Advantage Lithium cashes up before closing Orocobre deal

Advantage Lithium (TSXV: AAL) is turning its focus to Argentina in a race to produce lithium, as lithium demand and prices steadily rise.

The junior — which has five lithium brine projects in Nevada — recently closed a $20-million financing ahead of closing an auspicious partnership with lithium producer Orocobre (TSX: ORL), which could put it in the fast lane to production.

“We’ve positioned ourselves as one of the juniors to really watch out for in terms of getting to production a lot sooner than anybody else could,” Advantage Lithium’s president and CEO David Sidoo says. Sidoo — a former footballer turned financier — sold his previous company, American Oil & Gas, to Hess in a 2010 all-share deal valued at $630 million.

Aerial shot of Orocobre’s Salar de Olaroz lithium brine facility in northwest Argentina’s Jujuy province. Credit: Orocobre.

Set to close by March 31, the Orocobre deal will provide Advantage Lithium up to 75% of Orocobre’s Cauchari advanced exploration project in Argentina’s northwestern province of Jujuy, plus a 100% interest in five other exploration projects, including Antofalla, Incahuasi and Guayatoyoc. The six assets cover 855.4 sq. km of the country’s lithium triangle.

In return, Orocobre will receive a 35% stake in Advantage Lithium, making it the largest shareholder, and a 1% royalty. It will also get two seats on Advantage Lithium’s board and a right of first refusal on brine production.

The partners will initially form a fifty-fifty joint venture at Cauchari, which has a near-surface inferred resource of 470,000 tonnes lithium carbonate equivalent and 1.6 million tonnes potash (potassium chloride), based on five shallowly drilled holes in two resource areas.

The project also has an exploration target of 250,000 tonnes to 5.6 million tonnes of lithium carbonate equivalent and 900,000 tonnes to 19 million tonnes of potash.

Under the agreement, Advantage Lithium can earn another 25% of Cauchari by investing US$5 million or completing a feasibility study within three years.

Sidoo points out that the company plans to spend US$5 million drilling the project this year. “We have five drill permits in place, and those allow for up to 17 core and rotary holes that we can drill.”

“We have the right assets, the right partnership and the optionality when we do get to production to deliver to the market quickly through the pipeline, at a very low cost.”
David Sidoo
President and CEO, Advantage Lithium

The 2017 program would upgrade the inferred resource into indicated and measured, and convert some of the exploration target into the inferred and indicated categories. Drilling should begin in April and run until September.

The first five rotary holes will reach 400 to 450 metres deep, Sidoo says, adding that the company says “the basin and the resource is deeper than the traditional 200 to 250 metres that have been drilled there.”

Along with Cauchari, the basin contains the adjacent Cauchari-Olaroz development project held by Lithium Americas (TSX: LAC) and Sociedad Quimica y Minera de Chile (NYSE: SQM). Lithium Americas recently lined up US$286 million to fund its 50% share of construction costs.

Twenty kilometres north of Cauchari is Orocobre’s producing Olaroz lithium facility, where expansion plans are underway to double annual production capacity to 35,000 tonnes of lithium carbonate by the end of 2018. For the 12 months ending June 2017, Olaroz should deliver 12,500 tonnes of lithium carbonate.

All three assets are part of the same basin and have similar brine chemistry.

Given the proximity to the Olaroz facility, Sidoo says Advantage Lithium could easily pipe the brine to the facility and pay a toll fee instead of building a stand-alone plant, which would “take three years and $300 million.”

Advantage Lithium also stands to benefit from Orocobre’s community and government ties, as well as the company’s technical expertise.

“We hit the ground running,” Sidoo says. “We don’t have to build infrastructure, we don’t have to build a team, we don’t have to permit for these drill holes — we already have that in place.

“These are advantages that we have other companies that come in green into this space, sit on the outside of salars and try to figure out how to drill and get permits.”

Meanwhile, the partnership will help Orocobre focus on improving its 66.5%-held Olaroz operation, as Advantage Lithium advances Cauchari.

Japanese trading giant Toyota Tsusho Corp. holds 25% of Olaroz, while a mining investment firm owned by Jujuy’s provincial government owns 8.5%.

Once drilling kicks off, Sidoo says Advantage Lithium could quickly prove up a multimillion-tonne resource at Cauchari.

The junior anticipates completing a resource update and prefeasibility study in early 2018, followed by a feasibility study and permitting in the first half of 2019, with production targeted for late 2020.

Given the uptick in lithium prices due to an expected rise in annual demand, with some analysts forecasting demand to outstrip supply 25% by 2020, Sidoo points outs that Asian companies are looking to secure supply. He reveals that two Chinese battery makers have already expressed interest in Cauchari.

Sidoo projects there could be consolidation in the basin within the next four to five years. “Some Chinese or Japanese company is going to come in and attempt to take the entire play, there’s a huge supply there. SQM and Lithium America have 12 million tonnes [lithium resource], Orocobre has 6 million — and we could build 2 to 3 million tonnes.”

The recent $20-million financing could cover Advantage Lithium’s exploration and general and administrative costs for the next three years.

“We have the right assets, the right partnership and the optionality when we do get to production to deliver to the market quickly through the pipeline, at a very low cost.”