September 18, 2016

You have probably witnessed a number of lithium stocks skyrocket in share price over the past year.

You probably asked yourself:  

Many lithium stocks have exploded in value - right alongside a perfect storm of rising lithium prices and media hype.

But what if there's a Company that hasn't even scratched the surface?

What if there is a Company that very few people know about, yet has the potential to become a big player in the lithium space?

Today, I am going to introduce you to such a play.

It's one you probably never heard of.

And that's the best part because it means the opportunity has likely just begun.

In fact, it really did just begin.

Just this past Friday, the Company finally made the announcement I was waiting for.

But before I tell you about this undervalued opportunity and this very specific announcement, a little background is in order.

Lithium is the world's lightest metal and has a magical range of applications.

It not only powers almost every mobile device including laptops and mobile phones, but it's even used to build nuclear weapons.

It's no wonder why some analysts call it the "new gold."

Others, like Goldman Sachs, call it the "new oil."

That's because Lithium is the key component used to fuel our next generation of transportation.

And unless you've been living in a bubble, you would know that Japanese, Korean, European, Chinese and American car manufacturers (Tesla, of course, and Chevy's new Bolt) are all jockeying for a slice of the action.

In fact, Tesla - which announced 400,000 pre-orders (and climbing) for its affordable Model 3 - is not even the biggest consumer.



Tesla is just the tip of the iceberg.

Chinese automotive manufacturer BYD is already making more than 100,000 electric cars a year and plans to start making other electric autos such as trucks and buses.

Just last week, it launched 51 new single decker electric buses in London, making it the biggest all-electric bus fleet thus far.



In India, Lithium Technologies started off with just 10 electric cabs. Within nine months, the Company has already grown to over 200 vehicles.

This massive boom in electric cars has caused the price of lithium to skyrocket over the last year.

While lithium and the new generation of lithium ion batteries aren't new, it's the sheer amount of lithium required to build an all-electric vehicle that has auto manufacturers scrambling.

Goldman Sachs estimated that just one Tesla Model S battery contains more lithium than 10,000 smartphones.

It's no wonder why Deutsche Bank expects lithium demand to nearly triple by 2025.

It's also why the price of lithium has more than tripled in the last year in places like China, where prices of lithium have gone from US$7,000/tonne in September 2015 to over US$20,000/tonne today.

But lithium isn't a scarce a resource as promoters of the metal will have you believe.

Lithium is actually everywhere.

In fact, our oceans are estimated to hold a whopping 230 billion tonnes of lithium!

The U.S. Geological Survey estimates there are 14 million tons of reserves of lithium globally - that's more than 400 years of supply based on last year's production.

And while lithium demand is expected to blow up over the next few years -  thanks to Tesla and other global automakers jumping on the electric boom - there is still a lot of lithium available.

So why are prices skyrocketing and why is everyone scrambling for the resource?

As much 90% of today's lithium market production comes from just four companies: Soc. Quimica & Minera de Chile SA, Albermarle Corp., FMC Corp., and China's Tianqi Group.

That means they're the ones setting the price for almost all of the world's current lithium supply.

So why haven't others entered the space?

Just because something is abundant, doesn't mean it's economic.

The costs of extraction and production of lithium is precisely why many lithium juniors, and others who have tried to enter the space, have failed.

If you want to be a lithium player, you better have economically viable lithium assets.

Under current conditions, outside the rare occurrence of extremely high-grade hard rock operations, truly economic lithium comes mainly from one source: lithium found in salty water.

We call this salty water brine.

Why is brine the most cost effective way to produce lithium?

Because nature does most of the work; you simply drill a well, pump the brine, and let evaporation take its course.

But there's a problem:

Not only does the brine have to have high enough concentrations of lithium, it also has to have the right chemistry. And even then, it's still not enough.

You also need the right climate for nature's evaporation process to take place.

And there is only one place on earth with lots of lithium brine and the right climate...

The most famous accumulation of lithium brine is in the Atacama Desert, in what has been dubbed the "Lithium Triangle" of Bolivia, Argentina, and Chile.

More than 70 per cent of the world's long-term supplies of lithium is found within this triangle. And being the driest non-polar dessert in the world, it's also the right climate for evaporation.

There is so much lithium here that people are calling Chile, Bolivia and Argentina, the new Saudi Arabia.

But don't think anyone can just jump in and invest.

Bolivia, for example, has been quite hostile towards foreign investment - it wants to control and limit how much lithium is produced every year, and it just suspended lithium mining last year after opposition from local residents around the enormous lithium-containing Salar de Uyuni salt flats.

Meanwhile, Chile is not currently granting any new concessions. And if you're going to develop lithium in Chile, you're likely going to do it in partnership with the nationalized mining company Codelco.

Which is why if you want to get into the lithium triangle, you really only have one logical choice...

Argentina is well-known for its world soccer elites, like Diego Maradona and Lionel Messi, beautiful landscape, and of course, beautiful women.   
According to Argentine mining secretary Jorge Mayoral, Argentina sits on resources that may surpass 128 million tonnes of lithium carbonate.

But that's not all.

Unlike Bolivia and Chile, the new Mauricio Macri Argentine government that took over last year is all about business.

Via Reuters:

And one Company stands to benefit big from this opportunity.

In fact, they have direct contact with the very highest levels of the Argentine government.



Millennial Lithium (TSX-V: ML) is a brand new lithium play that just announced on Friday the closing of its flagship project in one of the most favourable lithium places in the world: Argentina.

It has an agreement to acquire 100% of the Pastos Grandes Lithium Project in the Salta Province of Argentina, along with a number of other prospects.

Together, the assets cover roughly 7,500 Hectares, smack in the middle of other lithium properties owned by companies with market caps well above Millennial Lithium's current value.

The Pastos Grandes Salar is located 231 km from the city of Salta at an elevation of 3800 meters and sits right along the Borate Belt in Argentina, where boron and lithium are the lithophile elements.

In Layman terms, it sits in an area home to a lot of lithium.

In fact, you can literally draw a line from Salar del Hombre Muerto, where FMC (one of the world's largest producers of lithium) is currently producing, up through a number of lithium projects in development, to the top end were Orocobre is also producing.

Along that trend, you have Millennial Lithium's Pastos Grandes project, which sits right in the place you'd expect it to.

There are major crustal features that trend northwest-southeast that intersect the borate and lithium trend. And precisely where they intersect, you have these basins that were fed by volcanoes that were spewing out the lithophile elements.

And that's where you find the lithium brine.

If you're looking for an elephant, you look in elephant country.

And Millennial is right in elephant country, smack in the middle of a huge trend, with an asset that has all the earmarks of a strong lithium project.

The project is  accessible year-round using paved highway and dirt roads from Salta.

Just 12 km north of the properties is the Los Pastos Grandes Village, which is home to 120 inhabitants, and provides basic infrastructure including a domestic water system and diesel-based power generation of 220 volts.

A 600MW, 375kVolt power line between Salta and Mejillones in Chile passes 53 km to the north of the project, with a natural gas pipeline passing through San Antonio de los Cobres to Salar de Pocitos, just 26 km northwest from the Millennial Lithium properties.

While being on trend in elephant country is a great start, it takes more than just that to become a great project.

As I mentioned before, lithium has to be found in high enough concentrations in order to make economic sense.

Today, that magic number for lithium brine is between 300-600 mg/L.

Eramine Sudamerica SA, the previous owners of the Pastos Grandes project, had previously invested over US$4 million over a 2 year period in 2011 and 2012, and conducted extensive development work and exploration studies.

So far, six exploration wells have been drilled to determine geochemistry of the brine/aquifer which included core recovery and pumping tests.

Evaporation tests were carried out in a pilot plant on site.

Three brine samples collected in the southwestern sector of the Pastos Grades properties had values between 602.2 to 665.9 mg/L of lithium and 6342 to 7146 mg/L of potassium.

Overall data from Pastos Grandes shows a range of between 500-600 mg/L.

So far, that certainly checks the grade box.

But there's more.

History has proven that as you go deeper, grades generally improve.

In fact, many of the current lithium resources in play came into play as a result of going deeper.

For example, Orocobre - one of the few lithium producers in Argentina - started near surface, with their first campaign no deeper than 50 meters. They designed their process around the brine they found but in the end, they couldn't really extract that brine very well. So they went and drilled deeper and lo and behold, down at 350 meters, they found very nice brine.

That's because brine is heavier than water, so it tends to sink. The more junk you have in the fluid, the denser your brine is and the deeper it goes, which is why it's no surprise to find these things at depth.

Millennial Lithium hasn't drilled passed 160 metres at Pastos Grandes.

But that's not all.

Once you get the brine, you put it in a pond and the water evaporates. This process requires a lot of help from mother nature.

Luckily, at Pastos Grandes, the climate evaporates the water at a fantastic rate, so instantly you can increase the grade.

But grade isn't the only thing that makes a great lithium asset. As I mentioned earlier, you also need the right chemistry.

Grade is important but more important than grade is the quality of the brine.

For example, you'll see some huge resources of lithium like the Salar de Uyuni in Bolivia.

But the problem with it is that it has something in the order of a 25-to-1 magnesium to lithium (Mg to Li) ratio.

This is an important metric because magnesium tends to want to hang around with the lithium, but you have to get it out. The more magnesium there is to lithium, the more reagents and energy it takes to separate the two, which all leads to higher costs.

Now a common industry axiom says that the ratio of Mg to Li in brine needs to be below the range of 9:1 or 10:1 to be economic.

From the data we have so far for Pastos Grandes, the Mg to Li ratio is about the same as at Salar de Atacama, which has some of the lowest Mg to Li ratios in the world at between 6-8 to 1.

Anything around the 5-8 to 1 range, especially at today's prices, would be considered world class.

And so far, Pastos Grandes is showing it will be in that range.

But how does Millennial stack up with its peers?

First of all, let's take a look at the market cap of some of the comparables.

*as of August 31, 2016

 
Clearly, Millennial has upside in value when you compare the companies based on market cap alone.

But what about the other numbers?

Take a look:
 

*as of August 31, 2016

As you can see, Millennial not only has the lowest market cap, but also the lowest amount of shares outstanding. So from a share structure perspective, it's one of the best.

But, unlike the others, it also has the option to acquire 100% of the project.

While most other lithium plays are focused on exploration, Millennial's team wants to be one of the first to actually put their asset into production.



And with Iain Scarr leading the way, they might just be one of the first.

Iain Scarr is Millennial's VP of Exploration and Development and is well-known in the lithium industry.

He spent 29 years with Rio Tinto,  where he was responsible for multiple discoveries in North and South America and Africa, and worked on the commercial justification for the Jadar lithium-borate resource in Serbia.

After Rio Tinto, Iain joined Lithium One Inc., where he was responsible for bringing the Sal de Vida lithium Brine project in Argentina through feasibility with Galaxy Resources.

Following Galaxy, Iain completed the definitive feasibility on the Rincon project with the Enirgi Group.

He is a man who knows his lithium.

And he not only plans on expanding Millennial's assets through exploration and acquisitions through his connections in Argentina, he plans to fast-track Pastos Grandes to production over the next few years.

Beginning in October, Millennial Lithium's (TSX-V: ML) drills will be turning and as soon they get the brine out, they'll be testing its physical characteristics.

That means within the next month or two, Millennial will know what size their ponds are going to be for the level of production they want.

And given that the project is in the right place with the right data, they can move very quickly.

And remember when I said that going deeper generally means better grades?

Right now, Pastos Grandes has thus far shown some pretty nice grades and very nice chemistry with just shallow drilling - drilling no deeper than 160m.

On the next phase of drilling, Millennial is going to drill down to 350 meters with very high expectations of finding an even better flow, and possibly better grade and chemistry at depth.

But that's not all.

Millennial also acquired other promising nearby assets, with a second project already in the pipeline, which they'll be drilling.

That means come late fall, or early next year, we're going to get even more news that could help bolster Millennial's share price.

Over the next few months, Millennial is going to prove to the market that they're advancing Pastos Grandes, while advancing and adding a pipeline of other promising projects.

And if all goes as planned, there should be no reason why Millennial doesn't achieve at least the same value as some of their comparables. If it does, that's some major upside from here.

As always, there are risks to everything. It is our job as investors to judge if the reward  outweighs the risk.

First and foremost is management's ability to execute on what seems to be a very promising asset. Millennial has an incredibly valuable asset in Iain Scarr, but it's also beefing up the help with the addition of Dr. Vijay Mehta, as part of the technical advisory board.

Dr. Mehta has an extensive forty-five years of experience in the field of Ore and Brine-based technology, which is used for the recovery of Lithium, Potash, Magnesium, and Boron. He was also previously responsible for coordination and communications with lithium producers around the world.

In short, he is very well-known in the industry and his addition is sure to spur interest into the Millennial Lithium story.

Then there's always the risk of the asset itself.

Just like other mining operations, things may not always go as planned. But given the data and Iain's technical expertise, Millennial's Pastos Grandes project, along with its pipeline of other assets, look very promising.

Then, of course, there's a chance that we may find alternatives to Lithium-Ion technologies. But if you do some research, you will see that there really are no other feasible near-term economic alternative power solutions.

Lastly, it's financing and share structure risk.

Millennial conducted a CDN$1.2 million financing before the acquisition of Pastos Grandes for 8 million shares at $0.15 with warrants at $0.30. Shares from the financing will become free-trade on November 8, 2016, but half of it belongs to insiders and friends and family - with 3.25 million shares belonging to insiders who have to report if they sell. 

If the other investors - who control $600k of the $1.2 million financing - take some profits, it could provide another great entry point. I just don't know how much will be up for sale, if much at all, considering the progress Millennial is expected to make over the next few months.

There's also the financing that just closed Friday for $4,875,000 at $0.65 with a half warrant at $1.00. These will become free-trade in the New Year on January 17, 2017.

Regardless, Millennial's share structure is still pretty rock solid - especially when compared to its peers.

Millennial has CDN$5 million in the bank with just over 27.3 million shares issued and outstanding. Even on a fully-diluted bases, there would be only 40 million shares out but nearly CDN$12 million from the exercise of warrants and options.

This solid share structure is far better than any of its comparables, which will most certainly be a plus for when the Company decides to raise more money.

I expect that if the lithium trend continues - and many signs suggest it will - neither of the financings will provide much stress on the share price. If it does, it could provide a better entry point.

When you consider that pure electric vehicles account for less than 1% of all vehicles on the road, the potential growth for lithium is astonishing.

Elon Musk has already told us that for Tesla to meet its target of 500,000 cars a year, Tesla would basically need to absorb the entire world's lithium-ion production.

Yet, Tesla is just the tip of the iceberg.

China is expected to build twice as much new lithium-ion battery capacity as the U.S. by 2020. And while Tesla's Gigafactory in Nevada may be the biggest factory being built, it is only one of at least 12 such projects across the world.

In other words, the lithium market is only getting bigger and those who have a piece of the pie now will control it. I expect that as many of the juniors advance their project, the big guys will attempt to buy them in order to maintain this control.

That means investors in these early explorers and developers could reap the rewards - but only if they invest in the right assets.

The lithium boom has only just begun and there aren't many players.

I believe Millennial Lithium is one of them.

And that's why it's my next lithium play.

 

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