Peter Epstein, CFA, MBA    epstein.peter4@gmail.com    http://EpsteinResearch.com

Lithium Energi Exploration Inc. (TSX-V: LEXI) controls 100% (no royalties, debt, work commitments or further share issuance due to vendors) of a very large land position– 128,367 hectares (“ha“) (317,202 acres) in and around the Antofalla salar in northwestern Argentina.  The Antofalla salar straddles the provinces of Catamarca & Salta.  All of LEXI’s property is in Catamarca on 39 mineral concessions in 3 project areas; Laguna Caro (8 contiguous concessions, 17,759 ha), Antofalla North (13 semi-contiguous concessions, 41,496 ha) & Antofalla South (18 semi-contiguous concessions, 69,112 ha).

Antofalla is one of the largest basins in the region, over 130 km long and 5 to 20 km wide.  Less than 8 km northeast of LEXI’s Laguna Caro, FMC Corp. (NYSE: FMC) operates its Fenix mine in Salar de Hombre Muerto – Argentina’s largest lithium extraction operation.

Argentina’s Antofalla Salar, Large, Deep, Untapped….

In 3 separate programs from 2008-11, 56 test wells were drilled by private Argentinean group Bolland Minera, SA.  Well bore logs (porosity, neutron density, etc.), permeability, hydraulic gradient, core sample chemistry, and gravimetric studies were analyzed.  Substantial values for lithium (“Li“) and potassium (“k“) were observed from surface to a depth of > 500 meters.  The average Li and k values were approx. 350 mg/L and 6,400 mg/L, respectively.

Perhaps more important than the exploration grades was the indicative scale of the deposit as reported by the Institute of Mineral Resources for the National University of La Plata In Buenos Aires, Argentina (“INREMI”), which published the report in conjunction with Bolland Minera’s drilling programs: 2.22 Million tonnes (Mt) Li (equal to 11.8 Mt of Lithium Carbonate Equiv. “LCE“) – and that projection is based on drilling only ~25% of the property in the basin.

The report prepared for Bolland Minera also stated that,

“Permeability and transmissibility testing revealed that the subsurface, sedimentary basin at Antofalla is very porous with high permeability, denoting excellent flow in the underground aquifers, as the principal mechanism for re-charging the basin.”

In my opinion, this means there’s a decent chance (but by no means a certainty) that key elements of brine chemistry found in one part of the basin are likely to be similar to those found in other parts of the basin, i.e. there’s good continuity in the Salar.

The chart below (from its March 16, 2017 Investor Day Presentation) is an important one for Albemarle Corp. (NYSE: ALB), the largest Li products producer in the world.  Its two primary Li producing assets are 1) the famous Greenbushes in Western Australia– (highest-grade hard rock Li operations on earth), and 2) the Atacama Li brine facilities in Chile– (highest grade) AND (lowest-cost brine production in the industry).  Albemarle estimates that Antofalla is the third largest resource in the world and single largest in Argentina. 

Albemarle has been in the lithium business for many decades, it has vast experience, global expertise, longstanding connections…..  In September 2016, management chose just 1 of Argentina’s 52 salars for a significant Li brine exploration campaign.  It chose Antofalla.  For six months leading up to that announcement, the senior management team of LEXI, led by CEO Steven Howard and VP Omar Ortega was already negotiating a deal, eventually signed on December 6th, for 128,367 ha… in and around Antofalla.

To be clear, Albemarle’s larger, more central position in Antofalla remains an exploration-stage project (other than the INREMI-Bolland data, no exploration results have been made public by Albemarle), but management commented as follows in its September 2016 press release,

“Albemarle believes that this lithium resource will be certified as the largest lithium resource in Argentina.”

Lithium Energi is therefore aligned with Albemarle’s best ongoing efforts in Argentina– not just to find a deposit, but to find a monster deposit that can be defined in a maiden NI 43-101 mineral resource estimate.  

To recap, 1) LEXI controls 100% of 128,673 ha in and around a one of the most highly prospective salars in Argentina, 2) that’s a very large land package compared to other juniors with Li brine assets in Argentina, 3) there are noroyalties, debt, work commitments or further share issuance due to the vendors of the Antofalla properties.

In addition, LEXI has secured an exclusive right of first refusal to acquire > 100,000 ha of additional property in Catamarca, ~42,000 ha complimenting what the Company already has in Antofalla and ~60,000 ha in nearby Salar de Pipanaco.  The claims in Pipanaco cover more than 85% of the salar and are at a low elevation of 700-750 m.  At less than a two-hour drive from Catamarca city, this could be a prime site for a Li extraction and/or refining facility. 

In the Antofalla salar alone, these acquisitions would increase LEXI’s holdings to ~170,000 ha and expand its total Li brine prospects in Argentina to ~230,000 ha.  This would make LEXI the 2nd largest Li claims holder in Argentina, after LSC Lithium (TSX-V: LSC).

All of this in a company with a market cap of just C$ 8.4 M, (as of Aug. 22nd, 54 M shares outstanding @ 15.5 cents, 57.5 M shares fully-diluted, zero debt).

Relative Valuation Among Argentina’s Li Brine Plays

There is a basket of low market cap Li brine juniors, 100% focused on Argentina, companies more advanced than LEXI, but not so much so as to be non-comparable.  This basket includes Advantage Lithium (TSX-V: AAL), Liberty One Lithium (TSX-V: LBY), Millennial Lithium (TSX-V: ML) and NEO Lithium (TSX-V: NLC).  These 4 have market caps ranging from $36 M to $89 M with an average of C$60 M (as of August 22nd)

Yet, LEXI might be (in my opinion) only 6 months behind the solid progress Liberty One has made and 12 months behind others in Argentina.  If true, even accounting for equity dilution, LEXI’s market valuation has a lot of room to grow if/when management achieves key milestones.

Milestones include positive sample / drill results, geophysical surveys, pumping (flow) tests, brine chemistry characterizations, resource definition via a NI 43-101 maiden mineral resource estimate, and, if warranted, a Preliminary Economic Assessment (“PEA”).

Equally as impressive as the size of its land package, LEXI has lower, “all-in” costs than its peers.  Others have recently paid from US$100/ha [Ultra Lithium (TSX-V: ULI)] to US$3,000/ha (Millennial, for ground contiguous with strong discovery holes on their flagship project) and many have large cash payments due over the next few years.  Some are also encumbered by production royalties of 1% to 5%.

Conclusion

LEXI’s properties are royalty and debt free.  Management told me that the combination of its acquisition, title and filing costs averaged less than US$60/ha.  If exploration activities point to similar brine chemistry as that found by INREMI, the value of LEXI’s property could move into the hundreds of USD/ha. 

Readers beware, this is a highly speculative, small cap company.  Achieving the milestones that peers have this year is far from a sure thing.  However, I believe the risk/reward opportunity in the shares of LEXI is quite compelling.  

Estimates of Li demand in coming years by sell-side analysts, auto manufacturers and industry consultants are going up month after month, while the timing of supply from several large 25,000+ LCE/yr projects in the pipeline is slipping and uncertain.  This is truly the perfect storm for continued strong pricing of lithium carbonate and hydroxide for years to come.  

Lithium Energi Exploration Inc. (TSX-V: LEXI) is in the right place at the right time with the right team and the right assets to potentially become an important player in Argentina’s Li brine future. 

Disclosures: The content of this article is for information only. Readers fully understand and agree that nothing contained herein, written by Peter Epstein of Epstein Research [ER], (together, [ER]) about Lithium Energi, including but not limited to, commentary, opinions, views, assumptions, reported facts, calculations, etc. is to be considered implicit or explicit investment advice. Nothing contained herein is a recommendation or solicitation to buy or sell any security. [ER] is not responsible under any circumstances for investment actions taken by the reader. [ER] has never been, and is not currently, a registered or licensed financial advisor or broker/dealer, investment advisor, stockbroker, trader, money manager, compliance or legal officer, and does not perform market making activities. [ER] is not directly employed by any company, group, organization, party or person. The shares of Lithium Energi are highly speculative, not suitable for all investors. Readers understand and agree that investments in small cap stocks can result in a 100% loss of invested funds. It is assumed and agreed upon by readers that they will consult with their own licensed or registered financial advisors before making any investment decisions.

At the time this interview was posted, Peter Epstein owned shares and/or stock options in Lithium Energi and the Company was an advertiser on [ER]. Readers understand and agree that they must conduct their own due diligence above and beyond reading this article. While the author believes he’s diligent in screening out companies that, for any reasons whatsoever, are unattractive investment opportunities, he cannot guarantee that his efforts will (or have been) successful. [ER] is not responsible for any perceived, or actual, errors including, but not limited to, commentary, opinions, views, assumptions, reported facts & financial calculations, or for the completeness of this article or future content. [ER] is not expected or required to subsequently follow or cover events & news, or write about any particular company or topic. [ER] is not an expert in any company, industry sector or investment topic.