The company's maiden drill campaign at Cauchari has delivered positive results, which are expected to continue over the next months.
The Cauchari project straddles Lithium Americas' lithium project which is now fully funded and moving into the construction stage; 20 km away from the Orocobre's Olaroz project, which is actively producing.
Recent drill results show that a brine body was discovered on a drill target, which was previously unexplored; confirms the extension of the Caurchari lithium basin.
In the first half of 2017, Advantage Lithium (OTCQX:AVLIF), a junior lithium exploration company was busy securing a position within the global lithium supply chain. The company successfully completed a strategic agreement with Australian-based Orocobre (OTCPK:OROCF) to acquire a group of non-core lithium land packages in the Puna Plateau region of Argentina.
Shortly thereafter, the company successful closed a financing round valued at $20 million, with the large portion of the proceeds dedicated to its maiden drill program at the company’s flagship “Cauchari” project (See: Advantage Lithium – Reiterating A Buy Recommendation On Strong Fundamentals). The company’s short-term mission at Cauchari is to define the amount and grade of lithium brine resources through the completion of the ongoing drill program.
In the past two months, the company has started to announce positive results from the drill program. On October 26th, 2017, I placed a strong buy recommendation on shares of Advantage Lithium in anticipation of positive drill results, which will create the path to the completion of a scoping study in Q1 2018. Since October, shares in the company have sent investors on a roller coaster ride. Initially, the stock price charged past my price target of $1/share and then retraced to give up a part of the gains.
It is in my opinion, which is also shared by Eight Capital that shares in the company will continue to increase in anticipation of defining a substantial lithium brine resource at Cauchari. Eight Capital has initiated coverage on shares in Advantage Lithium with a target price of $1.90/share. It is in my opinion that the grades and flow rates will be in line with Lithium Americas (OTCQX:LACDD) and Orocobre findings at Olaroz-Cauchari with the potential for a scoping study to report a 2–2.5 million t LCE resource.
Additional upside in the size of the deposit to around 4 million t LCE would add significant valuation to the organization but the base-case scenario is between the stated 2–2.5 million t LCE deposit. The current drilling efforts are fundamental to the definition of the LCE resource and recoverable resource at Cauchari, both of which I expect to be announced in Q1 2018. Therefore, it is in my opinion that based on these factors, shares in the company could potentially rise to around $2/share ahead or in line with the resource definition announcements in Q1 2018.
Generally, lithium drilling results at brine projects are followed by resource and recoverable resource estimates, which led into the delivery of a Preliminary Economic Assessment, around six months later. In a recent press release, the company indicated that feasibility studies are planned for 2018, indicating that the Preliminary Economic Assessment is being fast tracked.
Orocobre holds interest in the Cauchari Project and Advantage Lithium
In Q1 2017, Advantage Lithium closed on the purchase of a land package deal with Orocobre in exchange for over 46 million shares. Although there are several land packages included in the deal, the primary focus is on the Cauchari Project, which is located around 20 KM from Orocobre’s Olaroz lithium brine and production site. Further, the Cauchari site also straddles SQM (NYSE:SQM) and Lithium America’s JV project at Cauchari.
Advantage Lithium holds a 75% interest in the project while Orocobre retained a 25% ownership position. For Orocobre, this strategic transaction allowed for the Cauchari site to be further explored without the need for the company to invest resources or efforts into the development. Advantage Lithium is fully funded and has assembled a strong technical team to lead the exploration efforts.
Ideally situated in the Olaroz-Cauchari Basin
Over the past months, Advantage has been building up activities on site to further define their lithium brine resource at Cauchari, which will lead to the completion of a Scoping Study in early 2018. Once this effort has been completed, the company will be in a position to determine how to move forward to best maximize shareholder value. The company is uniquely positioned as the properties straddle those of Lithium Americas, which is actively planning construction of a lithium brine facility.
Further Advantage Lithium is within close proximity of Orocobre’s lithium facility, which is one of the few operating brines in the world. Orocobre also remains a majority shareholder in Advantage Lithium and a minority shareholder in the Olaroz project. Advantage has the unique flexibility to either develop Cauchari as a Green Field project or enter a tolling agreement with their shareholder, Orocobre or alternatively Lithium America. Another possibility is the sale of the asset to a third party seeking to enter the famous Olaroz-Cauchari Basin.
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