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 Fri May 12, 2023
KW Excerpt: Kaiser Watch May 12, 2023: Brunswick Exploration Inc (BRW-V)
    Publisher: Kaiser Research Online
    Author: Copyright 2023 John A. Kaiser

Brunswick Exploration Inc (BRW-V: $0.710)

Kaiser Watch May 12, 2023: James Bay gets a Lithium Champion
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(0:00:00): What are the implications of the proposed Allkem-Livent merger for the James Bay region?

On May 10, 2023 Allkem Ltd and Livent Corp announced a merger of equals whereby Livent shareholders will get 2.406 Allkem shares with the resulting company trading on the NYSE and the ASX. The TSX listing will disappear. The combined company had a value of USD $10.6 billion when the deal was announced, which has since risen because both stocks responded positively to the news. Pro-forma 2022 revenues would be USD $1.9 billion and EBITDA would be $1.2 billion. This merger combines the Argentine brine operations of both companies and the Australian Mt Cattlin pegmatite mine of Allkem. The Argentine portfolio has expansion potential and includes one project under construction. But the real synergy comes from the Quebec James Bay project of Allkem and the 50% owned Nemaska project of Livent.

The Nemaska project consists of the Whabouchi deposit which was developed during Lithium Mania 1.0 but ended up in bankruptcy in December 2019 when lithium carbonate prices had crashed below $5/lb. In October 2020 Orion Mine Finance and The Pallinghurst Group acquired 50% of the asset and a government agency called Investissment Quebec acquired the other half. Livent acquired a partial stake on Dec 1, 2020 and on June 6, 2022 Livent issued 17,500,000 shares to acquire the other 25% to hold 50%. Livent and IQ are working to bring Wabouchi on stream and are building a lithium hydroxide facility at Becancour on the St Lawrence River half-way between Montreal and Quebec City. Livent, which was part of the FMC Corporation, went public on the NYSE by IPO in 2018 with the Hombre Muerto brine project in Argentina.

Allkem went public in 2007 as Orocobre and by 2015 had put the Olaroz brine project into production. In August 2021 it diversified into pegmatite sourced production by acquiring Galaxy Resources. Galaxy had put the Mt Cattlin deposit into production in 2010 and in 2012 acquired Lithium One which gave it ownership of the Sal de Vida brine project in Argentina and the Cyr pegmatite project in the James Bay region of Quebec. Allkem published a feasibility study in December 2021 for the Cyr project which it now calls the James Bay project. Last week Allkem published partial results of drilling it has been doing at James Bay which revealed the discovery of the NW Sector. It is an under-cover jog to the northwest for the existing Cyr deposit which has a Li2O grade in the 1.5%-2.0 % compared to the 1.3% grade of the largely outcropping main deposit. It also reported extensive drilling activity to the east right up to the boundary of Brunswick's Anatacau West project but did not report any assays. Brunswick has traced the pegmatite system at least 300 m onto its property and is awaiting assays.

The merger between Allkem and Livent is important for the James Bay region because future spodumene concentrates from both James Bay and Wabouchi can be shipped to the Becancour lithium hydroxide refinery which in turn can supply battery makers based in North America. Allkem-Livent, or whatever the merged company ends up being called, will be a potential aggregator of new lithium discoveries in the southern half of the James Bay region if another major lithium producer does not show up. The James Bay region can be divided into a southern half south of the Eleonore Gold Mine and the northern half where Patriot Battery Metalsis drilling off the Corvette lithium deposit whose results so far indicate a world class resource potential in the 50-100 million tonne range grading 1.5%-2.0%. That puts it in the league of deposits such as Liontown's Kathleen Valley which are currently priced in the $4-$6 billion range.

The lithium pegmatite deposits in the southern half of James Bay such as Cyr, Rose, which is owned by Critical Elements Lithioum Corp, and Whabouchi were found 3-5 decades ago because these pegmatites outcrop to such a degree you can see them from Google Earth satellite imagery. Simply walking the ground and looking for outcropping pegmatites that are lithium enriched is what I call "first order" exploration. The southern half is now regarded as an old exploration frontier because it is assumed that the best pegmatites are those that are sticking out of the ground. The exciting new exploration frontier is the northern half where outcropping pegmatites such as within the Corvette trend were observed during the past couple decades, but because of the remoteness they were never delineated. Plus the global lithium market was tiny and dominated by production from Greenbushes and the Chilean brines. Lithium Mania 1.0 kicked off in 2015 when Tesla EV sales took off and the world realized that electric vehicles powered by lithium ion batteries were becoming a reality. Lithium Mania 2.0 is based on projections by groups such as the IEA that lithium supply will need to undergo a 600% expansion by 2030 to make EV rollout projections reality. James Bay is turning into a Great Canadian Area Play because it is a prime candidate in a secure and stable jurisdiction to deliver the second half of the required supply expansion.

While the exploration glamour resides in the northern half of James Bay where simply first order walking the ground with an XRF gun this summer could lead to high success potential drill programs in the fall and certainly by Q1 of 2024, the southern half has been viewed until recently as an also ran. But the realization has started to set in that the known deposits may simply be the result of local topographical coincidences which created a tunnel-visioned exploration focus. The Allkem feasibility study at James Bay should have had a pit centered on the higher grade NW Sector, but the past delineation drilling focused on what was visible. This old frontier is undergoing a renewal in the form of "second order" exploration which seeks to home in on pegmatites close to surface but obscured by swamp, bush and overburden. Lake bottom sediment data, glacial history reconstruction, and geology are the keys to second order exploration. An early example of a second order discovery was the Pontax pegmatite system now being explored by Cygnus Metals and Stria Lithium. It was discovered a couple decades ago by Sirios Resources as a by-product of regional till sampling for diamond indicator minerals spawned by Ashton's discovery of the Renard kimberlite cluster.

Juniors like Dios Exploration Inc which was spun out from Sirios have been quietly conducting second order exploration in the southern half of James Bay which to a large degree is archival research. The recent NW Sector news from Allkem is an alarm bell that the best may yet be found just beneath the surface in this area which is much closer to infrastructure than the northern half. The Allkem-Livent merger creates a lithium champion for this region. Why is Dios limping along at a nickel? One reason is that the junior has been reluctant to disclose what it has been staking and why; there is a certain degree of paranoia afflicting juniors whose management knows what it is doing and is worried about a wave of speculative staking randomly staking ground with second order potential. But the simpler reason Dios remains so unloved may be that the company's marketing budget in Q1 of 2023 collapsed 97.5% from $81 in Q1 last year to $2 this year. What could that expense have been? Well a bottle of two buck chuck during a one on one presentation to an analyst can go a long way.

Allkem-Livent Merger Syngery resides in James Bay assets

Becancour Lithium Hydroxide Refinery is key to Allkem-Livent Merger

History Snapshot of Allkem and Livent

Current Lithium Supply Growth Plan for Allkem-Livent

Understanding the 1st and 2nd Order Exploration Nature of North and South James Bay

Which is a better marketing spend: a bottle of two buck chuck or a quarter million dollar twinkie?

*JK owns shares in Brunswick Exploration Inc


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