Lithium in SK, Part 9: And the acquisitions begin, with Prairie Lithium to be acquired by Arizona Lithium

 

EMERALD PARK – As the race for lithium development heats up in Saskatchewan, it’s just seen its first major acquisition.

Emerald Park-based Prairie Lithium announced at suppertime on Tuesday, Dec. 20, that it had been acquired by Arizona Lithium Limited (AZL) in a CAD $70.6 million deal, consisting of CAD $40.0 million in cash and 500 million common shares of AZL at a deemed price of CAD $0.0612 per share based on the 10-day VWAP of AZL’s shares. The number of exchangeable shares, or AZL issuable for each Prairie Lithium share will be calculated based on an exchange ratio using the 500,000,000 AZL shares divided equally amongst Prairie Lithium’s approximately 40,000,000 shares outstanding.

Junior explorers who prove up a resource and then are acquired by larger entities is a common model in both oil and gas and mining. And the emerging field of brine lithium production borrows heavily from both of those industries – seeking to develop a mineral, but using oilfield technology, processes, and people.

Prairie Lithium to date has been the widely acknowledged leader in Saskatchewan exploration for the lightest metal on the periodic table. It drilled the first targeted lithium well in Saskatchewan near Torquay in September of 2021, picked up a second well for testing purposes from Deep Earth Energy Production later that year, and then re-entered a third well near Oungre this past fall.

Matthew Blumbert, executive director, Arizona Lithium. YouTube

Pipeline Online spoke to Prairie Lithium president, CEO and founder Zach Maurer Tuesday evening. As for the timing, he noted it may be evening here, but its morning in Australia. And that’s where Arizona Lithium is actually headquartered. They are listed on the Australia Stock Exchange (ASX) under the listing AZL.

Prairie Lithium has been working on its own technology to produce lithium from sedimentary brines, a process known as Direct Lithium Extraction, or DLE. And their work in that regard was specifically noted in 67 page press release put out by Arizona Lithium. That press release includes great detail of Prairie Lithium’s testing procedures and results.

Maurer said, “It’s pretty exciting. It’s a good little Christmas present.”

He added, “It’s a really positive transaction for all our shareholders.”

Right now, the company is going to keep working on its existing plan, according to Maurer. He said, “What it does, is expedites our access to capital so that we can just do more of what we do. But in the short term, we’re going to continue to execute the plan that we had in place.”

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He noted increased access to capital will hopefully speed of the amount of work they can do and should hopefully create more jobs in the future.

“Lithium is obviously a hot commodity this past year. It’s something we’ve been excited about and have been working on for a while. It’s good to get it over the finish line,” Maurer said.

“I think it highlights the attention that the lithium resource in southeast Saskatchewan should be getting not just locally, but just highlights that the world is looking at lithium resources all over the world and has identified Saskatchewan is a top place to invest in with lithium resources.”

Motivation

Asked what their motivation was behind the deal, Maurer replied, “The transaction really ticks all the boxes. We’re obviously a private company in southeast Saskatchewan. So, when you look at the amount of capital that these projects need to be developed, it’s pretty tough to raise that amount of capital privately. So we always have to look at how are we going to attract capital to this project. And an M&A transaction with a publicly traded company ticks that box, as well as it puts our resources into a more diversified resource portfolio.”

He noted that Arizona Lithium has a clay resource in Arizona north of Phoenix, and another brine resource in New Mexico.

He can’t say at this stage what name the company will be operating under at the closing of the deal, or who will be managing it. The deal is expected to close Feb. 28. At closing, Maurer will join the board of Arizona Lithium.

Certain key management members of Prairie Lithium will enter into new employment agreements with Prairie Lithium, including customary non-solicitation and non-competition provisions as part of the deal.

There’s a reciprocal $4 million CAD break fee, should the deal fall apart.

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Concentrations

Prairie Lithium’s projects hold the highest quality inferred lithium brine resource in Canada discovered to date, with 4.1MT LCE total inferred resources at 111 mg/L Li, the company’s release said.

But Arizona’s press release goes into much greater detail, including testing results from two wells.

The results noted five of six stratigraphic intervals were tested within the Duperow formation (as defined by Yang, 2015), with the sixth being the Flat Lake Evaporite.

 

And of those five, between 11 and 49 samples were taken per interval, from either one well or two wells. The lowest representative lithium concentration of those samples was in the Saskatoon member, with 59 milligrams per litre, and a range of 44 to 77 milligrams per litre.

The remaining intervals all tested substantially higher, with the lowest having a representative lithium concentration of 99.2 milligrams per litre, with a range of 91-118 milligrams per litre across 11 samples. The highest came in at 172 milligrams per litre, with a range of 146-180 milligrams per litre, across 29 samples from two wells for the Upper Unit of the Wymark Member.

Also notable, the Middle Unit of the Wymark Member had 49 samples across two wells and had a representative lithium concentration of 137 milligrams per litre, with a range of 118-170 milligrams per litre.

These numbers are notably higher than most of the other lithium concentrations announced by lithium explorers in the Western Canadian Sedimentary Basin. Alberta lithium leader E3 Lithium announced on Nov. 10 that “Based on brine samples retrieved from five zones, the P50 lithium concentration from E3 Lithium’s first well is 76.5 mg/L.” They announced a range from 74 to 78 milligrams per litre from that well.

That’s from the Leduc formation in Alberta, which is the same as the Duperow Formation in Saskatchewan, but simply with a different name.

E3 Lithium received a $27 million investment from the Government of Canada’s Strategic Innovation Fund on Nov. 28.

 

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As pointed out above, Arizona Lithium’s press release was highly detailed. Here’s a number of points quoted verbatim from the release, in its attached Australasian Joint Ore Reserves Committee (JORC) report:

• Prairie Lithium leases 72 subsurface mineral permits located in southeast Saskatchewan close to the United States border. The subsurface mineral permits are leased from the Saskatchewan Provincial Government and cover 549.5 square miles (351,709 acres or 1,423.2 km2). Petroleum and Natural Gas (PNG) permits also exist across Prairie Lithium’s Property and are leased to oil and gas producers.
• All permits and stratigraphic intervals are held 100% by Prairie Lithium or sub-leased from a geothermal company Deep Earth Energy Production Corp. (DEEP). Prairie Lithium entered into a binding legal Subsurface Mineral Permit Acquisition Agreement (SMPAA) with DEEP on October 20, 2021. The SMPAA covers an Area of Mutual Interest (AMI) over Townships 1 to 4 and Ranges 7 to 16 West of the 2nd Meridian. Any preexisting or recently purchased subsurface mineral permits within the AMI now possess a stratified stratigraphic arrangement. Prairie Lithium holds 100% working interest in mineral rights from Top Madison Group to Top Red River Formation and DEEP holds 100% working interest in mineral rights from Top Red River Formation to Precambrian. No back-in rights, payments, or other agreements and encumbrances are applicable.
• The subsurface mineral permits are leased from the Saskatchewan Provincial Government. There has been no prior ownership of the subsurface mineral permits across the Project for lithium.
• One mineral permit was awarded on December 17, 2019, which will expire in December 2027; three permits were acquired on April 20, 2020, which expire in April 2028; a total of 34 permits were acquired on April 19, 2021, which expire in April 2029; and a total of 16 permits were acquired on August 23, 2021, which expire in August 2029. An additional 18 permits have been sub-leased from DEEP.

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• Prairie Lithium has no royalty agreements with the provincial government, lithium entities, petroleum companies or other mineral right holders. Industry and government are discussing a mineral royalty structure. Prairie Lithium does not own or lease any surface rights except for the surface rights that are leased at well 101/14-33-002-12W2. The Ministry of Energy and Resources (MER) has indicated to Prairie Lithium that the process to license wells for injection, water source, disposal, or production of lithium will follow that of the oil and gas industry. Prairie Lithium is not aware at the date of this report of any known environmental issues that could materially impact their ability to extract lithium from the Project.
• Across the Project, the top of the Duperow Formation varies in depth from 1,500 m true vertical depth (TVD) (900 mbsl) in the northeast to 2,700 m TVD (2,000 mbsl) in the southwest. Seven (7) structure elevation maps between the top of the Duperow (Seward member) and the bottom of the Duperow Formation (top of Souris River Formation) were prepared in the resource area. Between 359 wells (top Souris River Formation) and 468 wells (Flat Lake Evaporite unit) were used in the interpolation of each surface. Based on the high quality of the wireline logs and the highly correlatable nature of the Durperow, the dimensions of the Mineral Resource are well constrained.
• Historical and newly acquired brine analysis data indicate that the Property is located within an area of extremely elevated TDS brine above 300,000 mg/L and with lithium concentrations of up to 170 mg/L within 33 Criteria JORC Code explanation Commentary the Duperow Formation. Newly acquired geochemical data has allowed Prairie Lithium to characterize lithium content of the Duperow Formation within much of the Property. Lithium results from wells located across the Property and beyond indicate that lithium concentrations are elevated and laterally continuous across the Property.
• The northern limit of elevated lithium concentrations in the Duperow Formation occurs beyond the northern limits of the Property. Elevated lithium trends extend through the Property and south into North Dakota. Elevated lithium concentrations start decreasing east of the Property at Range 6W2. Lithium values also indicate low lithium concentrations from R18W2 and beyond to the west.

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• Prairie Lithium is in the preliminary stages of designing a full well pad build-out that will be capable of withdrawing up to 140,000 m3/d of lithium-rich brine across the Project. Over a 20-year period, the full buildout would withdrawal approximately 1,000 million m3 or 15% of the Inferred Mineral Resource estimate of total water volume in the net pay. Given the large, estimated volume of water in the net pay, the constraints for the full well pad build-out are related only to pressure interference and the unit cost of water withdrawal.
• Prairie Lithium has developed an ion exchange material called Plix that has been shown to extract an average of 99.7% of lithium from brine. This claim is based on a 3rd party verification report prepared in April 2021 by Coanda Research and Development. Plix is manufactured by Prairie Lithium using proprietary raw materials and reaction conditions. Bench scale test for lithium extraction was performed at the Prairie Lithium laboratory under the supervision of Coanda Research and Development.
• The processing concept is expected to be technically feasible but has not yet been proven on a commercial scale, nor has it been fully tested or optimized to identify bottlenecks and operating limits. The information used to complete the lithium price forecast is based on the Benchmark Mineral Intelligence (2021) Lithium Forecast, and public domain information.

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• Lithium does not have readily available benchmark information or a consistent global price because lithium is sold as a specialty chemical and not a commodity. Due to the lack of a traditional exchange market for lithium, it is sold on a contract basis having specific requirements for purity and allowable impurities for battery quality products. Contracts may be locked in at fixed rates for set periods of time or reference fluctuating contract levels in the market with pricing breaks. Chinese spot markets account for only a small volume of lithium traded and may not be representative of prices that account for long-term quality supply from producers.
• As of October 2021, Benchmark Mineral Intelligence’s global weighted average lithium price for Li2CO3 (minimum 99% purity) and LiOH (minimum 55% purity) year to date has increased 278% and 175%, respectively. The rapid rise in lithium chemical prices is resultant of a sustained supply deficit caused by new project and expansion delays. It is worth noting that because of the nuanced nature of specialty lithium chemicals new supplies may not immediately meet quality standards for high purity battery applications, increasing stress on the overall supply and demand balance. The future average selling price of CAD $21,420/t LHM (USD $16,447/t LHM) or CAD $18,850/t LCE (USD $14,500/t LCE) is used in this assessment. Reflecting a price that is lower than the highs forecasted in the short to medium term and slightly higher than the expected sustaining cost for new projects occurring post-2030. It is also consistent with price assumptions made in recently released public economic assessments from similar lithium development projects.

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