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Advantage Lithium (TSX-V: AAL) CEO David Sidoo on Fully-Subscribed $12 Million Financing, 4,000 Meter Drill Program & Upcoming PEA at the Cauchari Project

July 23, 2018

 

Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me today is President and CEO of Advantage Lithium (TSX-V: AAL)(OTC: AVLIF), Mr. David Sidoo. David, it's been a while. How have you been?

David Sidoo: Gerardo, I've been pretty good here. We've had a quiet summer, but we haven't seen each other since that epic site visit we had in Argentina when you got to meet our staff and see the breadth of what we were doing there and how quickly we advanced our resource here. But it's good to talk to you guys again, and get some shareholders an update on Advantage.

Gerardo Del Real: That's actually a perfect segue into my question. I'd love for you to recap what the last couple of months have been like as far as progress with Advantage, and then, let's talk about the $12 million dollar financing, which I understand is completely subscribed and filled. What that's going to allow Advantage and Advantage shareholders to do here in the next six to 12 months. But let's start with the progress of the past several months. Can you give us an update there?

David Sidoo: Sure, sure. We basically increased our resource by six-fold, Gerardo. We've announced a 3 million tonne LCE resource at Cauchari averaging at 450 to 500 milligrams per liter. The resource that we updated covers a large, extended area that we have in the Northwest and Southeast. We've got excellent brine chemistry there. Processing of the magnesium, the lithium ratios, are between 2.4-2.5, which is similar to our partner at Olaroz, their operation.

We just began a phrase three drilling program right now. And what that's going to do, Gerardo, is that's going to take the inferred resource that we have that we announced, 3 million tonnes on July the 3rd, and take most of that resource from inferred into measured and indicated. And that's a 4,000 meter drill program. We got two drill rigs working right now to bring that resource into measured and indicated, and that's what you will get a big value for in the marketplace.

So, since you and I have spoken we've you know, been able to advance the resource into a level of where we're being recognized as one of the top juniors in the space in terms of being able to bring a quality resource to the marketplace with a strong partner like Orocobre.

Gerardo Del Real: I've said all year that I'd be surprised if Advantage Lithium made it out of 2018 without a takeout offer. Can you explain, for those not familiar, why it's so important for Advantage to take that inferred resource and convert it into measured and indicated? And if you could speak to how a potential suitor views that resource and why that's important to get in that upgraded category.

David Sidoo: Well, we'll give you a bit of the metrics right now. There's such a disconnect right now, Gerardo – because that's a great question – from the North American capital markets in valuing lithium companies like Advantage Lithium and what's happening in Asia and in South Korea to some extent. If you look at what's happening in the electric vehicle revolution, it's moving much faster than anybody's expected. China's doubling its electric vehicle production capacity every 12 months, while car makers like Volvo, Volkswagen, Tesla are spearheading growth elsewhere.

So, growth's continuing to grow. You're going to need lithium, obviously for those batteries. You look at some of these companies right now that are building these major gigafactories around the world. And primarily most of them are in Asia, and South Korea now is starting to get involved. There's a deal that gives us a strong metric of where we probably will rank in terms of valuation per tonne in the ground. A steel maker called POSCO, which is a multi-billion dollar South Korean Company, acquired an asset from Galaxy that's got 1.85 million tonnes of measured and indicated brine, lithium rather. And they paid $150 dollars a tonne for that 1.85 million tonnes that they have. Advantage Lithium, when we advance our inferred resources into measured and indicated. You just have to take a number of 3 million tonnes times the $150 dollars a tonne. That's worth $450 million dollars, Gerardo.

There's a lot of value that we've built there. There's such a disconnect with the markets of North America and what's happening in Asia and some of the other countries that are actually building up this demand that they see in 2025 and onwards of electric vehicles, fleet vehicles, buses, trucks. It's a big market that's going to explode and I think this fall we're going to have a very strong market in lithium. Again it's going to rebound. It's the summer doldrums we're in right now. And I believe that we'll get fair value in the marketplace this fall. I don't know where we're going to end up by year end, Gerardo. But we certainly got a lot of people knocking on our doors.

We're putting a data room together right now with all the drill results we have, the pump test we're doing and just to summarize some of the news that's going to be coming out this year as we develope our resource further. We're going to have our Preliminary Economic Assessment, which is a PEA, in early August and we're also going to emphasize our Environmental Impact Study timelines, which should be quite quickly approved by the government authorities in Argentina because we're just going to overlap Lithium Americas’, SQM’s and Orocobre's Environmental Impact Study because we're in the same base, it's the same chemistry, same brine. So we don't have to, you know, pay a lot of money to do that, reinvent the wheel. That's a significant announcement that we're going to make in early August that your shareholders and readers will see what kind of value this project is.

Gerardo Del Real: Just to summarize, David, using the metrics that you outlined, the $150 dollars per tonne, that would be equivalent market cap-wise to like five times Advantage's current market cap. Is that correct?

David Sidoo: It's four times. It's crazy right now, you know? That's why I say it's a disconnect. If you take that number, and you take in US dollars, that's $450 US, which is I would say about four, four and a half, five times the current value in the marketplace. Actually, it’s quite insane, when you look at it like that.

Gerardo Del Real: Yeah, second point that I'd love to make is you talked about increasing the competence in the resource, getting it into the measured and indicated category. But you're also drilling at depth now, and I know the potential there. When I visited the project, all the geologists, all the chem people, they were excited about the potential at depth. Can you speak to that a bit? Because there's a potential for significantly more tonnage.

David Sidoo: I think we will as we drill through the next several months and have news each month starting in August on pumping tests and new drill results. We are going to drill a couple of holes and try to get down to the 600, 650 meters because that's where we think the basement of the resource is. And the optimized pump test will come from that primarily. But when we talk about the current resource we have, that's enough to garner a five to six-fold increase in market cap on Advantage Lithium. But you're correct, while we do this drill program, Gerardo, right through the end of this year, we will increase that resource from 3 million tonnes to probably something a little bit higher. A million, a million and a half tonnes, we’ll add to inferred and maybe some indicated.

And what we're looking for and the reason why we want to drill deeper is we don't need to increase the resource much further than what we have, but it'll probably grow. The important part is permeability and porosity at depth is a little better. The sands, we think are thicker down there. And that'll enhance our pump tests. And it's very important to show strong pump tests in this basin along with the good magnesium to lithium ratios, and lithium ratios above 500 milligrams. So that's the primary reason why we're going to drill deeper, but it will increase our resource. You're correct.

Gerardo Del Real: Excellent. And you just announced a $12 million dollar financing. I understand it's fully subscribed. I believe it takes your cash position to $19 million. What does that allow you to achieve through 2018?

David Sidoo: What that's going to allow us to do, it's going to allow us to continue to drill the 4,000 meter drill program that I mentioned. We will complete our PEA and announce that in early August. We'll begin our Environmental Impact Study and we will complete our Definitive Feasibility Study by year end or by the first quarter of 2019. And that'll be a bankable DFS, which is Definitive Feasibility Study, this is how much the plant that we're going to build is going to cost us. Here are the economics, here's our pump rates, here's how much brine we're going to produce, and here's how long it'll take to pay back that CapEx that we announced in that PEA.

So, it'll be basically a bankable document that you can take to traditional lender, a nontraditional lender or when you're doing an offtake agreement or a partnership with one of these battery makers, it's a document that they can take to their investment committee and it's rubber stamped by the top people in the industry. And we'll still have cash in the bank after that. But I like you, Gerardo, feel by the time we get, well before we get to that point, we're going to either have an opportunity to do an offtake agreement or someone make a pitch to acquire Advantage.

Gerardo Del Real: Exciting times, David. Thank you so much for your time. Thank you so much for the update. And hopefully we have you back on when we get that PEA published.

David Sidoo: Thank you very much, Gerardo. Always good to talk to you. You're very knowledgeable about this space. You know, you don't get to talk to too many people that understand and have kicked the tires and actually seen what we're doing. We've got a great team we're very proud of. And just a few more months of this soft market, I think, I think you'll see the lithium companies, all of them rebound here in the next little while.

Gerardo Del Real: I appreciate the kind words, David. It's easier when you hang around a bunch of smart people, a lot smarter than I am. So, I just kind of piggyback off of them. Thank you so much again.

David Sidoo: Awesome. Thank you very much.

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