Welcome to The Market Herald’s Capital Compass.
Grounded Lithium Corp. (TSXV:GRD) is an Alberta-based lithium resource company, focused on supplying lithium to the electrically powered economy. With EV battery usage growing rapidly, the company is focused on lithium extraction from the undeveloped areas of Western Canada.
Here to answer questions about the company is not one, but two members of the Grounded Lithium leadership team: CEO Gregg Smith and Senior VP of corporate development and CFO Greg Phaneuf.
TMH: Grounded Lithium’s corporate vision highlights that the company strives to build a “best-in-class, environmentally responsible Canadian lithium producer.” Which steps does the company take to execute this vision?
Smith:That’s a very specific goal that experienced resource professionals like ourselves have a game plan for and we begin to start executing that plan to achieve those goals. What we’re really looking for is to find quality resource in quality rock in the least expensive area and easiest area to extract the lithium from, and we’re well down our way towards achieving that. When you get there, you can have that best-in-class economics, which is what we’re striving to get to.
We do our homework; we do our homework right up front. We begin by understanding the subsurface system. Where is the brine? How’s it moving around? Where do we find the best place to do it and when we overlay that with the least expensive area. So when we seek to understand this, we start off with where are the brines coming from and how are they being sourced?
When we start to understand that, we can say, “OK, well here’s the area that would seem to have the resource. Now we want to have quality rock to go with that.”
We then overlay our rock attributes to say, OK, “Where is this now? Can we reduce our subset by saying where is this going to be the best?” After that we start to say, “OK, well from what we understand, we’ll control our cost basis. How do we then overlay where will it be the cheapest to develop?”
The hydrogeology gave us a lot of areas to work with up front and then we narrowed it down. When we started to put in the aspect of how do we control our costs, it really started to pinpoint this Kindersley area of southwest Saskatchewan to us because it had quality resource, it had great quality rock with great porosity and permeability, good deliverability that we could see, and it is the shallowest area by about a factor of two.
It’s the shallowest area for us to be developing lithium from brines, from the Leduc Formation, which most of the entities are fixated on right now. So good, thick reservoir in a cheap area to be drilling for it, and if this was an oil and gas play, it’d be great reservoir. This is fantastic reservoir. The problem is there’s no oil. And that’s an advantage for us in that the oil is only a contaminant from our perspective. If we have oil, gas or H2S, those are contaminants that must be removed because they’ll destroy the process for removing the lithium from the brine. So, we can now minimize our pre-filing costs by having that and we are moving very quickly towards proving all of that up and it starts to show in our reports that we publish.
TMH: Can you walk us through the company’s Leduc Formation project area in Southern Alberta and Duperow, Saskatchewan, and why it is such a rich area for lithium extraction?
Smith:This Leduc-Duperow is some unneeded confusion in that different province, different name. It’s the same geological formation, it just changes names when you cross the border, the rock doesn’t change. But 400 million years ago, this was an ocean, and it was a warm ocean that grew carbonate reefs and shorelines, and carbonate reefs and shorelines form great reservoir. They’re very tough rock that preserve the core space in between the rock fragments.
So we started out with great reservoir, got deposited a little bit deeper. We put on top of that some sediments that are impermeable and nonporous and really locked in that whole Leduc-Duperow system. And a little after that then, hydrothermal fluids started to move up faults from the basement and they found great place to move those hydrothermal fluids through the Leduc-Duperow sequence and that did two things.
First of all, it took good reservoir and made it great reservoir. It really improved the porosity permeability within the zone.
Secondly, these hot hydrothermal fluids hooked up a lot of ions and became brines along the way. So these brines are also rich in lithium. That process gave us the lithium brines introduced into a better reservoir within the Leduc and then a few million years later, we start to form the Rocky Mountains.
We’ve all been to Banff, we know the Rocky Mountains. As they started to grow up, it created structuring across Alberta and Saskatchewan and one of the impacts was the formation of what we call the Bow Island Arch, which sits on just the Saskatchewan side of the border. And it’s a high area and today what that translates into for us is this is by far and away the shallowest area for us to pursue the Leduc Formation.
It also has lithium rich brines and without all of the contaminants for us to work with. So that’s how we sort of like to explain the Leduc-Duperow sequence, if you will, and we find ourselves at that intersection of great resource in great rock where we can minimize our capital and operational costs.
TMH: With the company’s focus on lithium extraction from subsurface brine production, can you explain lithium from brine development?
Smith:Lithium from brine industry is not new. It’s been around a long time within South America. In South America they’ve been pulling the brine out of the ground and putting it into these large evaporation concentration ponds and then through the subsequent evaporation of all the water, they eventually remove salts and they eventually get down to the very last set of salts, which are the lithium products that are the lithium carbonate that can be sold for EV batteries.
Now that takes 18 to 24 months to accomplish, and on top of all of that, there’s no way any jurisdiction in Canada is ever going to approve these large tailings pods. So what we now see is most of the world is coming to that conclusion. And globally, even in South America, they’re moving towards what they call direct lithium extraction, which is a physical process called DLE where you physically remove the lithium from the brine and create another solution that’s very dense lithium chloride, which can be refined into a final product and that’s what we’re looking to do, and we’ve made announcements in terms of those effects as well.
That’s what the new industry is starting to look like and you’re seeing many, many partners within the sector like technology companies, lithium companies, they’re hiring PhD. chemists, PhD. chemical engineers and they’re all pursuing, coming up with the best extraction process. We have the opportunity to sit back and find the right technology company for our brine, and that’s what we’ve been doing.
TMH: And what are some of the key attributes that investors should consider in lithium from brine development?
Smith:Great question. In a simplistic answer, it’s great resource in great rock in the cheapest area to develop with a proven DLE. And we are climbing that ladder, and proving it every day, and our reports prove it.
In any successful business, you need to have a vision as to where you’re going to go and a game plan. And we clearly have that, and we’ve been executing our game plan along the way, and our results are starting to speak for themselves.
Now, many miners are confused by this blend of industry between what is effectively sedimentary fluid dynamics, which is more like oil into gas with the mining industry. We tend to think in terms of porosity, which is the holes in the rocks and how thick is it. And that gives us our volume and do some simple math and you quickly realize grade is just as important as the volume you have and the deliverability: You need to be able to deliver big volumes of this brine.
Our first well proved our investment thesis right from the beginning. It demonstrates good quality resource, thick rock and we also demonstrated strong deliverability out of that wealth that we will need to go into a project, and we’ve got that in our first phase preliminary economic assessment.
Our first phase, which would be one of potentially five or more phases, has got very strong economics. It comes out demonstrating what we’ve been trying to prove all along, best in class. Our economics are top of the leaderboard. We had a resource report of 4.2 million tons. We’re only developing a fraction of that in our first phase, and to develop that first phase would require about $335 million U.S., which sounds like a lot of money.
We’ll eventually get to the point we’re raising that and also using debt financing. But along the way, that project has very clear positive economics, $335 million U.S. invested, generate a net present value after tax of a billion dollars and have an internal rate of return after tax of 48.5%. We’re demonstrating our investment thesis every day, and these are very strong economics for us to work with, and this isn’t just an accident, it’s not dumb luck. We’ve purposely with intent gone out down this path.
TMH: In a recent presentation, the company positioned its extraction technology as being a “potential game changer in the battery supply chain industry.” How does this technology change workflow and job functions on site?
Smith:DLE is going to be a game changer for all parties that are pursuing it at this time, and we went through a very intentional and thorough process identifying all the different technology companies that are out there and which one would be the right one to work with in our brine. Again, we looked at all the potential companies out there asking a lot of very specific technical questions, and in the end, we chose the top candidates that would receive large volumes of our brine so that they could demonstrate to us, what can you do with our brines. And they would’ve each received about six and a half barrels of brine from our well. It’s our brine, no filtering, work with this, what do you see?
And top of the leaderboard from that was Koch Technology Solutions and we very quickly moved towards finding resolution with them in terms of their results. They had the highest recovery factors and very strong rejection factors on the other ions to help us produce a very strong lithium chloride solution.
Their Livepro technology from what we saw was superior at that time and offered a complete solution for us in terms of also having pre-filtering solutions. They’re a very thorough company in terms of their approach. We remain happy with that selection. We’re working towards a pilot with them but at the same time, we’re keeping our eye on the rest of the technology industry.
TMH: Moving to Grounded Lithium’s value proposition for investors, what makes investment in the company so appealing right now?
Phaneuf:I love doing the elevator pitch. Not withstanding the fact that there are a wider macro supply demand factors that support the lithium industry, critical minerals, drilling it down more specifically to Grounded Lithium, I’d say there’s three things that investors, whether potential or current should walk away with.
One, as Gregg mentioned in the previous questions that you’ve asked him, it starts and ends with the rock. It’s the resource and we are sitting on arguably some of the top decile lithium from brine resources in Western Canada. If you don’t have a good resource, you won’t have a compelling value proposition. So first and foremost, all the homework that Gregg and the technical folks have done has led us to where we are. So that’s the first point.
Second point, you can have a great resource but if you don’t have a team that has the experience, the wherewithal to bring that to production, it doesn’t really matter. In our case, we’ve assembled the foundation of a team that can take this resource all the way to, in our vision to production. It starts and ends with the rock, but the people take us all the way through to that compelling value proposition.
And then lastly, I guess from the pure financial side of things, being the CFO of the company and looking at some of the peers that are out there, we do represent an early stage compelling value proposition. We’re a small company in terms of enterprise value but we have done some things that larger companies and us have done as well.
Gregg’s walked you through the PEA in terms of its financial highlights but we look at the valuation of our business vis-a-vis where our trading comps are, we are very undervalued. So as an investor, as we say, there’s torque, there’s lift in our stock and it’s on us to bring that forward, which we are certainly charged to do as a company.
To stay up to date on the company, head to groundedlithium.com, or track it down on the TSXV under the symbol GRD.
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