E3 Metals (ETMC) - Can Greener Lithium Attract a Premium?

E3 Metals is a lithium development company aiming to power the electrical revolution in Canada with its 7Mt lithium carbonate equivalent (LCE) inferred mineral resource in Alberta. E3 Metals' Clearwater Project is being developed on the backbone of the mature and sophisticated oil and gas industry for accelerated development.

Matt Gordon caught up with Chris Doornbos, President, CEO, and Director, E3 Metals. 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 development stages to production. Chris has also experience in developing both public and private capital market companies. He specializes 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. Honors degree along with a Professional Geoscientist Certification (PGO).

Company Overview

E3 Metals' goal is to produce high-purity, battery-grade lithium products and deliver them to the market from one of the best jurisdictions in the world. The company was founded in 2016 and is headquartered in Calgary, Canada. It is listed on the Toronto Stock Exchange (TSX-V: ETMC), the Frankfurt Stock Exchange (FSE: OU7A), and the OTC Markets (OTCQX: EEMMF). 

E3 Metals is a diversified lithium company in Alberta. It has developed a direct lithium extraction (DLE) technology to allow the quick and efficient removal of lithium from brines. This in-house technology is being utilized towards the company's expansive aquifer with 7Mt of lithium, carbon equivalent inferred resource in the ground. 

The Lithium Market

According to E3 Metals, there's a significant supply-demand gap forming in the market since 2010. Even though new projects are surfacing, the increase in demand is expected to outgrow the supply in the near future. Companies such as Neo Lithium and Millennial Lithium Corp. have seen purchases, signed offers, and affinity agreements on their projects. Neo Lithium traded at a 36% premium in the market in recent times. 

China has taken the lead when it comes to lithium production, outpacing its US and European counterparts. China has been a major lithium producer globally, especially for the battery industry, and raw materials. The country has had the first movers' advantage within the lithium domain. 

As per the recent conferences in the past few weeks, Europe has shown an increased interest in the EV (Electric Vehicle) market. 

It is anticipated that the North American market will slowly adapt to the market and benefit from the resolution of existing problems that the battery industry currently faces. A well-developed North American lithium supply is crucial to the US and Canada and the countries have assigned a dedicated task force to ensure a local supply. North America has also disallowed the export of lithium outside the continent, doubling down on a local supply. 

There's a need for consistent cash flow within the bottom end of the lithium market to ensure an uninterrupted supply. It is expected that 90% of all future lithium supply will be utilized towards batteries. It is a mono market that demands high purity material. 

The ESG Component 

As per E3 Metals, the ESG (Environment, Social, and Governance) component of lithium will play an important role for producers in the battery market. Aspects such as the carbon footprint of the operation and surface impact will gain added traction as the world moves towards sustainable energy sources.

E3 Metals is dedicated to transparency for ESG norms. It is looking to demonstrate the compatibility of its project with the history mandate as part of its PFS (Preliminary Feasibility Study). Once the company outlines its project economics and design, it plans to opt for an independent review to demonstrate the environmental impact of its operation.

The push towards an environmentally conscious operation can either allow lithium manufacturers to command a premium, become beneficiaries of carbon credits, or attain a reduced carbon tax. This model is currently under early stages within Europe. 

In Canada, there is a carbon tax levied on emissions that the project generates. E3 Metals is looking to offset this by actively working towards a low-carbon operation. The company understands that achieving a net carbon neutral operation is challenging. However, the company has taken significant measures to counteract this including the installation of a wind farm. The wind farm allows the generation of zero-carbon power while the natural gas operation produces a baseload.

The Alberta government made recent announcements to develop a carbon sequestration hub in south-central Alberta, providing a disposal location for the CO2 generated from mining operations. This planned hub is located nearby E3 Metals' project site. Currently, the company is capturing generated CO2 in percentages that range in the high 90s. The company is also looking to install a carbon capture plant on the rear end of its gas plant for the disposal of CO2.

The generated CO2 can be utilized in the company's brine which can sequester the produced carbon. However, since the dedicated hub is a government-certified operation, the company believes it's ideal from an ESG perspective. 

E3 Metals is looking to achieve a carbon-neutral operation, however, running decentralized mining equipment can pose challenges as re-electrification is needed. The company currently has centralized power where 90% of energy comes from electricity. This provides an opportunity to reduce the carbon impact. Although the initial capital overhead of reducing carbon footprint or achieving a carbon-neutral operation is higher, the company is looking to supplement these costs by charging a premium on its product. 

The lithium battery market is about a decade old and in the last 5 years it has gained significant traction, however, the market still remains in its infancy. There are ongoing pursuits by companies such as Fastmarkets to standardize lithium produced against the carbon impact.

E3 Metals is looking to demonstrate its inclination towards being carbon neutral through transparency and metrics that can be verified through independent entities. 

The current structure of lithium deals is carried out through direct sale contracts. However, it is expected that off-take style agreements will replace direct sale contracts leading to supply security. Over time, lithium would be sold based on two key components, the ESG factor, and price negotiation. This will facilitate the process, production, and product quality. 

The company anticipates that the Canadian government will offer funding to reduce carbon output. This can potentially lead to government-backed grants to support developments within the lithium industry. 

Contract Negotiations

E3 Metals is looking to enter off-take agreements by next year. These agreements will be locked on parameters such as pricing, metrics, and delivery dates. It is expected that the lithium market will gain maturity in terms of long-standing contracts within the next 1-2 years.

The distinguishing factor for E3 Metals is that the company offers a departure from a conventional mining operation that is commonly observed in Australia, parts of Eastern Canada, Quebec, and Ontario. The company offers a high-purity project at a significantly lower price point. The combination of robust project economics that can sustain price fluctuations with high margins will enable the company to enter long-term contracts. The presence of operations in a good jurisdiction further helps the company as it seeks to bring the battery industry to Alberta. 

E3 Metals' lithium project appears similar to an oil and gas operation. The company has observed similarities between the two when it comes to operations and regulatory requirements. The company is confident that sourcing buyers for its supply would be a non-issue. 

The DLE Pilot Plant 

E3 Metals is currently working on a tank prototype for its DLE pilot plant. This prototype is expected to enter its first extraction test next week. Following this, the company will require 6-8 weeks to run all the necessary tests before publishing the results to the market.

The extensive testing process will account for the flow rates, timeframes, column size, and various other parameters. This will allow the company to further optimize the design criteria. This prototype serves as a scaled-down version of the company's commercial process. Once the design and parameters are finalized, the company will develop it for commercial purposes as a scaled-up operation. 

The number of tanks the company constructs will correlate to the contracts it receives. The pilot project is scheduled for conclusion by Q1 2022. The extraction process is based on ion exchange, a widely available technology that is easy to scale. 

The DLE Process

The Direct Lithium Extraction (DLE) features a bead, a piece of solid that is introduced into the brine. This bead reacts with the brine solution and attracts all the existing lithium. To isolate the lithium from the bead, a backwash is done, leading to a high concentration of recovered lithium. The machine controls the interaction between the brine water and the bead along with the extraction and separation process. 

E3 Metals is also testing out flow columns and fluidized beds to determine the ideal lithium extraction process. Once the data is collected, the company intends to share it with vendors to develop a pilot project. The planned pilot project is expected to enter production in Q1 2022. 

This project will be close to a commercial-size process, giving the company security in terms of risks as it moves towards commercial production. The company is looking to build multiple commercial columns instead of a large single one to ensure easier scaling up lithium production as the demand grows. 

PEA Parameters

E3 Metals' PEA is aligned to a $600M CapEx (Capital Expenditure) project to output a 20,000t/year supply including contingency. These production numbers and costs are well in line with the industry average. There are 3 major components within this operation namely, the brine production consisting of wells and pipelines, the pre-treatment and brine-lithium extraction, and lastly the hydroxide. All three components are scalable due to the project being modular in nature. 

Phase 1 of the company's pilot project consists of DLE, while phase 2 is planned around hydroxide. The company anticipates that it will be able to secure a 30,000t off-take, which will be close to the initial built capacity of the plant. 

Once the company concludes its PFS (Preliminary Feasibility Study), it will seek project financing options along with the permitting process for all 3 components. 

Listing Considerations

According to E3 Metals, the current lithium market prices are heavily discounted based on ongoing trends. The company is expecting to bring the pilot plant under operation by 2022 end. 

The company has an NYSE (New York Stock Exchange) listing under consideration once the pilot plant is in operation. Its OTC Market listing has allowed the company to grow in value and as the lithium market grows, the overall value is expected to appreciate in the coming years. 

Project Timeline

E3 Metals plans to continue working on the construction and operation of the pilot plant in Q1 2022. The timeline of the turn-key aspect will be outlined once the construction is completed. This is because the company is looking to either build the facility or rent. Renting would be a preferred option for the company as it would drastically cut down the timeframe to reach the pilot.

The company's ongoing PFS is scheduled to be ramped up in 2022 once the design of the pilot plant is finalized. The PFS will run in parallel to the lithium hydroxide production which is phase 2 of the company's operation. This will entail sourcing hydroxide production equipment from vendors to carry out testing of various commercial methods. 

E3 Metals' preferred production method is through the electrolysis method outlined in the PEA. This is because it simplifies the flowsheet and allows the recycling of steam which leads to a streamlined process and significantly lower costs. The company is also assessing a reagent-based extraction process. 

E3 Metals is looking to enter production between 2025-2027. In case the company is successful in renting a pilot plant, the overall timeline will be reduced by 8-9 months. 

Timing the Market

E3 Metals is looking to a strategic entry point in the market by avoiding contract early signing. This is because early sign-ons can lead to diminished value. 

The company plans to raise additional capital from the market by signing a strategic agreement in the future to fund its $600M CapEx project. E3 Metals has been working on its asset for the past 4.5 years and is currently working to enter 20,000t production at the earliest. The conclusion of the pilot plant will be a landmark achievement for the company. 

Building a Team

Following the capital raise in February 2020, E3 Metals moved to the new Calgary facility and started the recruitment of new staff. The company has been working with contractors for project development while simultaneously providing skill training for its team. The company originally had 5 staff members along with contractors which have now grown to 15 staff members and 5 contractors. E3 Metals has streamlined its project management and staff training which has led to a drastic improvement in progress within the last 6-8 months. 

Due to a strong bear run in 2018, the company's access to capital was delayed, pushing the project timeline ahead by 2 years. Currently, the company has significantly better access to capital as the lithium market has made substantial recoveries after a 3 year period.

To find out more, go to the E3 Metals Website