic North American supply. From this viewpoint, the funds can flow into Canada. While there may be some strings attached to it, E3 Lithium is currently in conversation with the groups in order to understand the quid pro quo. The company anticipates that one aspect of this would be that the lithium has to be supplied to the US, which also happens to be the company’s biggest potential customer.

The US recently put out a $2.8Bn fund for US companies. They are now actively looking to move north. According to the company, there has never been this much capital flow coming into the space. Interestingly, even the OEMs are now supporting the critical minerals and raw material industry. One such example is Ford, which put out $300M. As a result of these developments, the company anticipates that it won’t face problems in capitalising on the project. The stock prices in the critical minerals are misaligned with the current lithium prices due to a host of market-related macro factors.

The last time lithium saw a price spike, the market responded and then the prices fell. This time around, the market has responded but the lithium price hasn’t fallen. The company anticipates that the industry fundamentals and supply scarcity are propping the lithium price in the current environment. As E3 Lithium advances the project, it will continue to de-risk it and move towards commercial production. As the project moves forward, the company expects to gain market value inherently. Since the market is cyclical in nature, the company expects the value to come through in due time.

Targets 2022 and Beyond

There are expectations in the market that the upcoming cycle would be one of the strongest bull markets for battery metals. In 2023, the market is expected to move in a favourable direction. For E3 Lithium, the next 12 months are substantial in terms of value generation. This is because the company will be using the technology on a pilot-scale operation. It is looking to ensure that the project is rock solid in different aspects before it makes any major announcements within the next 3-6 months.

The company has been working on the technology for the past 6 years. It has already made the full commercial decision for the material development process, and operations along with the solid liquid separation process. The company has finalised the design and processes for the plant that will be included in the upcoming PFS. It is working on piloting so that the detailed engineering design can be used for the actual commercial plant. Over the next 3-6 months, the company is also looking to upgrade the resource to M&I. The pilot project and the upgraded resource will come together in the upcoming PFS.

Within the next 6 months, the company is looking to produce battery-grade lithium hydroxide. Once the results are in, the company will publish them to the market. The current holdup is caused due to the pending decision on the pilot plant. The company is looking to produce commercial quantities of battery-grade lithium hydroxide, that will be shipped to several companies for development testing. It will use the process to generate a lithium sulphate concentrate that will be converted into lithium hydroxide.

E3 Lithium is looking to develop a nascent lithium industry in Alberta. It has spent over 6 years developing the key technology for the project. This would benefit the shareholders as the company moves towards a more accurate valuation. Companies within E3 Lithium’s peer group such as Standard Lithium, Lake Resources, and Vulcan have seen the stock move up in value as important announcements were made in relation to key project milestones and development. All the peer companies are sitting at around $1Bn in valuation, while E3 Lithium is at $150M.

E3 Lithium has a staff of 28 people that are looking to attain success for the shareholders. The company anticipates that once it achieves success, it will lead to a significant increase in market value. Over the past 6 months, the company has outperformed all its peers. Over the next few months, the company anticipates that the valuation gap will begin to close. In the coming months, the company expects to achieve major success in terms of the project and valuation.

To find out more, go to the E3 Lithium website