The 3Q Project

The 3Q Project is located in the southern end of the “Lithium Triangle” in the Puna Plateau. The area is characterized by high altitude salt flats, many of which contain elevated lithium concentrations.

The largest brine lithium mines and projects in the world are located in salars in the Lithium Triangle including Atacama Salar (SQM and Albermarle), Cauchari-Olaroz Salar (Orocobre and Lithium Americas Corp) and Hombre Muerto Salar (FMC and Galaxy).

3Q is one of the fastest growing lithium brine projects in the industry, moving from discovery to full development in two years. We will continue to progress the 3Q Project into advance development stage in record time.
Waldo Perez

Location

The Project is located in the southwestern portion of the Catamarca Province of Argentina, the largest Lithium producer province of Argentina.

The closest population centre to the Project is the town of Fiambalá, Argentina (population 5,000), located 100 km east of the Project.

There are no aboriginal communities or inhabitants in the Project area, which is only 25 km from the border with Chile.

Image Highway and Mountains

Infrastructure

The closest highway to the Project is Ruta Nacional 60, which connects the capital city of Catamarca (San Fernando del Valle de Catamarca) to Copiapó and the seaport of Caldera, via Paso de San Francisco. The project is connected to the highway by an all-weather 60 km dirt road.

Over $25 million has been invested in the 3Q Project by September 2018, including a 100 person year-round camp.

Despite being discovered on in December 2015 by the founders of the company, the 3Q Project is already fully equipped not only with the full camp and access road, but also with a last generation weather station operating year round, a full geochemical analytical lab on site, solar and diesel power, as well as a zero waste sewage system.

Image constructions
Image trucks and cars
Image people

Process Studies

The Company has now completed the bench scale evaporation cycle at the project site, based on local weather conditions, concentrating lithium brine by solar evaporation all the way up to 3.8% lithium. This achievement used no reagents except for minor amounts of hydrochloric acid. Sodium sulfate was not added to the brine, demonstrating that calcium chloride, sodium chloride, potassium chloride and borates precipitate naturally and without the need of additives. Of perhaps equal or more importance, calcium chloride precipitated in big crystals with each molecule of calcium chloride capturing six molecules of water, resulting in significant water extraction from the brine by crystallization rather than evaporation. While still early and with further studies required, this finding is expected to have a positive impact on the capital costs of the project by virtue of potentially significantly reducing the size of the ponds required to evaporate the brine.

These tests also indicate that the amount of costly reagents could be significantly less than previously scoped, suggesting a meaningful reduction to the operating costs, which are already at the low end of the industry. For information concerning the preliminary economic assessment of the 3Q project, including details concerning the estimated capex and opex of the project, see the Company’s technical report entitled “Preliminary Economic Assessment (PEA) 3Q Project, NI 43-101 Technical Report, Catamarca, Argentina” dated December 13, 2017, filed on SEDAR and available on the Company’s website.

These bench scale findings are critical, and the Company is now working on scaling up the process studies in an effort to replicate the results at pilot scale. The Company has already started to build two ponds, each one-half hectare in size, on the salar itself to increase brine production in order to feed the pilot plant that is expected to be delivered by the third quarter of 2018 and produce lithium carbonate before the end of the year.

Image Drilling

Drilling

The Company has completed the 2017-2018 3Q Project drilling season with a total of 4,345 metres of diamond drilling and 2,056 metres of rotary drilling, an increase of 50% in drilled metres compared to the previous season. The objective of the drilling was to upgrade and expand the previously reported resource calculation by in-fill drilling and also drilling into the deeper parts of the basin after a seismic survey indicated that there could be deep aquifers down to 600-800 metres.

Pump Well Results

The table below summarizes results for lithium, potassium and Mg/Li and Sulfate/Li impurities from pump wells created from rotary drill holes.

The drill hole PB1-R-18 tested the upper sedimentary units under the 3Q northern lake formed by sands and conglomerates. Hole PP1-R-19 was drilled outside of the salar basin in an effort to study the extension of lithium rich brine outside the salar.

Table 1: Pump Wells Drill Results

Hole From
(metres)
To Total Li
(mg/L)
K Mg/Li Sulfate/Li
PB1-R-18 0.5 100 99.5 1,407 10,562 0.09 1.97
PB2-R-15 30 60 30 863 8,060 0.23 2.03
PB1-R-15 0 30 30 816 8,289 0.40 2.05
PP2-R-15 29.6 59.2 29.6 809 7,697 0.33 1.93
PB2-R-17 6 107 101 653 6,421 0.45 1.86
PB2-R-7 50 125.6 23.1 518 5,683 0.50 7.59
PP1-R-19 60 84 24 460 3,901 0.25 2.66

Diamond Drill Results

The table below summarizes results for lithium, potassium and Mg/Li and Sulfate/Li impurities from diamond drill holes. Some of these holes were extended at depth to test the chemistry of the deeper aquifers identified in the seismic survey. Results show that the grade improves at depth. For example, PP1-D-17 runs from 18 to 587 metres at an average of 627 mg/L Lithium and from 479 to 587m at an average of 662 mg/L Lithium. This 10% increase in grade in the deeper aquifer is common in most holes. Hole PP1-D-20 was drilled outside of the salar basin to study the extension of lithium brine outside the salar.

Table 2: Diamond Drill Results

Hole From
(metres)
To Total Li
(mg/L)
K Mg/Li Sulfate/Li
PP1-D-18 28.5 84 55.5 1071 9,486 0.33 1.78
PP1-D-15 6 238.8 232.8 780 7,476 0.27 1.98
PP3-D-4 77 172.8 95.8 740 7,206 0.29 1.86
PP1-D-20 26 29 3 674 6,353 0.28 1.71
PP1-D-23 14 421.5 407.5 655 6,387 0.40 2.12
PP2-D-16 30 72 42 644 6,475 0.90 2.25
PP1-D-14 16.15 320 303.85 642 6,109 0.35 2.27
PP1-D-17 18 587 569 634 6,655 0.45 1.91
PP1-D-21 22 647.5 625.5 548 5,379 0.57 2.92
PP1-D-16 16 324.55 308.55 534 5,450 0.55 2.35
PP1-D-22 16 643 627 507 4,958 0.60 7.57
PP2-D-8 10.5 470.5 460 467 4,667 0.75 6.12

This season’s results show increased lithium and potassium grades compared to those of the previous exploration season. The average of all drill samples in the previous season was 621 mg/L Lithium and 5,692 mg/L Potassium and this season is 708 mg/L Lithium and 6,693 mg/L Potassium. The depth of the mineralization was also extended from 357m last season to 647m this season. The bottom of the basin was only reached in hole PP1-D-22 at 639m where the volcanic basement was reached, the rest of the holes remain open at depth. All holes were stopped by limitations of the rig, not by geological reasons.

Updated Maiden Resource Calculation

The updated resource estimate was developed for the 3Q Project using three-dimensional block modeling software. The modelling was supported by geology, drilling, hydrogeology, geophysics and geochemical data and interpretations provided by the QP and 3Q Project geologists.

The modeling generated a Measured, indicated and inferred resource estimate, as defined by the CIM and referenced by the National Instrument 43-101 Technical Report.

Results of the Resource Estimate are provided below with a relative cut-off grades of 400mg/L lithium.

The in-situ resource estimate encompasses the entire salars and brine lakes of the 3Q Project, an area of approximately 8,183 hectares. Lithium resource estimates are summarized in Table 1 and Potassium resource estimates are summarized in Table 2, below.

in situ Lithium Resource at 400 mg/L Lithium cut-off

Average Concentration Mass Cumulated Brine Volume
Li (mg/L) Li (tonne) Li2CO3 (tonne) (millions m³)
Measured 701 107,000 569,000 152.31
Indicated 602 646,000 3,436,000 1,072.12
Total M&I 614 753,000 4,005,000 1,224.43
Inferred 584 548,000 2,917,000 938.72
  • in situ Lithium Resource at 400 mg/L Lithium cut-off
Measured 701 107,000 569,000 152.31
Indicated 602 646,000 3,436,000 1,072.12
Total M&I 614 753,000 4,005,000 21,224.43
Inferred 584 548,000 2,917,000 938.72

in situ Potassium Resource at 400 mg/L Lithium cut-off

Average Concentration Mass Cumulated Brine Volume
K (mg/L) K (tonne) KCI (tonne) (millions m³)
Measured 6,479 987,000 1,882,000 152.31
Indicated 5,793 6,211,000 11,843,000 1,072.12
Total M&I 5,878 7,198,000 13,725,000 1,224.43
Inferred 5,650 5,304,000 10,114,000 938.72
  • in situ Lithium Resource at 400 mg/L Lithium cut-off
Measured 6,479 987,000 1,882,000 152.31
Indicated 5,793 6,211,000 11,843,000 1,072.12
Total M&I 5,878 7,198,000 13,725,000 1,224.43
Inferred 5,650 5,304,000 10,114,000 938.72

Note: The values in the above two tables are expressed as total contained metals and have been rounded to the nearest thousand.

Average density for the brine is 1.214. The low magnesium and sulfate content of the resource is consistent with the previous resource estimate released on May 23, 2017. Table 3, below, summarizes the main impurities ratios for magnesium and sulfate.

3Q Project Impurity Ratios at 400 mg/L Lithium Cut-off

Impurity Ratio Magnesium/
Lithium
Sulfate/
Lithium
Measured 2.70 0.49
Indicated 3.38 0.51
Total M&I 3.28 0.51
Inferred 4.57 0.57

Of note, at a cut off of 800 mg/L Lithium there is a high-grade zone in the northern part of the project with a measured and indicated resource estimate of 746,000 tonnes of lithium carbonate equivalent with an average grade of 1,007 mg/L Lithium and 186,000 tonnes inferred resources with an average grade of 1,240 mg/L Lithium.

Historic Preliminary Economic Assessment Highlights

The economic analysis is based upon measured, indicated, and inferred mineral resources only. Mineral resources that are not mineral reserves do not have demonstrated economic viability. The PEA is preliminary in nature and includes inferred mineral resources that are considered too geologically speculative to have the economic considerations applied to them that would enable them to be categorized as mineral reserves. There is no certainty that the 3Q Project envisioned by the PEA will be realized. The economic analysis of the PEA is based, among others, on the following main assumptions: a) 100% equity financing; b) construction commencing in 2019; c) production ramp up of three years from 2021 to 2023; and d) all capital costs, operating costs and revenues in the economic model are calculated on a constant U.S. dollar basis.

Preliminary Economic Assessment

After-Tax Net Present Value (“NPV”) @ 8% Discount Rate US$1,200 million
After-Tax Internal Rate of Return (“IRR”) 27.9%
Capital Expenditures US$490.2 million
Cash Operating Costs (per tonne of lithium carbonate) US$2.791
Average Annual Production (lithium carbonate) 35,000
Mine Life 20 years
Payback Period (from commencement of production) 1 year, 8 months

Capital Costs

Description US$ Million
Direct Costs
Evaporation Ponds and Wells $178.4
Plant Facilities and Equipment $62.8
Infrastructure and Others $80.2
Direct Costs Subtotal $321.4
Indirect Costs $88.5
Contingency $80.3
Total Initial Capital Costs $490.2

Operating Costs

Description US$000/yr US$/tonne Li2CO3
(lithium carbonate)
Direct Costs
Chemical Reactives and Reagents $53,934 $1,541
Salt Removal and Transport $23,620 $675
Energy $10,820 $309
Manpower $4,713 $135
Catering and Camp Services $1,659 $47
Maintenance $1,570 $45
Direct Costs Subtotal $96,317 $2,752
Indirect Costs
General and Administration $1,359 $39
Indirect Costs Subtotal $1,359 $39
Production Total Costs $97,677 $2,791

Neo Lithium has reviewed a number of publicly available lithium price forecasts and there are some variations between each source. For the purposes of the PEA, Neo Lithium used the average pricing assumptions as per below:

Lithium Markets and Price

US$/tonne
Year 2021 2022 2023 2024 2025 and Long term
1 2 3 4 5
Lithium carbonate 10,869 11,026 11,273 11,601 11,834

Average lithium carbonate pricing estimate over the life of mine is approximately $11,760 per tonne.

Base Case Sensitivity Analysis

Discount Rate NPV After Tax US$ Million IRR After Tax NPV Pre Tax US$ Million IRR Pre Tax
6% $1,545 27.9% $2,400 33.7%
8% $1,200 27.9% $1,889 33.7%
10% $933 27.9% $1,495 33.7%

Information about the potential economic viability of the 3Q Project is based on a preliminary economic assessment (“PEA”) described in the Technical Report, and a mineral resource estimate with an effective date of May 23, 2017. The Company has reported an increase in its estimates of mineral resources in a news release dated July 19, 2018 and expects to file an updated technical report with respect to the 3Q Project within 45 days of that date. The Company has not yet completed an economic study of the 3Q Project taking the larger mineral resource estimate into account. While the Company does not expect mineral extraction methods to change as a result of the increased mineral resource estimates, and therefore considers the PEA relevant as a preliminary indication of the potential economic feasibility of the 3Q Project, as a result of the increase in the larger mineral resource estimate and developments in the lithium market from the effective date of the Technical Report to the date hereof, certain economic and other parameters that apply to the PEA may no longer be current. Therefore the Company is, and investors should, treat the PEA only as a relevant preliminary indicator of the economic potential of, and not a current economic assessment of, the 3Q Project, subject to the assumptions and parameters of the PEA.

Qualified Person

The mineral resource estimation was prepared by Geo. Marisa Franciosi using Geosoft Target 9.1 for Arc GIS under the supervision of Dr. Mark King, Ph.D, P.Geo. of Groundwater Insight. Inc, a Qualified Person as defined in NI 43-101.

Randy Pitts, Mining Engineer, Qualified Professional Member (QP) of Mining Metallurgical Society of America (MMSA) is an independent qualified person and has reviewed and approved the disclosure regarding the 3Q Project on PEA.