E3 Metals (ETMC) - Technical Analysis

E3 Metals Corp. 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. 

Merlin Marr-Johnson 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 also has 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 as the Vice President of Exploration at MinQuest Ltd. His educational credentials include a B.Sc. Honours 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 Corp. is a lithium technology and resource company located in Calgary, Alberta. The company has a 7Mt lithium carbonate equivalent inferred mineral resource. It has been developing a DLE (Direct Lithium Extraction) technology, an ion exchange process to remove lithium from brines. The company is looking to implement this technology across the globe.

The company is bringing a combination of resource and technology to unlock the massive potential of the Alberta province. It seeks to generate a 20,000t/year project by 2025-2026. Following this, the company seeks to grow across a resource base to around 150,000t of lithium products. 

It is looking at lithium hydroxide as the first product. At the same time, the company is assessing opportunities to expand into other markets including carbonate and lithium metal in the battery metals space, where the technology continues to evolve. 

E3 Metals has been looking for a lithium project since 2014. The company took 2 years to identify a project with a strong opportunity. The company was founded in 2016. It got interested in the battery metals space due to Tesla. Based on Tesla’s projections and production metrics, it was evident that the lithium market was already under-supplied. 

Lithium differs from other commodities because it doesn’t have the production base like other battery metals, such as nickel or cobalt. A new entrant in the lithium market would need to generate a new supply. Lithium makes up 7%-10% of every chemistry of the battery. Based on the analysis, the company understood that lithium was going to be a booming market. As a result, it started looking for a project to enter the space. It started operations with the vision of an energy metals company. 

The Clearwater Project

At the Clearwater Project, the lithium is hosted in brine. The lithium found here is often coined as petrol lithium. This is because the asset was previously an oil and gas aquifer called Leduc. It was originally discovered by ExxonMobil in 1947 and was developed til the company left the asset in the 90s. Leduc is currently at the end of its life cycle. 

Upon its discovery, Leduc was 4% oil by volume and 96% brine. The lithium was dissolved in the brine. The aquifer has been under production for 60-70 years. E3 Metals has effectively repurposed the asset to produce lithium. As the asset was a former oil and gas producer, the company has extensive data and understanding in terms of exploration and development. 

The majority of the company’s senior and junior team members have a background in oil and gas. The company has a limited number of junior team members that are not part of the local workforce. The non-local workforce mainly consists of lithium experts.

The company is looking to improve its understanding of fluid movements and production through the existing aquifer. The Head of Projects at the Four Hills Project in Northern Alberta was responsible for developing the infrastructure and design of the Clearwater facility. He is now the Director of Projects at E3 Metals and is helping the company in commercialising the project. Since the existing aquifer was used to extract oil, it can be used to extract the brine containing lithium as well as both are fluids. 

The Clearwater project has 4,000 drill holes in the permit area which is a result of the old oil and gas exploration. The company has intersected a particular aquifer. It has a lot of geologic data that can be used to backstop its resources. As per the company, this has always been a development project rather than an exploration project and as a result, the resources are fairly robust. The company has a lot of data points on the flow of fluids through the aquifer. 

Based on the sampling, there’s a small amount of oil production and it’s about 98% water cut. This means that 98% of the fluid coming out of the well is water, while the other 2% is oil. The oil is skimmed off the top and the brine is put back down. This allows the company to sample the brine before it goes back into the aquifer. The company has sampled over 100 wells across the permit area so far. It was found that the lithium grade is fairly consistent both spatially and over time. 

In the Clearwater area, the company has found lithium ranging between 60mg/l - 86mg/l, averaging at 75mg/l. The majority of the samples are around the 75mg/l mark. The company is looking to produce in this area. Notably, the 75mg/l is the basin-scale brine content. The company has found that the brine is 400 million years old and the lithium has been in place fairly early in its history through a process called dolomitization. In theory, the lithium should be distributed spatially and fairly evenly, unless it was impacted by human activity.

The company anticipates that there might be a slight dilution in the lithium due to human activity, especially where the oil is present. This is because introducing water into the aquifer allows for enhanced oil recovery. Water is added into the aquifer to generate pressure which leads to a higher oil yield. The company also believes that other factors may have led to the dilution of the lithium grades locally. The company is looking to produce the majority of its lithium from the rest of the aquifer. 

E3 Metals is looking to avoid producing from areas where oil was historically extracted. It might use the area as a disposal zone. It intends to sterilise the diluted area where oil was produced and produce lithium from brine that wasn't impacted. Based on the samples, the company expects grades to be fairly consistent across the area. 

The Pilot Plant

E3 Metals’ pilot plant is a major area of focus for 2022. It is working with 2 operators in the area that have brine at surface. The brine availability through these operators is sufficient for the company to run a pilot plant. The company plans to take the brine and run it through its own exchange system. Following this, lithium would be extracted and the brine will be returned to the operators, which will then go back into the aquifer. 

The company plans to drill 3 wells during the summer season this year. Its primary goal is to define an M&I (Measured and Indicated) upgrade for the PFS (Pre Feasibility Study). The actual pilot may be moved to a later date, however, the initial pilot is likely to run at the company’s existing producing site. 

The brine is moved out of the ground through the company’s wells. It has a series of wells that are producing from the aquifer. The company plans to bring all 15 wells into a pipeline. This 15km area will provide the company with 20 years of production at 20,000t/year. 

The fluid flow from the injection well to the production well is driven by creating a pressure differential. The company is looking to create a sweep across the aquifer. In the PFS, the wells are expected to be further apart than 15km. In the existing configuration, the 15km will provide the company with 20 years of sweep. 

E3 Metals can extend the mine life or increase production by stepping out further than 15km. The company would achieve this by drilling more wells and start pumping. Following this, the brine would be sent back down through the same disposal wells.

The company has an aquifer management plan which is crucial to DLE as the brine needs to be put back down and the resource has to be managed accordingly. When brine is put back down, it goes into the injection wells, leading to the lithium brine sweeps across the aquifer as pumping is initiated. 

The company’s $600M CapEx (Capital Expenditure) is mainly broken down into 3 parts. One-third is for the wells and the pipeline, the second third is the DLE pre-treatment portion of the process. The other third is for polishing, purification, and hydroxide production. The company’s cost estimation for the drilling is fairly robust. The company has had drilling quotes and pump quotes for actual pumps and drilling. Since there’s been a lot of drilling conducted here over the years, the company has developed a robust understanding of the operating costs. 

The DLE Technology

When E3 Metals was founded, it was planned as a resource company, and soon after, it was turned into a technologies company. The leading solvent extraction method for lithium was no longer applicable back then. As a result, the company decided that ion exchange would be the ideal process as one does not need to remove anything from the brine prior to lithium extraction, leading to a significant drop in costs.

The proprietary side of the company’s DLE technology consists of a sorbent. It has developed a sorbent that is highly selective for lithium ions and has a quick kinetic background. This enables the company to extract a large quantity of lithium in a very short amount of time, allowing for significantly lower operating costs. At the same time, the company is able to produce a high purity product. The sorbent or the bead was developed by the company through the ion-exchange process equipment. The company worked on developing the DLE technology for 3.5 years between 2016 to 2020. 

In 2021, E3 Metals announced that the development of the DLE process was complete. Though the company continues to perfect the bead itself, it’s not a priority at the moment. Since last year, the company has been focused on developing the process around it. A prototype was built in 2021 which was running before the year ended. The resultant data was utilised to design the pilot. 

The company ran a plethora of tests. The test data was then provided to third-party vendors that make ion-exchange equipment. This enabled the vendors to understand various process parameters including the flow rates. This would help the vendors design and build the pilot plant for the company. 

DLE is a new way to process lithium, but not a new way to process elements out of water. It enables the company to extract lithium at high purity. The company needs to ensure that the fluid flow is high enough to get the volume to produce the tonnage. The company’s sorbent helps pull out the elements that are flowing across it at a 75ppm (parts per million) grade. 

E3 Metals showcased the economic viability of its operation through the PEA. The company is looking to demonstrate that it can build a commercial plant based on the pilot plant. A 20,000t annual production was highlighted in Phase 1 of the PEA. Going through Phases 2 and 3 will enable the company to grow and become a 150,000t lithium producer. The aquifer is very big and prolific which offers massive potential for further expansion. 

Targets 2022 and Beyond

Presently, E3 Metals is in the process of finalising the engineering firm along with the design and fabrication. It might take the company 3-5 months to hire all the required firms and initiate fabrication. The company is looking to get the majority of pieces built in Alberta. This could potentially allow the repurposing of some water treatment skids, allowing the fabrication of a simpler build, leading to a shorter development timeframe. Since the company has to fabricate from scratch, the expected timeframe is between Q3-Q4 2022. However, this is a broad estimation as the company is currently unsure if fabrication would need to be done from scratch or not.

The cost of building the pilot plant is estimated at $3M-$4M. The plant is essentially an ion-exchange system, a simple process that utilises columns. Since these plants are modular in nature, the company can build more plants to achieve a commercial scale instead of building a single bigger plant.

The pilot plant is being built to be close to the commercial size for testing out the various parameters. This allows the company to de-risk as it moves towards commercial production. The building costs for the pilot plant are between $3M and $4M, while the operational costs are expected at $1M for a period of 6-12 months. Based on the drill results, the company might relocate the plant to different sites. 

The company is also working on a conventional lithium hydroxide production process. However, its timeline would be dependent on the progress of the pilot plant. It is working with other companies to develop a process for lithium hydroxide production. This allows the company to utilise the existing test facilities for its concentrate and understand the costs involved to produce lithium hydroxide. 

This will be carried out in 2 phases. Phase 1 will involve running prototypes for longer periods, generating the concentrate, and getting the smaller tests done. Once the pilot is running, the company will take a large portion of the produced concentrate and carry out larger-scale testing. This would be phase 2 of the operation, which could potentially lead the company to bring the technology to its pilot plant and produce lithium hydroxide on-site. 

Working with other companies with existing large facilities and testing equipment enables the company to work towards building a commercial plant in the future. The input at the backend is enriched lithium brine. The pilot plant would allow the company to take the 75mg/l brine and turn it up to 5,000mg/l. The average yield is 2,000mg/l-3,000mg/l of material with no impurities. Notably, the initial 75mg/l brine also features 50,000mg/l sodium and 25,000mg/l calcium. The resultant material from the pilot plant is 2,000mg/l-3,000mg/l lithium along with 200mg/l-300mg/l magnesium and 400mg/l calcium. The plant enables the company to convert 0.00001% lithium in the brine into 60% lithium in a single step. 

Comparatively, a hard rock mine that produces hard rock powder concentrate contains 6%-7% lithium. E3 Metals is able to attain 10 times higher concentration through a simple ion-exchange column. This leads to drastically lower costs as the company does not need to have a big clean-up stage post-extraction. Though the company has to refine the lithium further to 99.9% purity, the energy and effort required is significantly reduced. 

The sorbent developed by the company has a limited usable life. From an economic perspective, it accounts for $400 of the $3,600 OpEx (Operating Expenses) on a yearly basis. The product is not sensitive from a cost or risk perspective. 

Even if the costs for sorbent development double, the project costs would go from $3,600 to $4,000, which still keeps the company’s operating costs lower than the competition. The company has patents for its sorbent and is not worried about the material costs. It is instead focused on achieving a scale of commercial operations. 

The company has 3 major milestones it's been working on for several years. If the conditions are ideal, all 3 will be achieved by the end of this year. 

The first milestone is the pilot plant which the company is looking to operate at a near-commercial scale, achieving operation for at least one module. The majority of the company’s energy and monthly spending is being directed towards this goal. Following this, the company will delegate the plant design to fabrication for development. The building and development are expected to conclude by the end of this year. 

The second priority is to drill 3 wells at a portion of the aquifer and initiate production. This is around June, post-spring break. These 3 wells will be outlined in the company’s M&I area and will detail the information needed to develop the aquifer plan for its first commercial production. The M&I resource will feed into the PFS (Pre Feasibility Study) to book the first DLE reserve globally. 

The final goal for the company is to develop hydroxide, where it can go from brine to battery. The company is looking to develop a process that can convert a 75mg/l brine into a lithium hydroxide that is sufficiently pure to directly sell to the battery market. 

To find out more, go to the E3 Metals website