NEO Lithium 1: World-Class Project

Mining exploration (and development) is a challenging enterprise. Simply finding significant mineralization for a particular metal or mineral requires considerable skill and diligence. Finding a metal/mineral deposit that is economically viable for commercial mining is even more difficult – and thus accompanied by even lower odds of success.

If a mining executive is fortunate, perhaps once in a career he or she may uncover a mining discovery that is not merely commercially viable but world class. And “world class” is clearly the only way to describe the unique-and-exciting 3Q Lithium Project, located in Argentina and currently under development by NEO Lithium Corp. (TSX: V.NLC, OTCQB: NTTHF, Forum).

Argentina is a part of the world-famous Lithium Triangle in South America, along with Chile and Bolivia. This region contains roughly 90% of the planet’s lithium brine resources. The 3Q Project is an 8,183 hectare property, part of a 350 square kilometer land package controlled by the Company.



It hosts a lithium salar and lake complex, in arid climate, at an elevation of roughly 4,000 meters. The land package boasts easy road access, as well as being proximate and accessible to ports.

3Q has it all.

• Enormous scale (the 5th largest lithium brine resource in the world)
• Exceptional grades for a brine operation (4th highest for reserves, 6th highest for resources)
• A “high-grade core” that represents the world’s 2nd highest grades for a lithium brine project
• Extremely robust economics (contained in a brand-new PFS from March 21, 2019)
• Strong leadership

Additionally, what is perhaps the most important quality of this world-class Project isn’t even included in the list above. More on this later in Part 1.

Strong leadership? This is a veteran management team with a track record of success. Indeed, this team has taken 3Q from initial discovery through to two resource estimates, a Preliminary Economic Assessment (PEA), and now a Pre-Feasibility Study (PFS) – all in roughly two years.

Stockhouse will take a closer look at NEO Lithium’s management, break down the economics from the new PFS, and delve into current exploration/project development activities in the second and concluding installment of this multi-part series. Investors who are too eager to wait for Part 2 can examine the numbers from the Pre-Feasibility Study directly themselves.

World-class Project, world-class value

In this initial installment, Stockhouse will shine a spotlight on the Project itself, provide general insights on lithium brine operations, and alert readers to the extraordinary value proposition here.


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While the Company’s share price has tracked higher in recent weeks, the market cap for NEO Lithium (and it’s 3Q Project) is still an extremely compact $112 million. Immediately prior to this, NLC had traded down to, at one point, a market cap of under $70 million.

With $45 million in cash (and no debt), this means the market was valuing this world-class lithium Project at less than $25 million. Even with the depressed mining company valuations that have been common in recent years, that ranks as especially ridiculous. Frustrating for existing shareholders but extremely appetizing to new investors.


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Longer term, the Company is trading at little more than one-third of its all-time high. A three-year chart practically shouts “bargain”. And the closer that investors look, the more of a bargain NEO lithium appears to be.

The robust economics of the new PFS that include a 35-year mine life are derived from less than one-third of the existing resource. Current drilling on the northern, high-grade zone of the 3Q property (more on this in Part 2) is expected to translate into even higher overall grades for this Project.

Going forward, 3Q will get bigger and it will get better. Here, CFO Carlos Vicens wanted to clarify an important nuance in lithium brine mining, when speaking to Stockhouse Editorial via conference call. Generally, grade is king in the mining world. It’s not that simple with respect to a lithium brine operation.

“Independently of the grade the higher the impurities the higher the potential OPEX and it will also affect CAPEX considerations. You need both!”

Not just world-class, best in the world

So impurities are a critical factor in the equation for lithium brine mining. How does 3Q look in this respect? Simply: the lowest combined critical impurity content in the world. 3Q is in a class all its own.


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Impurities ratchet-up production costs or, in high enough concentrations, make the lithium brine uneconomical – no matter how high the grades. Conversely, with the lowest levels of impurities and exceptional grades, this makes the economics of 3Q especially robust, which the PFS translates into an internal rate of return (IRR) of 50%.

This leads to a closer look at the 3Q resource itself. Once again, the closer that investors look, the better that NEO Lithium looks as an investment candidate.


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Referring first to the lower cut-off number, what is a “cut-off grade” at 3Q would represent the higher-grade mineralization of many existing lithium brine deposits. Even at this conservative cut-off level, the Project yields an estimated 7,000,000 tonnes of lithium carbonate (Li2CO3), spread across both the Measured & Indicated and Inferred resource categories.

The higher grade cut-off represents the “high-grade core” of mineralization at 3Q mentioned above. Close to 1 million tonnes of Li2CO3, at eye-popping grades above 1,000 mg/L. Also notable is that in this area of mineralization, impurity levels are even lower. With this part of the 3Q deposit currently only drilled to a depth of 100 meters, management is confident that they can uncover more such mineralization.

More recently, accompanying NEO Lithium’s just-released PFS is the Company’s first reserves estimate for 3Q: Proven & Probable Reserves of 1.3 Mt of LCE, with an average grade of 790 mg/L lithium.

Those resources and reserves are one measurement of the quality and strong economics of this resource. Then there is resource depth. As shown in the graphic below, over 50% of this monster resource is hosted near surface, in the upper 100 meters. Also noted in that graphic is the “porosity” of 3Q mineralization.


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Porosity?

CFO Vicens came to the rescue of Stockhouse Editorial and dumbed down this concept with a simple analogy.

“Think of low porosity as equating to sticking a straw into a rock in order to suck out the liquid contained. Not easy. Now think of high porosity as sticking a straw into a sponge and then sucking out the liquid. Much easier.”

Porosity not only translates into better recoveries of lithium mineralization, it allows improved pumping rates. This allows for a higher production rate and at a lower opex.

To go along with 3Q’s exceptional grades and lowest impurities levels, mineralization here features generally high porosity (more on this as well, in Part 2). Also notable is the additional blue sky potential at depth. While drilling at 3Q has only gone to a depth of (roughly) 600 meters to date, more than 22% of the known resources are found below 500 meters, in what is highly porous geology at that depth.

Once upon a time in the world of mining, if a project (or company) looked “too good to be true” in relation to the share price it was trading at, it probably was. Examine the company close enough and some cracks in the business model would appear.

Not so in today’s depressed conditions. Even world-class Projects (like NEO Lithium’s “3Q”) can sometimes be found at bargain-basement prices.



In Part 2, we’ll delve even deeper into this stellar opportunity, including a full look at the new PFS, an update on current exploration/development, and an examination of near-term value drivers that could quickly lead to a more rational repricing of this world-class asset.

NEO Lithium 2: World-Class Execution

In Part 1 of Stockhouse’s latest multi-part investor series, readers got an initial look at NEO Lithium Corp (TSX: V.NLC, OTCQB: NTTHF, Forum) and its world-class 3Q Lithium Project in Argentina. For readers new to the Company and who missed the first installment, 3Q is a premier lithium project in terms of scale, grades, and mining-friendly geology.

• 5th largest lithium brine resource in the world
• 6th highest grades for a lithium brine resource (and 2nd highest for the Company’s high grade core)
• The lowest “combined critical impurities” of any lithium brine deposit
• High porosity (which translates into high pumping rates)

Those last two factors dramatically improve the overall economics of the Project, not only with respect to (future) opex but also production capacity. Part 1 goes into greater depth in these areas. But this isn’t the only unique (and highly prospective) feature of 3Q geology. More on this later.

What will impress experienced investors is the lightning speed with which NEO Lithium’s management have been able to take this Project from initial discovery through to a second resource estimate and (now) a Pre-Feasibility Study (PFS): a mere three years.

That’s world-class execution to go along with this world-class Project. This is a management team that already had a track record of success prior to 3Q.


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The entire team that was responsible for all the technical work on Lithium America’s (TSX: LAC) Cauchari-Olaroz Project – also in Argentina – was reassembled to develop 3Q. On March 21, 2019; NEO Lithium produced its PFS for 3Q.

• 20,000 tpa LCE production
• 35-year mine life
• Very low opex ($2,914/t LCE)
• $1.14 billion after-tax NPV (8% discount rate)
• IRR (after tax) 50%

As noted in Part 1, 3Q is “going to get bigger and it’s going to get better.” This includes increasing stage 1 production and extending mine life.

In terms of scale, the March 21st news release notes that this PFS is derived from less than one-third of the (huge) overall resource at 3Q. In terms of quality, current drilling in the high-grade north zone of 3Q (currently only drilled to a depth of 100 meters) is expected to extend high-grade mineralization, boosting overall grades for the Project.


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Most importantly, 3Q is projected to generate an after-tax IRR of 50% -- two-year payback on capital. This is the highest IRR of any lithium brine project under development. And initial capex to move 3Q to production is a relatively economical $318.9 million.

Waldo Perez, President and CEO of NEO Lithium, put the PFS into context with respect to the Company’s previously released Preliminary Economic Assessment (PEA).

“With the discovery of a high-grade core, we optimised the 3Q Project development plan with respect to our Preliminary Economic Assessment. The new capex and opex, together with a long life of mine and high-grade brine, allow us to present a superior IRR of 50%. Furthermore, we currently continue drilling the high grade core and we are now able to validate that the 3Q Project still has further significant high-grade resource upside potential.” [emphasis mine]

The previous PEA estimated an IRR of 27.9%, so Project economics have already improved considerably. The CEO alluded to “further significant high-grade” potential. This requires further explanation.

Part 1 also mentioned the “high-grade core” of the 3Q resource but didn’t offer additional details. It centers around the “brine lake” formations at 3Q.

As small lithium-mineralization ‘engines’, these brine lakes inject a steady flow of very high-grade lithium mineralization into the larger 3Q reservoir, especially the largest formation at the northernmost portion of 3Q.


(blackened areas represent “brine lake” formations)

For this reason, overall mineralization is considerably less-homogenous than is typical for a lithium brine deposit. Part 1 already alerted investors to the sensational grades of this high-grade core – the second-highest grades of any known lithium-brine deposit.



Pilot plant coming online

More drilling is ongoing here at present, but this takes a back seat to the more important operational news coming from NEO Lithium: commissioning their pilot plant at 3Q.

The plant is fully constructed and is now being commissioned. The primary purpose of this facility is to fine-tune hydrometallurgy for the (future) brine mining operation at this world-class Project and to conduct ongoing sampling..

For forward-looking investors, it’s another milestone for NEO Lithium as it pursues the “pot of gold” for the Company and its shareholders: moving 3Q to commercial production. In speaking with Stockhouse Editorial, management expressed their strong preference here: a joint venture model that will allow shareholders to fully participate in the long-term upside for this Project.

With the extremely lucrative economics for 3Q that have been demonstrated by the recent PFS, there is no shortage of interested (potential) partners. The Company has already been in discussions with several other players in the lithium mining industry. Obviously, any deal finalized here -- providing a clear path to production -- would result in an immediate upward repricing of this undervalued asset.

Here a comparison to Lithium Americas is useful. Cauchari-Olaroz is the flagship project for LAC and (due to go into production in +2020) it generates the vast majority of Lithium America’s market cap.

Market cap for Lithium Americas: $470+ million.
Market cap for NEO Lithium Corp: $112 million.

NEO Lithium already has the world’s 5th largest lithium brine resource. As previously noted, the already-exceptional lithium grades are also expected to continue to increase. More importantly (and as noted), the current PFS is modeled on only one-third of the current resource.


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At the very least, this can translate into a mine life of multiples of the present 35 years. Alternately, 3Q could be scaled to a significantly larger size.

Investors also can’t rule out the possibility of a straight sale here. As arguably the world’s premier lithium Project not yet in production, many of the world’s larger lithium producers would see this as a Crown Jewel to add to their own operations. Management for NEO Lithium may ultimately be presented with the proverbial “offer too good to refuse”.

That’s the largest value driver for NEO Lithium, but other near-term milestones also present further opportunities for repricing.

• Environmental Impact Assessment (EIA)
• Feasibility Study (FS)
• Extending high grade zone

First on the horizon is the EIA. With no inhabitants or aboriginal communities in the area and strong government support for 3Q, no surprises are expected in this review process and a final ruling is due this year.


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Meanwhile, management is already at work on a Feasibility Study for 3Q. While there may not be much improvement in the already outstanding economics from the PFS, it would be reasonable for investors to expect the FS to model a considerably larger portion of the 3Q resource – translating into an extended mine life or (perhaps) larger scale production model.

World class mining projects don’t come around every day. For investors, finding such an asset that also features world-class management is an even rarer find. NEO Lithium offers investors a world-class Project and world-class team – still (for the moment) at a bargain-basement price.


www.neolithium.ca




FULL DISCLOSURE: This is a paid article of Stockhouse Publishing.