The 3Q Project

The 3Q Project is located in the southern end of the “Lithium Triangle” in the Puna Plateau. The area is characterized by high altitude salt flats, many of which contain elevated lithium concentrations.

The largest brine lithium mines and projects in the world are located in salars in the Lithium Triangle including Atacama Salar (SQM and Albermarle), Cauchari-Olaroz Salar (Orocobre and Lithium Americas Corp) and Hombre Muerto Salar (FMC and Galaxy).

3Q is one of the fastest growing lithium brine projects in the industry, moving from discovery to PEA in 22 months. We will continue to progress the 3Q Project into advance development stage in record time.
Waldo Perez

Location

The Project is located in the southwestern portion of the Catamarca Province of Argentina, the largest Lithium producer province of Argentina.

The closest population centre to the Project is the town of Fiambalá, Argentina (population 5,000), located 100 km east of the Project.

There are no aboriginal communities or inhabitants in the Project area, which is only 25 km from the border with Chile.

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Infrastructure

The closest highway to the Project is Ruta Nacional 60, which connects the capital city of Catamarca (San Fernando del Valle de Catamarca) to Copiapó and the seaport of Caldera, via Paso de San Francisco. The project is connected to the highway by an all-weather 60 km dirt road.

Over $10 million was invested in the 3Q Project by September 2017, with a 60 person year-round camp.

Despite being discovered on in December 2015 by the founders of the company, the 3Q Project is already fully equipped not only with the full camp and access road, but also with a last generation weather station operating year round, a full geochemical analytical lab on site, solar and diesel power, as well as a zero waste sewage system.

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Process Studies

The Company has now completed the bench scale evaporation cycle at the project site, based on local weather conditions, concentrating lithium brine by solar evaporation all the way up to 3.8% lithium. This achievement used no reagents except for minor amounts of hydrochloric acid. Sodium sulfate was not added to the brine, demonstrating that calcium chloride, sodium chloride, potassium chloride and borates precipitate naturally and without the need of additives. Of perhaps equal or more importance, calcium chloride precipitated in big crystals with each molecule of calcium chloride capturing six molecules of water, resulting in significant water extraction from the brine by crystallization rather than evaporation. While still early and with further studies required, this finding is expected to have a positive impact on the capital costs of the project by virtue of potentially significantly reducing the size of the ponds required to evaporate the brine.

These tests also indicate that the amount of costly reagents could be significantly less than previously scoped, suggesting a meaningful reduction to the operating costs, which are already at the low end of the industry. For information concerning the preliminary economic assessment of the 3Q project, including details concerning the estimated capex and opex of the project, see the Company’s technical report entitled “Preliminary Economic Assessment (PEA) 3Q Project, NI 43-101 Technical Report, Catamarca, Argentina” dated December 13, 2017, filed on SEDAR and available on the Company’s website.

These bench scale findings are critical, and the Company is now working on scaling up the process studies in an effort to replicate the results at pilot scale. The Company has already started to build two ponds, each one-half hectare in size, on the salar itself to increase brine production in order to feed the pilot plant that is expected to be delivered by the third quarter of 2018 and produce lithium carbonate before the end of the year.

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Drilling

The 2017/2018 season started with a 50-linear km seismic reflection survey (first of its kind in lithium brine exploration) along the entire 3Q salar and peripheral basins. Results showed that the basin could be deeper than 600m and tilted eastwards. Most of the drill holes in the initial drill season were located in the western, shallow part of the basin and the average depth of the holes was about 130m (the deepest hole was 357m).

This season the Company focussed on completing in-fill drilling and getting into the deeper part of the basin. Drilling so far includes a total of 2,239m of diamond drill holes and 985m of rotary drill holes, resulting in 8 diamond drill holes and 8 rotary holes (used for pump wells). The average depth was 300m and the deepest hole was 580m. These numbers are preliminary since the Company continues to drill with three rigs simultaneously and results arrive daily.

The table below summarizes results for lithium, potassium and Mg/Li and Sulfate/Li impurities of the diamond drill holes and pump wells from rotary holes for which geochemistry has been received from the lab so far

Table 1: Results of the 2017/2018 Drilling Season

Hole From
(metres)
To Total Li
(mg/L)
K Mg/Li Sulfate/Li
PP1-D-14* 16 320 304 642 6,109 2.27 0.35
PP1-D-15* 16 238 222 785 7,545 2.02 0.26
PP1-D-16 16 324 308 525 5,353 2.32 0.58
PP1-D-17** 18 530 512 638 6,668 1.91 0.41
PP1-D-18 28 84 56 1,071 9,486 1.78 0.33
PP1-R-15 0 30 30 816 8,289 2.05 0.40
PB2-R-7 50 126 76 518 5,683 7.59 0.50
PP2-D-16 30 72 42 644 6,475 2.25 0.90

*Results previously disclosed in prior news releases
**Results pending for the deeper parts of the hole

This season’s results confirm lithium and potassium grades established by the results of the previous exploration season and potentially extend the resource zone down to 530m (hole PP1-D-17). This hole, PP1-D-17, is particularly important because between 491.5m and 530m (38.5m) we found a sand and conglomerate unit that has high porosity and artesian pressure (brine flows out of the hole without pumping). Hole PP1-D-17 continued all the way down to 587m finding similar clastic units but drilling stopped due to hole stability, so the deep aquifer still remains open at depth. Geochemical results for the interval of 530m to 587m are pending.

This deeper aquifer was also intercepted in PP1-D-21 (results pending) at 580m deep at over 7km south of PP1-D-17, showing that the deep aquifer has regional extension.

The deeper aquifer of sandy sediments is very important because of its high grade and regional extension. Further drilling will be carried out to map it along the basin. Pump tests will be required to define its yield (although being artesian, is a good sign of brine productivity). The extra work required to fully understand the deep aquifer will extend the timeline for completing a new resource calculation for the entire project into the following summer drilling season.

Hole PP1-D-20 was drilled outside of the salar basin in an effort to study the sources of lithium into the salar system. This hole, 22 metres deep, found that brine is flowing into the salar at a remarkable 310 mg/L lithium (2,935 mg/L potassium, Mg/Li of 1.51 and Sulphate/Li of 1.61). This hole is also artesian (brine flows out of the well without pumping). Studies are underway to understand these sources of lithium into the salar.

Maiden Resource Calculation

A Resource Estimate was developed for the 3Q Project using three-dimensional block modeling software. The modelling was supported by geology, drilling, hydrogeology, geophysics and geochemical data and interpretations provided by the QP and 3Q Project geologists.

The modeling generated a Measured, Indicated and Inferred Resource Estimate, as defined by the CIM and referenced by the National Instrument 43-101 Technical Report.

Results of the Resource Estimate are provided below, relative to cut-off grades of 400 and 520 mg/L lithium.

3Q Project Lithium Resource Statement at 520 mg/L Lithium Cut-off

520 mg/L Lithium Cut-off 400 mg/L Lithium Cut-off
Avg, Lithium (mg/L) Li2CO3 Equivalent (tonnes) Avg. Potassium (mg/L) KCI Equivalent (tonnes) Avg. Lithium (mg/L) Li2CO3 Equivalent (tonnes) Avg. Potassium (mg/L) KCI Equivalent (tonnes)
Measured 792 52,569 7,434 176,764 792 52,569 7,434 176,764
Indicated 710 661,673 6,439 2,149,485 560 1,171,735 5,335 3,997,901
Total M&I 716 714,242 6,506 2,326,249 567 1,224,305 5,400 4,174,666
Inferred 713 1,339,546 6.554 4,413,778 567 2,237,803 5,413 7,765,672
  • 520 mg/L Lithium Cut-off
  • 400 mg/L Lithium Cut-off
Measured 792 52,569 7,434 176,764
Indicated 710 661,673 6,439 2,149,485
Total M&I 716 714,242 6,506 2,326,249
Inferred 713 1,339,546 6.554 4,413,778
Measured 792 52,569 7,434 176,764
Indicated 560 1,171,735 5,335 3,997,901
Total M&I 567 1,224,305 5,400 4,174,666
Inferred 567 2,237,803 5,413 7,765,672

The low magnesium and sulfate content of the resource makes the brine very favourable for potential future processing. The table below summarizes the main impurities ratios for magnesium and sulfate.

3Q Project Impurity Ratios at 520 mg/L Lithium Cut-off

Magnesium/
Lithium
Sulfate/
Lithium
Measured 1.60 0.76
Indicated 2.02 0.50
Total M&I 1.99 0.52
Inferred 2.07 0.54

All the resource included in the 520 mg/L cut-off is in the area known as the Northern Target, which was originally identified by surface sampling that extends over the northern half of the salar.

Preliminary Economic Assessment Highlights

The economic analysis is based upon measured, indicated, and inferred mineral resources only. Mineral resources that are not mineral reserves do not have demonstrated economic viability. The PEA is preliminary in nature and includes inferred mineral resources that are considered too geologically speculative to have the economic considerations applied to them that would enable them to be categorized as mineral reserves. There is no certainty that the 3Q Project envisioned by the PEA will be realized. The economic analysis of the PEA is based, among others, on the following main assumptions: a) 100% equity financing; b) construction commencing in 2019; c) production ramp up of three years from 2021 to 2023; and d) all capital costs, operating costs and revenues in the economic model are calculated on a constant U.S. dollar basis.

Preliminary Economic Assessment

After-Tax Net Present Value (“NPV”) @ 8% Discount Rate US$1,200 million
After-Tax Internal Rate of Return (“IRR”) 27.9%
Capital Expenditures US$490.2 million
Cash Operating Costs (per tonne of lithium carbonate) US$2.791
Average Annual Production (lithium carbonate) 35,000
Mine Life 20 years
Payback Period (from commencement of production) 1 year, 8 months

Capital Costs

Description US$ Million
Direct Costs
Evaporation Ponds and Wells $178.4
Plant Facilities and Equipment $62.8
Infrastructure and Others $80.2
Direct Costs Subtotal $321.4
Indirect Costs $88.5
Contingency $80.3
Total Initial Capital Costs $490.2

Operating Costs

Description US$000/yr US$/tonne Li2CO3
(lithium carbonate)
Direct Costs
Chemical Reactives and Reagents $53,934 $1,541
Salt Removal and Transport $23,620 $675
Energy $10,820 $309
Manpower $4,713 $135
Catering and Camp Services $1,659 $47
Maintenance $1,570 $45
Direct Costs Subtotal $96,317 $2,752
Indirect Costs
General and Administration $1,359 $39
Indirect Costs Subtotal $1,359 $39
Production Total Costs $97,677 $2,791

Neo Lithium has reviewed a number of publicly available lithium price forecasts and there are some variations between each source. For the purposes of the PEA, Neo Lithium used the average pricing assumptions as per below:

Lithium Markets and Price

US$/tonne
Year 2021 2022 2023 2024 2025 and Long term
1 2 3 4 5
Lithium carbonate 10,869 11,026 11,273 11,601 11,834

Average lithium carbonate pricing estimate over the life of mine is approximately $11,760 per tonne.

Base Case Sensitivity Analysis

Discount Rate NPV After Tax US$ Million IRR After Tax NPV Pre Tax US$ Million IRR Pre Tax
6% $1,545 27.9% $2,400 33.7%
8% $1,200 27.9% $1,889 33.7%
10% $933 27.9% $1,495 33.7%

Qualified Person

The mineral resource estimation was prepared by Geo. Marisa Franciosi using Geosoft Target 9.1 for Arc GIS under the supervision of Dr. Mark King, Ph.D, P.Geo. of Groundwater Insight. Inc, a Qualified Person as defined in NI 43-101.

Randy Pitts, Mining Engineer, Qualified Professional Member (QP) of Mining Metallurgical Society of America (MMSA) is an independent qualified person and has reviewed and approved the disclosure regarding the 3Q Project on PEA.