Neo Lithium advancing one of the world's best lithium brine projects towards final feasibility

Best in class lithium project in Argentina Very strong strategic partner in CATL Pilot plant now producing 99.797% purity battery-grade lithium carbonate What Neo Lithium Corp does: Neo Lithium Corp (CVE:NLC) is focused on the green energy revolution and addressing the growing demand for lithium generated by the growth in the electric vehicle (EV) market and, more generally, new generation batteries. The mining company is led by experienced mining professionals from Argentina as well as from the wider international mining community, who have particular expertise in lithium brines, which are known as salars in South America. The company's flagship asset is the Tres Quebradas project in Argentina, also known as the '3Q' project, which lies in the southern end of what is known as the “lithium triangle”, covering 35,000 hectares, while the salar complex within that area is around 16,000 hectares. 3Q  is one of the top three highest-grade lithium projects in the world and is the seventh-largest brine project on the planet with significant exploration potential. The project has proven and probable reserves of 1.3 million tons of lithium carbonate (LCE) with 790 milligrams per litre of lithium and a report last year highlighted its very strong economics and 35-year mine life. In terms of resources, at the overall deposit area, using a 400 mg/l cut-off, the 3Q project has over 4 million tonnes of LCE in the higher confidence measured and indicated (M&I) category. A pre-feasibility study in 2019 showed significant cash flows and a US$1.14 billion net after-tax net present value (NPV). Pre-production capital cost was put at US$319 million and low operating costs of US$2,914 per ton of LCE. The internal rate of return (IRR) is around 50%. Pay-back period from the beginning of production is put at just 1 year and eight months. Average annual production was put at 20,000 tons of battery-grade LCE with significant potential to expand with reserves representing only 32% of the entire resource. At US$16,000 per tonne of LCE produced, 3Q is the lowest capital-intensive brine project to be developed today The project has some serious backers in the form of Chinese manufacturing giant Contemporary Amperex Technology (CATL), the largest lithium battery maker in the world. In September, 2020 CATL announced a C$8.5 million investment through the purchase of 10.2 million shares in the company, giving it an 8% stake in the lithium miner, and becoming a partner. How is it doing: On June 9, 2021, the company unveiled an updated and expanded resource for the 3Q project in Argentina, which confirmed the asset's scale, high-grade, and potential to grow. It also confirmed it continues towards finalizing the feasibility study in the third quarter this year. Significantly, the higher confidence measured and indicated (M&I) resource, at 1.682 million tonnes of lithium carbonate equivalent (LCE), has increased by 125% at the project's high-grade zone, with an 800 milligram per litre (mg/l) lithium cut-off grade compared to 2018. In the medium-grade zone, with a 400 mg/l lithium cut-off, M&I resources were lifted 33% to stand at 5.304 million tonnes. The project sits in a 28 kilometre (km) long salar that contains a high-grade resource in the northern third, roughly defined by the 800 mg/l cut off grade. The medium-grade resource lies in the southern two-thirds. The company highlighted that the high-grade resource requires smaller evaporation ponds to go into production and evaporation ponds can represent up to 50% of the capital cost of that type of project. The increased resources in the high-grade zone was due to the discovery of high-grade brine at depth and to the east and outside the previous estimate and Neo Lithium said it will continue the drilling campaign in the high-grade mineral resource next season, starting in September 2021 In May, 2021, the company reported that drilling at 3Q had intercepted a new deep brine aquifer located outside of the current 3Q resource area, approximately 250 metres east of the 3Q project lake. Well PP1-R-26 is located off-strike and contains brine from a depth of 11 metres to 362 metres, whereas previous wells had only reached a depth of 268 metres. Two other wells drilled as part of the program ran from zero to 167 metres with 1,128 milligrams per litre (mg/l) lithium and from 90 to 268 metres with 1,117 mg/l. And in January 2021, Neo Lithium had hired leading global engineering firm Worley to carry out a definitive feasibility study (DFS) on 3Q as it noted that prices for lithium had recovered over recent months. The decision to progress further on the asset was made in conjunction with its partner CATL, which will participate on all technical matters. Then, on January 19, Neo Lithium announced a further boost for the project, saying it had significantly improved the purity of the battery-grade lithium carbonate produced at the pilot plant. After closing due to the coronavirus pandemic, the plant in Fiambalá resumed operations in the fourth quarter last year and an improved processing method has led to the uplift of purity to 99.797% from 99.599%, the firm said. The company said it meant the carbonate was now meeting worldwide premium specifications and very close to electric vehicle (EV) battery giant and the company's 8% shareholder CATL high standards of product quality. What the broker says: Following the updated 3Q resource announcement, Stifel GMP repeated a 'Buy' on Neo Lithium stock and lifted its target price to C$4.10 per share (from C$3.90 previously). "The company highlighted that the higher grade resource could result in a reduction in the size of evaporation ponds required for the project, which in turn could decrease the capex requirements for the project," noted the analysts. They also highlighted that around US$74 million, or 23% of the project's capex (of US$319 million), directly related to pond construction (including first fill). The broker repeated its project net asset value (NAV) assessment for Q3 of C$4.60 per share, and increased its target price on the stock to C$4.10 per share (C$3.90 previously), which is derived by applying a 10% discount (15%) to its project NAV. Stifel said 3Q is expected to have one of the highest grade and lowest impurities of virtually all greenfield brine projects under development. The company also benefits from having a high quality, high profile partner like CATL, which is one of the world's largest EV battery manufacturers, it said. Inflection points: Completion of feasibility study  Financing talks  Further purity improvements to carbonate What the boss says: In the recent statement accompanying the details of the new resource estimate for the project in Catamarca province, Dr Waldo Perez, CEO of Neo Lithium, told investors: "These updated results confirm that 3Q Project is one of the most significant lithium brine discoveries in recent history. "We continue to add high quality resources to the 3Q Project and there is still incremental value and growth at this world-class high-grade resource." Contact the writer at giles@proactiveinvestors.com