Advantage Lithium to acquire 
up to 75% of Orocobre’s Cauchari

Lithium producer Orocobre (TSX: ORL) plans to partner with junior Advantage Lithium (TSXV: AAL) on its Cauchari lithium project in northwestern Argentina’s Jujuy province.

Cauchari is 15 km south of Orocobre’s flagship Olaroz lithium facility, and sits next to a project of the same name owned by Lithium Americas (TSX: LAC) and Sociedad Quimica y Minera de Chile (NYSE: SQM).

Under the letter of intent, Advantage Lithium will receive a 50% stake in Cauchari in exchange for giving Orocobre a 31.1% stake in the company, a 1% royalty, the right of first refusal for future brine production and the right to nominate two members to Advantage Lithium’s board.

Advantage Lithium can earn another 25% stake in Cauchari by spending US$5 million over three years, or completing a feasibility study. The partners will set up a joint venture for Cauchari, which has an inferred resource of 470,000 tonnes lithium carbonate equivalent and 1.6 million tonnes potash (potassium chloride).

The resource is based on five drill holes and covers two areas of the Cauchari salar, with a total of 230 million cubic metres of brine at average grades of 380 mg/L lithium and 3,700 mg/L potassium. The resource tested an average 170 metres deep in the northern resource area and 50 metres deep in the southern area.

Bagged lithium carbonate from Sales de Jujuy, the local operating company of the Olaroz joint venture project between Orocobre Limited, Japanese trading company Toyota Tsusho Corporation and Jujuy Energia y Mineria Sociedad del Estado (JEMSE). Credit: Orocobre Limited.

In a press release announcing the letter of intent, Orocobre said there is “considerable potential” to add to the resource, given that drilling to date has been fairly shallow. It noted that of the six holes drilled, the deepest was 249 metres. Orocobre also pointed out that drilling on properties within the salar by Lithium Americas Corp. intersected brine-bearing salar sediments to 450 metres. Recent drilling of its own to the north in Olaroz intersected brine-bearing sediments to 450 metres deep.

David Sidoo, Advantage Lithium’s president and CEO, notes that his management team approached Orocobre about a deal because they saw Cauchari as a strategic asset. “They were one of our main targeted companies that we wanted to work with,” Sidoo says in an interview. “We wanted to go after some of the larger producers with experience in lithium and producing lithium, rather than picking up grassroots properties on the fringes. We thought it was a better strategy to joint venture with a 300 lb. gorilla.”

Sidoo notes that there was no shortage of competition for closing the Cauchari deal, including “all the juniors you can think of,” along with “Japanese and Chinese offering outright cash.” But in the end, he says, Orocobre chose Advantage Lithium because of its management team. “They were being courted by many companies,” Sidoo says. “They wanted to work with a management team that had people who had developed projects and raised money.”

Advantage Lithium’s board includes geologist Ross McElroy, who will also serve as a technical director, and Dev Randhawa, founding CEO and chairman of Fission Uranium (TSX: FCU; US-OTC: FCUUF).

McElroy received the Bill Dennis Award in 2014, and he and Randhawa were co-winners of The Northern Miner’s Mining Persons of the Year for 2013 for leading Fission Uranium’s team of geologists in one of the biggest uranium discoveries in northern Saskatchewan’s Athabasca basin region in recent years.  Patterson Lake South is a shallow, high-grade uranium discovery on the southwest margin of the basin.

Sidoo started off as a broker with Yorkton Securities before forming his own company, American Oil & Gas, which he sold to Hess in an all-stock transaction valued at $630 million.

Orocobre says a joint venture on Cauchari with Advantage Lithium would help it optimize its operations and expand its Olaroz project. The project is now in the final stages of production ramp up. The Olaroz facility has a design capacity of 17,500 tonnes per year of lithium carbonate, and the company recently completed a scoping study into options for expanding the project.

In addition to Cauchari, Advantage Lithium will, under the letter of intent, acquire a 100% interest in five other lithium brine projects owned by Orocobre — among them Antofalla, Incahuasi and Guayatoyoc. The entire land package, including Cauchari, adds up to 855.4 square kilometres.

The Antofalla salar is a closed basin straddling the provinces of Catamarca to the south and Salta to the north. Antofalla is 60 km from the Hombre Muerto salar, where FMC (NYSE: FMC) produces lithium.

A second project, Incahuasi, is near Argentina’s border with Chile in the province of Salta, 70 km southwest of Cauchari and 70 km southwest of the Salar de Atacama in Chile, where SQM and Albemarle (NYSE: ALB) produce lithium from brine. A third project, Guayatoyoc, 70 km northeast of Cauchari, also in Jujuy province, is a potassium discovery with lower-grade lithium.

Sidoo notes that all of the assets are in the middle of salars and were acquired by Orocobre in 2007–2008. “These are strategically located, and in [Orocobre’s] world they’d call it ‘exploration,’ and in our world we’d call it ‘exploitation,’ or a path to development, because they’ve done work on all these assets,” he says. “For us it’s a real coup because if you look at the portfolio of assets, these are the best assets out there of any company.”

The mining executive notes that Advantage Lithium also benefits from the decade-long engagement Orocobre has made in these areas with community groups and local governments.

“One of the reasons we chose to approach Orocobre is because of their community relations with locals, and the ones they have built up over the last decade with the government have been really positive. They have no permitting issues, they have been judicious with their environmental impact studies and they are well respected, so that’s been a plus for us to dovetail in their decade-long relationship building.”

Sidoo noted that the government “is open … to development. They want joint ventures, rather than a lot of small companies running around the countryside.”