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Kaiser Watch December 2, 2022: MIT shines light on lithium dendrite problem

Posted: Dec 2, 2022JK: Kaiser Watch December 2, 2022 with Jim Goddard and John Kaiser
Published: Dec 2, 2022KRO: Kaiser Watch December 2, 2022: MIT shines light on lithium dendrite problem
Kaiser Watch is a weekly 15-30 minute audio show produced by KaiserResearch.com with Jim Goddard and John Kaiser discussing the junior resource sector. The show has three parts: the first is a general topic, the second discusses developments involving the KRO Favorites which as of January 1, 2022 are no longer exclusive to KRO members, and the third is a peek inside the members only KRO Bottom-Fish Workshop. KRO is transitioning into a Do-It-Yourself research platform that covers all Canadian and Australian resource listings and which also features a Bottom-Fish Workshop where John Kaiser highlights juniors with solvable "missing pieces". Companies that graduate from the Workshop may become part of the Annual Favorites collection whose profiles and related commentary are unrestricted for non-members. Visit the KRO Favorites Dashboard for quick access to all the unrestricted Favorites related content. KRO is not sponsored or compensated directly or indirectly by public companies. The business model is based solely on membership fees in the form of a USD $450 Annual Individual Membership that at some point will increase substantially to reflect KRO's shift to a research platform. However, when the change happens active members will be grandfathered to renew indefinitely at the current rate provided they maintain a continuous paid membership. Kaiser Watch is available at Kaiser Research YouTube and as a Podcast downloadable from KaiserResearch.com. Each episode will be made available through the publication of a Kaiser Media Watch blog report which will provide links to specific questions and include supplementary graphics. All episodes will be archived at Kaiser Watch.

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Kaiser Watch December 2, 2022: MIT shines a light on lithium dendrite problem
Jim (0:00:00): What do you think about the $12 million FPX Nickel just raised from a secret strategic investor?
FPX Nickel Corp announced a $12 million financing with a "strategic investor" on November 29, 2022 consisting of 24 million shares at $0.50, a significant premium above recent price levels. The placee's identity is confidential at its request, it is subject to a two year standstill with regard to purchasing additional shares, but it is entitled to maintain its 9.95% stake by participating in any additional financings. This financing, which promptly closed, gives FPX $18.5 million working capital which CEO Martin Turenne says will carry FPX into 2024. The completion of the ferro-nickel pilot plant study which is expected to generate 18 kg of concentrate is now projected for early January, but the bench scale study for the hydrometallurgical flow-sheet that will produce nickel and cobalt sulphate is still on schedule for late Q1 of 2023 because it is being fed with ferro-nickel concentrate already produced by the pilot plant study. This pilot plant study will be a significant milestone because it scales up technical detail for a flow-sheet that has never been deployed on a commercial scale, namely magnetic separation of awaruite, which produces a 12% nickel concentrate consisting of awaruite and magnetite, followed by flotation which removes the magnetite to yield a 60%-65% nickel concentrate with the remainder mainly iron. There has been much speculation about the nature and identity of the strategic investor. For clues I recommend watching the excellent Martin Turenne interview conducted by Bill Powers of Mining Stock Education. Martin distinguishes between mining companies and "strategic counter-parties" and breaks them down into 4 groups: mining, chemical, battery and car makers. When Bill Powers asks if this strategic investor will be able to help FPX with advice, Martin's response strongly suggests that the investor is not a mining company but an entity interested in Decar's future output. My guess the party is either a chemical company or a battery maker, though it is important to note that no offtake agreement accompanied the deal which emerged from a competitive process in which a dozen or so parties conducted NDA based due diligence. On November 18 FPX also published an updated resource estimate for Baptiste which included a 7% nickel grade increase and grades for cobalt and iron. The cobalt and iron grades are Davis Tube Recoverable grades, which means it includes only the iron and cobalt that ends up in the initial concentrate after grinding and magnetic separation. These numbers are important because it will allow FPX to include revenue streams in the PFS for the 5% (cobalt) and 7% (iron) rock value. The cobalt will only be payable for ferro-nickel concentrate processed into battery grade sulphates, and the iron will only be payable if FPX can find a market for the magnetite pulled out by flotation, which is the bulk of the 2.4% iron grade. The iron in the nickel-iron awaruite, a natural stainless steel, will not be payable when the concentrate is headed for the stainless steel market. The PFS is now expected in Q4 of 2022, with the subsequent permitting and feasibility study stage expected to cost another $40-$50 million. The importance of this financing is that FPX does not need to worry about additional financing until it has delivered its PFS, which will have substantially greater credibility for the market. I've updated my DCF nickel price model for both the original PEA assumptions and one where I have escalated CapEx and OpEx by 20%. The stock is substantially under-valued, even below the lower limit of the value trough portion of the S-Curve. Over the next year, with the dilution risk due to financing needs deferred until 2024, I expect FPX Nickel to be trading at a minimum within the $2-$3 range by this time next year after the PFS is delivered.
FPX Nickel Corp (FPX-V)

Good Spec Value
Decar Canada - British Columbia 6-Prefeasibility Ni

Updated Resource Estimate for Baptiste

Decar DCF Nickel Price Sensitivity Model for AT NPV based on Sept 2020 PEA

Decar DCF Nickel Price Sensitivity Model for AT NPV/Share based on Sept 2020 PEA

Decar DCF Nickel Price Sensitivity Model for AT NPV based on Sept 2020 PEA Costs escalated 20%

Decar DCF Nickel Price Sensitivity Model for AT NPV/Share based on Sept 2020 PEA Costs escalated 20%

Aawruite offers a simpler path to battery grade nickel sulphate than sulphide or laterite ore
Jim (0:13:04): What did Scandium International announce that caused it to move up a penny?
Scandium International Mining Corp perked up the market this week with news that it plans an 800 m and 500 m drill program for the Honeybugle and Nyngan projects in New South Wales. The Nyngan drilling will involve 12 holes in the western part of the property where the west pit is located and which is on the half of Nyngan where SCY already holds the surface rights and planned to start mining and locate all infrastructure. The company has also applied for full reinstatement of the mining lease. I suspect that Owen Carter or his kids are still being difficult about the surface rights covering the east pit. The initial scale has a 20 year mine life just mining the limonite. The underlying saprolite is somewhat lower grade but is larger and may have easier processing characteristics. The Nyngan drilling may be designed to ensure that mining the eastern half can be pushed very far out into the future.

The Honeybugle drilling will follow up the Seaford anomaly drilled in 2014 with 6 holes to delineate the limits of that resource. In Tracker June 7, 2021 (KRO members only) I conducted a back of the napkin tonnage estimate for Drill Area 1 which yielded the best results within the Seaford anomaly. I used the resulting 3,740,000 t @ 272 ppm Sc resource as the basis for a speculative DCF model that starts with a 1,000 tpd mining scale rather than the 200 tpd scenario on which Nyngan is based. This operating scale, assuming the same recoveries as Nyngan which is located 28 km to the northeast, would would generate 127 tpa of scandium oxide, about four times the initial 35 tpa output for Nyngan. SCY will also drill 27 holes into the untested Woodlong magnetic anomaly. These targets have magnetic anomalies because they represent blocks of mafic or ultramafic rock that has undergone laterization through tropical weathering, which in New South Wales has managed to enrich scandium to 20-30 times crustal abundance grades. These targets are covered by a very thin veneer of soil which itself has anomalous scandium values above the magnetic anomalies. We should see the Honeybugle results in Q2 of 2023, which, because they will be a grid of shallow holes, will allow us to do back of the napkin tonnage and grade estimates.

One might ask, what is the point of establishing an additional scandium resource when there isn't even demand for the current potential output from Nyngan? The development of the scandium market is now in the hands of Rio Tinto which is recovering scandium at its Sorel-Tracy facility in Quebec as part of upgrading the 80% titanium slag to the 95% rutile equivalent grade required by most pigment makers. The titanium slag is a by-product from smelting iron ore from the Lac Tio Mine and the by-product output limit is in the 30-50 tpa scandium oxide range. If Rio Tinto builds global demand beyond 50 tpa from its current estimated 20-25 tpa range, this will represent a demand tipping point. SCY is presenting itself as the future go to source of primary, scalable scandium supply. At a recent scandium conference CEO Peter Evensen talked about seeking a partner for Nyngan. It is unlikely that such a partner at this stage would be an aluminum producer like Rio Tinto or Alcoa seeking to ramp up supply Al-Sc master alloy. It is more likely to be a producer of specialized materials that require scandium, such as Materion, Bloom Energy or even AMG which might never need more than the proposed Nyngan operating scale which is really equivalent to a large pilot plant study. If SCY goes down this path, it would be extremely helpful to have a substantially bigger and richer nearby resource at Honeybugle which would be of great interest to a Rio Tinto when alloy demand reaches a lift-off point.

SCY now has about USD $2 million working capital but be careful when you check the September 30 none month financials. Current liabilities includes a line item called a "warrant derivative liability" in the amount of $1,519,787. If you do the working capital equation of current assets less current liabilities you get a figure of only $122,339. Historically I have treated all current liabilities as real, but not all current assets like so called "marketable" securities. In the aftermath of the dot-com doom the accounting world introduced a set of fictitious liabilities related to options, warrants and future tax liabilities created by handing off the flow-through benefits to investors. These have been classified as long-term liabilities and at KRO we isolate these fictitious liabilities so we can see the real liabilities that threaten the viability of a junior. This is now the second time I have seen a fake liability stuffed into current liabilities and I suspect this is due to a recent rule change which will be very unhelpful when it comes to assessing the balance sheets of resource juniors.

Scandium Intl Mining Corp (SCY-T)

Bottom-Fish Spec Value
Honeybugle Australia - New South Wales 3-Discovery Delineation Sc

Google Earth Map of relative locations for Nyngan and Honeybugle

Past drill results for the Seaford target at Honeybugle

Speculative Honeybugle DCF Model AT NPV at various scandium prices

Speculative Honeybugle DCF Model AT NPV/Share at various scandium prices

A fake liability included with current liabilities will render working capital figures useless
Jim (0:20:00): MIT published a paper on November 18 which explains how dendrites grow within a lithium ion battery. Is this a significant development?
A group of scientists at the Massachusetts Institute of Technology (MIT) published a paper in the Joule journal called Controlling dendrite propagation in solid-state batteries with engineered stress which offers an explanation about why dendrites propagate within a solid state electrolyte in a lithium ion battery. The flow of lithium ions through a battery will cause filaments to grow within a solid state electrolyte that can puncture the separators and cause a short circuit. To avoid the serious fires this would cause a lithium ion battery uses a fluid as an electrolyte and graphite as the anode in place of the perfect anode material, lithium metal. The Joule article is behind a paywall but on November 23, 2022 Oilprice.com published an article explaining this breakthrough: MIT Reports Breakthrough In Solid-State Lithium Battery Development. Figuring out how to prevent dendrite growth has been a problem because these spires form within an opaque physical solid and thus are difficult to observe in real time. The working assumption has been that the lithium ion flow causes some sort of electrochemical degradation. The MIT group was able to design an experiment which enabled them to observe that it is natural stress fractures within a solid state electrolyte that become the pathway for dendrite propagation. The short circuit problem is created by the random ordering of these stress fractures. Recognizing that the dendrite problem has a mechanical basis rather than an electrochemical basis will allow battery makers to focus on developing solutions that prevent such stress fractures. The MIT group has proposed a solution in the form of imposing stress on the battery materials so that the stress fracture are aligned within the electrolyte. This will not stop dendrite growth, but these tiny spears won't be puncturing the material that separates the electrolyte from the cathode and anode materials. The MIT group has applied for a patent, possibly for a way to manufacture the lithium ion cells so that the stress fractures are all aligned. Now that the cause of the problem is understood, other groups will know how to focus their research efforts to create a solid state electrolyte that also allows them to substitute superior lithium metal for graphite in the anode. If successful, this would have big implications for future lithium demand. Current projections of a ten-fold demand expansion from the 2021 level of 100,000 tonnes of lithium metal assume lithium metal will never be used for the anode because of the dendrite problem. Lithium Mania 2.0, which is the global search for lithium enriched pegmatite deposits so that future demand can be met when EV demand starts going exponential in 2030, will have a 2-3 year boom period, by the end of which the world will know what deposits are headed for production by 2030. But this dendrite understanding breakthrough may set the stage for news in three years that a solid state electrolyte which allows lithium metal to be used as the anode has been achieved and will be commercialized by 2030. That would kick off Lithium Mania 3.0. We don't need this breakthrough to make money betting on juniors exploring for lithium pegmatites, but hang onto your hat if it delivers a safe lithium ion battery with a solid state electrolyte.
Disclosure: JK owns FPX Nickel and Scandium International; FPX is a Good Spec Value rated KRO Favorite; Scandium Intl is Bottom-Fish Spec Value rated

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