Lilac, LKE and the greater Lithium industry, page-38

Hi @Hfox1

Hope your trip to London proves to be a rewarding one. Having read through your post, it appears to me that you have a very strong interest in LKE and, like myself, are expecting big things in the near future.

With some of your comments, I've reflected a little more on my discussion with Steve at the AGM and thought I'd also share that with you (and anyone else who is interested).

Drilling rigs:
In my opinion, LKE should have multiple drilling projects running concurrently. They have several great projects and are in different stages of exploration in each of these, however, it seems to me that they are diverting attention towards Cauchari and Olaroz instead of Kachi.

I acknowledged in my earlier post that some people consider the grades at Kachi to be relatively low, but I think this one is the most appealing of their four lithium projects. Apparently it also appeals to the Chinese, Japanese and Korean firms with whom LKE has been meeting with. I realise that drilling comes at a cost, but I reckon LKE should continue drilling at Kachi to add to their current data and expand upon the upcoming resource statement. There is such a massive upside to this project.

Cauchari and Olaroz will hopefully confirm high Li concentrations, however, looking at the relative spread of values from the neighbouring companies, I think the values will actually be a bit less than 600 mg/L at Cauchari. I'd love to read an announcement in due course with +600 mg/L but my prediction is more like 450 mg/L. This way, at least for me, I won't be caught by surprise if the values aren't as high as being suggested. Many people seem focused on seeing values at the upper limit of previous finds and, when those results don't eventuate, they are dismayed. I think that LKE is diverting some attention to Cauchari to keep investor interest piqued while they are getting their ducks lined up with the Kachi resource statement together with results of Lilac testing and capex/opex costs.

The timeline below from the AGM presentation shows that there is some really key info expected in Nov (less than 2 weeks left now!). I'm assuming that this presentation also means that this information would be released to the market in Nov. I note though, that the chart does not show further drilling at Kachi in the upcoming months - I'm reading this as being programmed to occur in Q4 2018/H1 2019 which seems quite a delay given that this project may well be the major drawcard for future offtake agreement(s).



I spoke to Steve about continuing drilling at Kachi to accelerate an expanded resource. He mentioned that drilling there was very difficult early on because of the highly permeable sand, and that the first lot of drillers really struggled. They eventually found a crew that had better skills (and maybe better rigs) and progress improved. Steve said that they have taken the same drillers across to Cauchari and they want to retain them as they know what they are doing with regard to drilling and sampling etc. If they are good drillers, then I agree - keep them working from project to project and don't let them go. Someone else might grab them and we would be back to looking for another capable crew. That being said, I think LKE should be looking for another capable crew to have working the Kachi salar continuously, particularly if the majority of the Options get exercised and cash reserves are very healthy.


The Lilac Process:
From what I've been gathering from the announcements, the AGM presentation and discussions with Steve at the AGM, I'm optimistic that the Lilac process will work well. LKE has mentioned previously that Lilac are also working with another firm (this is Anson Resources) and the day after Lake's AGM, Anson released a great ananouncement regarding the success of the Lilac ion exchange (IX) process which took a raw feed brine with Li concentration of about 100 mg/L and produced an elute with Li ranging from 10,000 to 15,000 mg/L. The Anson announcement also states that "Lilac estimated operating costs to be globally competitive".

Whilst this isn't a LKE announcement, I was pleased to see this news arrive given that LKE seems to be excited about the Lilac work.

I note that the Anson announcement didn't make any mention of the relative capital cost for the process, only the operating cost. I hope that the set up costs for a processing plant isn't rediculous. But let's not get ahead of ourselves, as we still need to know:

- what elute concentrations are produced from the Kachi brine
- is the process readily scalable (this is the real important one)

The success of the pilot plant earmarked for Q1 2019 will be crucial information.

Steve mentioned that they are considering a three-option approach. This would consist of the Lilac IX process and evaporation ponds being two parallel methods for processing in an LKE facility for in-house production, with the third option being to sell a concentrate to others. I can see this working better for Cauchari/Olaroz than for Kachi due to logistics with transporting the concentrate. It would be easier to pump a concentrate across to neighbouring producers in the same basin than it would be to take a concetrate from Kachi and then transport it to a processing facility elsewhere (given that no-one else is established in the Kachi basin).


Evaporation Ponds:
The main issue with ponds, as I see it, is the timeframe for production. If the Lilac process is highly successful and has lower opex, then it may well be worth wearing/bearing a higher capex (perhaps for a smaller plant) with the objective of getting into production and having cashflow rather than waiting about two years for ponds to bear fruit. Once we are in production, then would be good to look to increase the scale of the processing plant (I'm assuming here that these could be modular or side-by-side plants).

I'm not against ponds, but I can see huge timeline benefits with using a tech solution for a brine that has 'moderate' Li concentrations.


@Hfox1 - would really appreaciate hearing from you with some feedback about the 121 event and also your musings with fellow investors over there in London.

Kind regards, Grast