Brian Zinchuk is editor and owner of Pipeline Online
The Duperow formation, focus of lithium exploration in Saskatchewan, is heterogenous with many different layers. This is Duperow core seen at the Saskatchewan Subsurface Geological Laboratory. Photo by Brian Zinchuk
REGINA – In this second part of the interview with ROK Resources president and CEO Cam Taylor on Jan. 26, where he explained some of the corporate aspects, including having cash flow already, NI 43-101, PEA, direct lithium extraction and drilling plans.
Private, with a distinction
Hub City is privately-held company, but with a distinction. As it is owned by two publicly held companies, through its shareholders, Hub City has the ability to go to the markets to raise large amounts of capital. On Jan. 26, EMP Metals had a market capitalization of $22.3 million, and ROK Resources had a market cap of $91.6 million.
Rob Gamley, CEO of EMP Metals, said in a release, “The company is excited to have the opportunity to develop one of the highest concentration brine accumulations within Canada. The test results of this second well confirm the high lithium concentrations and resource potential identified during the testing of our first well. Lithium concentrations at 100 to 148 mg/L in combination with having no H2S or oilfield contaminants, and a relatively shallow depth of 1,800 metres, should give this project a distinct competitive advantage with respect to capital costs and operating costs per tonne.”
The difference is dollars
While other players currently seeking to develop lithium in Saskatchewan are very much junior explorers, seeking investment capital, ROK differs substantially. Taylor pointed out, “We have $54 million a year of cash flow off of our oil and gas. So, as a corporation, we have a lot of financial cash flow and resources that we deploy to drilling more oil wells or doing a PEA (preliminary economic assessment) or drilling a lithium well. We own 25 per cent of this project. So if we drill $1 million or $2 million lithium well, we pay a quarter of bills. The other partner is the publicly traded lithium-focused company so they will go to the market and raise money for the development. So once the PEA is in place, and use of proceeds as defined by that document, then they’ll go raise money in the public markets to fund their portion of it, and we’ll use our existing revenue and cash flow. Part of that $54 million will be used to develop that project.”
Is it a diversification for the oil company, perhaps toward the “energy transition?”
Taylor said, “The way I think of it, we have two core oil and gas businesses. The main one is southeast Saskatchewan. And then Kaybob, itself, is northwest of Edmonton is our second one. And that’s our gas business and so we’re diversified into oil and natural gas. We’re diversified in the two provinces.
“This is really early stage, but at some point, I keep harping back to when there’s actually an economic plan in place, then there’s going to have to be a decision about how do we participate in that big development? So, if there’s going to be hundreds of millions of dollars spent, do we keep running as a quarter owner of something? Or do we reorganize that in a different way for our shareholders, so that they own a piece of a different company that’s going to be lithium-focused?
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“I don’t think the investment community likes really complicated stories. So, I think ROK will have to stay is primarily an oil and gas business. And the lithium thing is going to be very valuable for our shareholders, but it’s at some point, when you start spending hundreds of millions of dollars at Mansur and Viewfield, that’s going to have to be its own corporate entity with staff and employees and investors that are focused on that business.
“So, I don’t see ROK becoming a complicated, multi-commodity business that’s for investors wouldn’t like that. So it’s going to have to evolve into two separate companies.”
He noted they are owned by very sophisticated investors. “As a public company, you don’t want to be telling two stories at the same time. It’s very difficult,” he noted, pointing out some investors might be bullish on oil, others on lithium, but rarely both.
ROK’s southeast Saskatchewan oil properties are just a few kilometres from where their lithium focus areas are, quite literally right next door. That makes things a bit easier, overall.
Taylor is thinking very much in the vein of a future producer, as opposed to a junior exploration company. Indeed, to this point, they’ve kept their lithium prospects pretty quiet.
This is Duperow core seen at the Saskatchewan Subsurface Geological Laboratory. Photo by Brian Zinchuk
Going from finding lithium to producing it
In the oil world, reserves reports from companies like Sproule and McDaniel are a known and common thing. While lithium from brines in Saskatchewan will be developed in an almost identical manner as oil and gas, with the same drilling rigs, service rigs, facility construction and other related services, the industry will also draw from the mining sector in many ways. And when it comes to talking about what is there, or not there, there’s two key reports – a PEA, and a National Instrument 43-101 (NI 43-101).
Jurisdictions around the world, including Canada, have strict reporting procedures when it comes to this sort of thing. In Canada, the NI 43-101 was a result of the Bre-X scandal, which saw falsified geological reports bilk investors out of billions. Thus one of the things the lithium explorers are working on is their NI 43-101 reports.
And Taylor talks about such reports quite a bit.
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Essentially, Hub City has completed its land assembly, it’s working up resource assessment, and planning on doing something with it.
He said, “It doesn’t matter if you’re in oil, helium, or lithium or potash, you do a lot of this land grab work. Then you do a bunch of drilling to try and find an economic deposit. And things then really get real, and you really start spending money and creating jobs and creating value for your investors and for the provincial government, etc., once you launch an economic project. And that preliminary economic assessment is almost always the first thing in that step and all of us are really racing to get to that point,” Taylor said. “And from there on, you add money and time, and you get the rest.”
To an outsider, the NI 43-101 and PEA might seem more restrictive compared to oil development, but it’s really not. Taylor likens it to what the oil and gas industry does every day with its reserves reports and regulatory compliance. “It’s all just baked into a formula, then everyone just does it without thinking. So it’s equally complex, but we just do it so much on a regular basis … it’s just something you back into a part of your business.
“It’s identical to oil and gas, it’s just a different section of securities law.”
Direct lithium extraction
Hub City is working with three different possible solutions providers on applying a “direct lithium extraction,” or DLE, process to their brines.
“One of them is a sort of local western Canadian oilfield water expert. And they’re busy running about 300 cubes (cubic metres) of our brine that they’re running through a series of tests,” he said. This is similar to what Prairie Lithium is doing with its own brine at their Emerald Park facility.
This is establishing the chemistry processes. Since there is no hydrogen sulphide or oilfield contaminants, they’re looking at things like knocking out magnesium and perfecting the design. “That’s underway. We expect that’ll be finished by the end of March. At that point, we’ll be able to go int the design part of the field facility,” Taylor said.
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“What’s going on right now is a large-scale processing in the manufacturer’s site. The bench chemistry is done, but actually running volumes through iteratively and getting the percentages figured out, that’s what’s happening today. A lot of people call that a pilot, but it’s really a prototype.
“The thing I’m interested in is having the design for the actual commercial field. So I would call that a pilot, where you spend $20 million and you get 2,000 cubes of brine-a-day facility up and running, and you go learning off of that. So, our preliminary economic assessment will have that engineering design and timelines there. So that’ll be a pilot, in so much as it’s not the full development, but it’ll also be a commercial, money-making size.”
Taylor said, “There’s another one out of California that has 20 DLE units already out, including two that are in oilfield brines. So our water is being tested by them.
“And then there’s another sort of new tech company that we’ve provided brine to.”
“I think the DLE tech, itself, is going to be a really good story through 2023. There’s not really anything complex about the chemistry, it’s really just making choices about what’s the most effective way to do it. It’s not very much patentable stuff, despite the fact people have tried. It’s a fairly straightforward chemistry using one of three powders. And then, after that, it’s just like building an oilfield battery and learning how to operate that.”
In an earlier story in this series, Pipeline Online asserted it’s something like 1903 – someone was eventually going to invent the airplane, it was just a question of when. “There’s a bunch of them flying around right now,” Taylor said, carrying on the metaphor, noting American company Standard Lithium is well on that path. It’s just that no one has commercialized the process yet here, in Saskatchewan.
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Drilling this year
“We will be drilling in 2023, because we’re going to be developing the project. Each of these leases we own has somewhere between $5 and $10 million work commitment, and we own 37 leases. So the land expires on us if we don’t spend millions of dollars on each lease. And so, the clock’s ticking.”
He pointed out there’s three ways potash and lithium brine leases pay money to the province. The first is the competitive bonuses. The second is the annual payment, and the third is the millions of dollars spent to convert the lease into a long-term lease.
Additionally, he noted they pay around $400,000 per year in rent to keep those leases alive. “On our bigger leases, we have to spend over $10 million to convert it into a producing lease.”
Asked if they have enough land, Taylor responded, “In order to keep all the land we have, we’d be spending hundreds of millions of dollars in or to keep it all. Have we enough land? No, we have to much land right now.”
He expects their first in-field processing facility will be built in the summer of this year. The aim is to produce first lithium for market in the first quarter of 2024. “That timeline is fragile,” he said. But they intend on drilling wells alongside putting the facilities together.”
Taylor said they are seeking to put out their PEA in April. “That’s a real important document. That’s real. That’s not just a CEO or a promoter story tag. It’s actually been vetted by serious people, and there’s a real timeline, with actual dollar figures calculated, and it’s real.”
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