Brian Zinchuk is editor and owner of Pipeline Online
The pink area defines the area reserved for lithium development by Denison Mines. Grounded Lithium is free to develop additional properties outside the pink line. Grounded Lithium
CALGARY – Up until now, Saskatchewan’s emerging lithium play has been strictly a junior affair. That changed in January, as one of Canada’s older mining firms, Denison Mines, has jumped into the province’s lithium play.
Denison is uranium exploration and development company active in northern Saskatchewan, and just announced it will restart production at McLean Lake as well as development its of its flagship Wheeler River project. Denison just bought into a lithium play in west central Saskatchewan.
On Jan. 16, Grounded Lithium Corp. announced that Denison Mines Corp entered into a definitive agreement to buy into Grounded’s Kindersley Lithium Project (KLP). With three stages of investment, Denison has the option to earn up to a 75 per cent working interest in the KLP.
Denison’s investment greatly contributes to the funding of Grounded’s Kindersley Lithium Project (KLP) planned pilot project, south of Kerrobert, and the investment will provide Denison with a diversification into another mineral. Denison becomes the operator of the project.
Denison was initially incorporated in 1954 as Consolidated Denison Mines Limited. Over 70 years, its history in Saskatchewan has included potash mining at Patience Lake, and the McClean Lake uranium project. Outside our borders, it was prominent in the Elliot Lake, Ontario uranium operation, among other projects. Its website notes that currently Denison has an effective 95 per cent interest in the Wheeler River uranium project in northern Saskatchewan. Denison says it “ranks as the largest undeveloped uranium mining project in the infrastructure rich eastern portion of the Athabasca Basin region.”
But perhaps more significantly, long-established Denison is a senior player. It already has revenue flowing and the ability to raise capital on the TSX, where it’s listed under DML. It also takes the KLP from a junior play to something a lot bigger.
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“Denison’s 22.5 per cent owned McClean Lake project is host to several unmined uranium deposits and the McClean Lake mill, which is one of the world’s largest uranium processing facilities, licensed to process up to 24M lbs U3O8 per year,” their website said.
The company’s market capitalization as of Jan. 23 was $2.35 billion, and its net income, as of September, 2023, was $58.2 million.
In other words, this is the first major company to bring money to the plate in Saskatchewan’s lithium play.
In an investor call on Jan. 16, Gregg Smith, Grounded president and CEO, and Greg Phaneuf, chief financial officer, laid out the deal.
Smith said, “We’re very proud and excited to announce a pivotal transaction for Grounded Lithium. As has been the vision of Grounded from day one, we intend to become a producing company of battery-grade lithium in Canada in an environmentally friendly manner.
“For Grounded, the transaction with Denison Mines creates a strategic partnership with a technically astute, multibillion-dollar enterprise having a presence, a significant presence, in the province of Saskatchewan, and a desire to diversify its mineral interests into lithium.
“This complementary arrangement removes many of the perceived and distinct risks that the market has placed on Grounded in the quest to attain our vision. From our standpoint, as a junior public company with challenged access to capital, the strategic capital from Denison, led by David Cates, Denison’s president and CEO, allows the Kindersley Lithium Project to significantly accelerate the project for the benefit of all stakeholders.”
Cates said, “Denison is excited to acquire a royalty and enter into an earn-in agreement with GLC that supports the further assessment of the KLP in Saskatchewan. Denison has developed a unique platform for the de-risking of mine development projects in the province with its innovative and highly skilled Saskatoon-based technical, regulatory, and operations teams. Lithium is a complementary mineral to Denison’s core uranium business, with both identified as critical minerals needed to support the clean energy transition. Brine extraction also has many similarities to the In-Situ Recovery mining method that the company has successfully validated for use at its flagship Wheeler River uranium project in northern Saskatchewan. Combining our deep local technical capabilities with the Grounded team’s experience on KLP has the potential to create an incredible environment to incubate the KLP to emerge as a premier lithium project in a top mining jurisdiction.”
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Earn-in
The agreement includes three distinct earn-in options which include a cash payment directly to the company along with dedicated expenditures to advance the KLP, as described in the table below. During the earn-in period, KLP expenditures will generally be funded 100 per cent by Denison, and Denison will be entitled to an increased working interest in the KLP as it completes each earn-in option phase.
Upon funding the total amounts of each earn-in option, Denison has the right to either exercise the earn-in option and acquire the working interest associated with that Earn-In Option phase or move on to the ensuing option phase.
Should Denison exercise the earn-in option and elect to acquire a working interest in the KLP, a formal joint venture will be created to govern the parties. The joint venture agreement will contain customary language and terms associated with an arrangement of this nature, including but not limited to, governance provisions, rights of first refusals, dilution provisions for non-participation and technical and management committees.
Grounded Lithium
Grounded also sold a five per cent gross overriding royalty (GORR) on the KLP to Denison in accordance with the terms of a royalty agreement for a cash payment of $800,000. Pursuant to the terms of the royalty agreement, the GORR drops to 2% upon the receipt of all approvals which have been subsequently attained and press released by Grounded on January 24th. This GORR is eliminated in its entirety on the date that is fifteen (15) months after the closing of the earn-in agreement unless Denison elects to forfeit its rights to exercise an earn-in option.
Smith thanked Cates and the Denison team which “diligently assessed our opportunity and PEA, and worked hard to quickly get to a definitive agreement.”
“As you may be aware, Denison and Grounded share a lot of similarities,” Smith said. “First, we are both big believers in the resource potential of the province of Saskatchewan, and we’re proud to operate responsibly in that province.
“Second, Denison is set to become a significant uranium producer in Saskatchewan, through a novel extraction technique. Stealing a page out of the oil and gas industry specifically heavy oil, Dennison is deploying in situ extraction techniques, which also shares some similarities to extracting lithium from brine resources. There will certainly be efficiencies, sharing of knowledge and a significant spectrum of benefits stemming from this partnership to make our project one of the lowest cost operations in the lithium from brine industry in our view.
“We remain actively involved in the Kindersley Lithium Project. Denison, through a management contract, pays Grounded to manage the development of the KLP for the first minimum two years. While Denison supports the initial heavy lifting to de risk the project shareholders of Grounded continue to ride the upside with reduced shareholder dilution.
Smith noted that Grounded can continue to develop new lithium plays outside of the Kindersley region. He said, “Another key aspect of the transaction is that Grounded is free to assess, explore for and develop lithium from brine assets outside of the KLP or Kindersley Lithium Project. The area of mutual interest under the agreement addresses the pink outline area … shown here, which is effectively our Kindersley lithium project. The AMI includes a 10 kilometre buffer from any further most point from a parcel of land within the KLP.”
Smith said their PEA was based on a US$25,000 per tonne price for lithium hydroxide, but their low cost operator advantage provides commodity price resilience down to below US$8,000 per tonne.
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Further details
On Jan. 24, Pipeline Online spoke with Grounded chief financial officer Greg Phaneuf.
“It’s a validation,” he said. “They’re a serious player.”
That includes having teams of geologists and engineers. Their new uranium extraction method bears similarities to what Grounded is working on for lithium brine extraction.
Phaneuf said the investment from Denison for the first two phases, will basically fund a field pilot. Up until this point, Grounded did not have the funding capacity to build out the pilot. “If Denison performs under the earning, they would fully fund the pilot, which is a huge validation from a value perspective that the markets been looking for,” Phaneuf said.
The Denison funding may be enough to do not only the pre-feasibility study but the definitive feasibility study, “which then leads itself into offtake project financing, build a commercial facility and generate significant tax dollars in royalties for the province and, frankly, for our shareholders,” he said.
The timelines will be dependent on Denison. There’s an outside date in the agreement of June, 2028, but Phaneuf expects things will progress quicker than that. “We’ve been previously saying that we’d be in commercial production by early 2027.”
He noted there’s an active and willing customer market for the product.
“If we notionally said 2024 is all about the field pilot that involves design, obtain permits, construct, operate and then conduct a full post mortem on the results, that probably is a year, soup to nuts. Then if you said 2025 is a year where we, at least in the first part of it, are looking at feasibility studies, maybe some additional drilling, just to kind of confirm more of the resource that goes into your feasibility studies, I look at that as a 2025 event. If the markets, both on the commodity itself and the capital markets are rewarding lithium developers, we might be looking at non-binding offtake agreements at the end of 2025 which dovetails nicely into discussions with one or more financial institutions that assist in structuring a complete financing package. That can happen towards the end of 2025 or early 2026 if all business aspects aligned. With those achievements, the KLP could be breaking ground sometime in 2026 with an 18-24 month construction and commissioning period. So, we could as a project be in commercial production at some point in time in 2027, with production being in the form of lithium hydroxide. All these plans though now need to be critically analyzed, discussed and approved as a group together with Denison. This is just a potential commercialization path. Many factors go into such a plan, but in any event, the plan will make sense for the benefit of all stakeholders.”
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Lithium hydroxide
That last part is significant. Other lithium players in Saskatchewan are looking to produce lithium carbonate. While the pricing is similar, it is a different product. Phaneuf said in Grounded’s view, that’s where the market is going. Current lithium-ion batteries use lithium carbonate, but the upcoming generation of solid-state batteries will use lithium hydroxide. Solid state batteries alleviate some of the concerns regarding charge capacity, charge and recycle time, and range, Phaneuf said.
The final production would likely go to one or two offtake agreements, as opposed to the spot market.
As currently envisioned, Grounded is planning on 24 producer wells, seven injectors and 70 kilometres of flowlines feeding into a central processing facility just off Highway 21, near Coleville. All in, that’s looking like US$335 million, or C$450 million. And should that come to pass, Denison would be responsible for coming up with 75 per cent of the expenditure, and Grounded the other 25 per cent. Their modelling expects half equity, half debt financing for that C$450 million in CAPEX. That would mean Grounded would need to come up with around $56 million in equity.
Having a partner with “street cred,” should hopefully make raising that equity easier.
Pink line
Remember the pink line outlining the project area Denison is taking over? Well, the Duperow formation which is being targeted for lithium-rich brine covers pretty much all of the area from there to the southeast corner of the province. That’s a huge area the size of some smaller European companies that could potentially be developed. The KLP makes up about 300 sections of land, but that leaves Grounded with a few dozen sections of land elsewhere to start working up another project. Smith noted Grounded had identified other prospect areas for possible future development, and this transaction allows Grounded to pursue them. So there may be more to come, in parallel with the Kindersley project.
In conclusion, Phaneuf said, “This is a good thing for Grounded. It’s a good thing for Denison, and it’s a good thing for the province.”
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