E3 Lithium Limited (ETL.V) Earnings Call Transcript & Summary

Okay. Great. We are live, everyone. So hello again. Welcome to yet another Red Cloud webinar. My name is Koby Kushner, and I'm a mining analyst here at Red Cloud. Today, we are going to be talking about lithium with none other than Chris Doornbos, the President and CEO and Founder of E3 Lithium. Now usually, I'll provide an intro about the company we're hosting, but this webinar has a record number of registrants. So first off, congrats everyone online for being part of it. So I am expecting lots of questions at the end. Reminder, you can type your questions into the chat box at any time. Instead of giving a long intro here, I'm going to be especially brief, give you my personal view on the market and how it relates to direct lithium extraction or DLE. So the bottom line is that we need more lithium. The supply deficit ahead of us is expected to continue to balloon. Reserves are expected to run out by the mid-30s and discoveries are not happening as quick as we need them to. If there is one hope for us, in my view, it's DLE and its ability to unlock large sources of lithium brine resources from unconventional sources. So during today's webinar, Chris will provide us with an overview and an outlook. And when he's on the presentation, we'll move on to the Q&A session. As always, though, we do have to run through the fine print. I'll try and say this quickly. During this webinar, forward-looking statements may be made. I would direct listeners to the forward-looking statements outlined in the company's corporate deck, which we will see momentarily. For Red Cloud Securities, Inc., I would highlight that this webinar is for information purposes only. It should not be considered a solicitation or a recommendation to buy or sell securities. We note that this call does not consider the particular situation or needs of individual investors. Participants should rely on their own investigation and seek their own professional advice before investing. Please see our most recent research located on redcloudresearch.com for specific disclosures on E3 Lithium. And with that, Chris, I will now turn it over to you.

Excellent. Thank you very much, and thanks for having me on the platform today, Koby. We'll go through the presentation today. I don't have a ton of slides. I think most people on the call are familiar with the story. I do want to leave a good amount of time for the Q&A, but some very exciting news to talk about today and a very big year in the past the last -- in 2022. So a big welcome to the audience. We're over 200 people on the call already. There's a broad group of people that have signed up from investors to local stakeholders, government as well as industry. So very excited to have everybody on this call and get this update from E3 today. And look, where E3 is going over the next 12 months, I think, is a fundamental step change for the company as we grow and derisk the project that we have in front of us. As Koby mentioned, some forward-looking statements. I definitely have a read of these. They'll be here. They also are on our website and all of our slide decks there as well. So really quick on the vision. I mean we're really trying to solidify this. We've put this pretty lofty to be a global leader in response to the source lithium. And I think that, that the way that we have this deposit set up and the size scale that we can grow to. This is a true statement. This is where we believe we can grow the company, too. And I'm going to talk a little bit about this in the presentation today. But we do aim to be a global lithium producer at some point in the future as we grow this project. So maybe a look at a step back. So for those of you who aren't familiar with E3, new people on the call, E3 is a lithium development company that was founded in 2016, went public in 2017 and had been developing this lithium asset, which is the Leduc Aquifer. It was discovered by Imperial Oil in 1947 as an oil producer. Even at the time of discovery, it only had about 1% lithium in it. And that act for basically Imperial stepped out of it in the '90s, and we're repurposing it and turning it into a lithium asset. So it's a very well-understood producing aquifer in the province. It is massive. Our portion of it that we hold stands between the biggest 2 cities in Alberta, Calgary and Edmonton. The first project site and the first well that we drilled is about a 45-minute drive north of Calgary and about a 25-minute drive Southeast to Red Deer. Red Deer is the -- one of the bigger cities, the third biggest city in Alberta, and host a lot of the service industries that we will need to use to build this project. So very excited about the situation of this. I think it has, where it's situated, has such a big important factor for any project on how you develop it. So up until 2022, the company has focused the majority of its effort on developing a technology. We've become experts at understanding how to get lithium out of brines, using direct extraction methodologies. And so the end of 2021, really solidify that. And when we started 2022, we had a prototype running of a commercializable process or direct extraction. So the other thing that happened in 2021 were a couple of big fundraising campaigns that ended in February and -- of 2021. And the company really started to change then because we started to bring staff on. And through 2021 and carried into 2022, the company has been actively staffing up. We are now close to 30 people. And those 30 people are required to develop a project of this size. And we are in the prefeasibility stage. And so the past couple of years, we've been hiring technical, mostly technical people, all hired 100% of our staff from Alberta's workforce. The majority of them technical, either engineers, chemists, project managers, people who are going to be here through the next 3 to 4 years as we commercialize the first plan. So leading us into 2022, we had that prototype operating, and we've been perfecting it since. We've been demonstrating at higher and higher flow rates using closer to commercial-type operations, the ion exchange technology and scaling it towards a commercial operation. So that has been the majority of our technical focus. The other side of this is that we also have to find a process to make lithium hydroxide better grade. And to do that, you need -- to do the design work, you actually need the element, the concentrate that we produce to do that work in design details. So that's been another focus of 2022. And we also produced sorbent at a scale that we can mimic in a commercial development, so using commercial-size equipment. And that's been really important for us as well because we also produce it on site. Into the financing side, the company did $30 million worth of raising up to the point of February 2021. We've also been accumulating capital from the warrant exercises, which now all end February 8, and I'll talk about that in a later slide. We've received a grant from Alberta Innovates for $1.8 million and a big news about the $27 million investment from the government of Canada. We'll talk about that as well a bit later on. And we're still pursuing additional financing opportunities for grants. There are quite a few out there. As you probably heard, the U.S. federal government and the Canadian federal government very actively pursuing the battery ecosystem and funding it accordingly. I think one of the biggest news from our 2022 year was the drilling program. So we drove 3 first-of-their-kind lithium wells. They actually aren't that first to the kind because they're just an oil and gas production well that we drilled to do the development work for the lithium. So first well drilled for lithium in the province was drilled by us in July. But the drill rig and the equipment and what we did was actually a very stock standard oil and gas well that we drilled. But targeting our portion of our resource that we plan to produce from -- in the first commercial plant, so very important for that upgrade. So the first phase of that saw us increase our resources from 7 million tonnes to now one of the more globally significant resources of 24 million tonnes, and that will hopefully lead into a measured in upgrade that we hope to have out in Q1 of this year. The other side of this is that we signed a fairly significant agreement with Imperial, brought in capital, they're 5% shareholder through work that they hold. But they also then did land into an option for E3 securing a very strong foothold in our Clearwater project area. And they've also been very supportive on the reservoir development activities. Keep in mind that Imperial discovered this aquifer. And until the '90s, they own and operated for oil production. And they sold it off because it dropped below their economic threshold. They are treasure trove of data and understanding of how to produce from this aquifer. So that has been a huge advantage to E3 as we've been developing. And as I mentioned, we've also been expanding our team. We're now close to 30 people on staff. A little bit on this governament grant. So this was applied for back in the beginning part of 2021. We put a formal application in, in August of 2021. And the due diligence that was done by SIF through the -- I said and the strategic innovation fund outlined that they were very serious about understanding this project and understanding how it would create value for Canada and for Alberta. And the end investment was a $27 million investment in the project, and it's a payback at 34% of our project cost. So everything that we spend on the project which is the majority of the costs that we spend here at E3, our payback 34% through this grant. And the announcement talked about an $87 million project. Basically, what that was is all of the costs that we think will have between August 2021 and building a commercial plant at the start of that. So that was where that number came from, and then 34% of that, $27 million. So that support, we announced that with Minister Champagne when we are on a trade mission in South Korea. We are on a subsequent trade mission to Japan with Minister Wilkinson. And what that really is showing is that the Canadian federal government is adamant about developing this industry. And a lot of part of it is creating jobs, diversifying the economy. The best part about this is that we operate our project just like an oil and gas company operates. And that means that we're able to utilize the workforce here to create this industry. And I think it's a very exciting opportunity for Alberta across the province. And there are other companies that are developing as well, and they're probably on the call listening to this. And we are leading the charge, but we are very excited to have more and more companies join the race to develop an industry here in Western Canada. And I believe that Western Canada will be a world-leading jurisdiction for lithium production in the future and probably not that far away. Some results from our drill program. These are obviously very exciting for us because they demonstrate in an area where we had data that was old, they were able to go back and get refractory use that was compliant. What it really demonstrates is 2 things. One, the aquifer is laterally continuous. So the chemistry of the brine really does not change from one part or the other. And this is 59 cubic kilometers of brine. It is a huge amount of water in the aquifer and it all is consistent. And that makes sense because it's been in this aquifer for about 400 million years. It's had time to basically average out. But demonstrating that with these drill holes is fundamental because when you look at it from an operational perspective, a challenge for plants that operate like this is inconsistent feedstock into them. But we can design this with very tight tolerances because the brine really does not change in chemistry, both in lithium and all the other things across the aquifer, and that's what these holes demonstrated. We also tested vertically through the profile, especially in the first of all, that was the focus of the well is to really understand if there was a vertical profile in this area, and we found that there wasn't. We did less samples than the other wells because we had that information. And so -- but we're able to demonstrate across this whole Clearwater triangle that this aquifer is very consistent. And that Clearwater trial really doesn't exist anymore. It was an arbitrary from the first resource, but it's outlined in our PEA, so we keep using it. But the resource in that area is now significantly larger. It's over 10 million tonnes of resource in just that section, which, as you can see from the map is now continues for the south and a little bit to the north before we move into the extra area, which is the north of what we call the neck here in the center. And I'll just edit that. So that's right here. So that's what we call the neck. Below that, we consider Clearwater. Above that, we consider extra. And again, the Clearwater is roughly about 10 million tonnes, just that one area alone. Looking at the resource in a bit more detail, as I mentioned, 59 cubic kilometers of resource underfoot here in Alberta. What that really means, just to put it in perspective is that this is a resource -- resources and reserves are not equal. But from a comparison basis, just in terms of total lithium in the ground, the next biggest jurisdiction for lithium is Bolivia at 20 million tonnes. Alberta today under 43-101 compliant resource is 48 million tonnes. So E3 obviously holds half of that. Alberta really truly represents a jurisdiction that is going to be a major contributor to the supply shortage that Koby was referring to in the beginning of this presentation. And E3 is leading the charge. We are the most advanced in terms of our development. We understand the stock for. We're going to have an M&I upgrade come out hopefully in Q1, and we'll get that to the market. And that's a big shift because it really increases the confidence of the aquifer. And it's based on the work that we've been doing over the past 3 years that really culminated last year with the drilling of these 3 holes to get that understanding. We did a production test as well. So we produced brine from the aquifer at a rate that was -- enables us to see how the aquifer responded as water was drawn out, and then we pump that water back down, and we see how the aquifer responds when water back in. And that gives us the data we need to design the detailed production network that goes into the reserve side of things. So when you go from a resource, measured indicated to reserve, proven probable, what you're really doing is you're outlining how much you can actually extract from the resource that you have. And that understanding was gained through the development of these wells. And it's fundamental because we have 200 meters of section, if you look at these previous drill results pretty consistently about 200 meters of Leduc aquifer under which is absolutely massive. And the 59 cubic kilometers comes from the fact that this pretty much spans for the Albertans in the room from Airdrie to Camrose. And that's most of the way from target, in just the Bashaw district alone, and then we have this other area over here, which is what we call the Rocky area, which extends from Rocky Mountain House all the way up to Edmonton. And the original Leduc discovery was actually up here south of Edmonton in a town called Leduc, where they actually discovered the whole carbonate complex, including the [ Neste ] in that drill hole. But the first real true oil discovery was in this aquifer. But what that really means is that there are 70 years of production history from the aquifer, and that gives us the confidence that we need to be able to understand. And we had this conference from the very beginning of the formation of this company, which is that we knew how this aquifer was going to be produced. So able to bring that confidence to bear as we develop it. Now we're going to outline that confidence this year through M&I and then through booking that reserve as we work through the pre-feasibility study. So I think a really important part of where we're going is setting clear goals. Ultimately, E3's plan. And one of the philosophies that we have at the company is getting to first production as soon as we possibly can. And what that means is basically fast track as quickly as we possibly can to revenue, to create real value for this company. And if you look at the supply-demand fundamentals, and you look at where the real supply crunch is coming. Most of the commitments that were made a couple of years ago to electrify either fleets or build battery factories, they come online 2025 to 2027. And that time frame, including some Canadian production, where Ford is going to be building 5 EVs in Canada, that's supposed to be online in 2025. So that means that the demand for lithium corresponding with that really does come in to bear in that time frame. And so for us, our goal right now is to be able to capture that value, and to get a commercial operation in line, and we think we can do it sometime in 2026. So looking at how we take that big goal and we turn it into what we're going to do this year, obviously, some pretty fundamental things need to happen to progress the project. So we've outlined already that we've awarded the design to an engineering firm who works in the oil and gas industry called [ Coban. ] We've been working with Coban for years. They helped us with the PA as well. They have a deep understanding of engineering design in these types of systems at this scale in Alberta. So very excited to be working with them. We're also planning to get out the M&I grade, as I mentioned. And also in Q1, we're going to be putting out a fulsome corporate update. And what that really is, is that, it's meant to give the audience, which is everybody on this call from investors to industry, to municipalities and stakeholders sort of how E3 sees the world today. And that thesis is going to focus around how do we get revenue as soon as we possibly can. And we're going to talk about the ways in which we're going to do that and how we can make this project move faster. And really what it is, is about finding the lowest risk, most commercially viable solutions for all of our questions that are out there today and using those to develop forward. So that's the system we're going to talk more fulsomely about that here in Q1. As we move into Q2, we're going to be finishing the design of the pilot, and we expect to receive our license for the pilot as well. Basically, we took the first well that we drilled and we've converted the license in Alberta from a drill hole to the ability to operate this pilot, and we expect to see that sometime early Q2, and we'll now set when we get it. And that will, hopefully, at the same time, we'll be finished the detailed design, and we'll be starting construction of the pilot. The pilot breaks into 2 pieces, and I'll talk to you about that in a second. And that will all come out in detail as well. The other big thing that we're going to put out in Q2 is the KPIs. So we mentioned in the announcement that there are 2 -- basically brace into 2 pieces. So we have the upstream, which is where I guess the water treatment. So in the PA, we outlined that there's 3 process things that we need to do, we need to develop our production network, we need to bring the brine into surface and then put it back into the aquifer. And we need to treat that brine to make it a viable for use in an ion exchange system. So that is the -- that is what we call the production network and pretreatment. And then we have the DLE, which extracts the lithium from that brine. And then we have the third step, which is the processing of that into a lithium product. So what the pilot is going to do is the first 2 steps. This is the production of brine, the pretreatment and the direct extraction processing. And in Q2, we're going to outline -- we'd also talked about the fact that we might be testing multiple systems. And the rationale for that is simply that we have a couple of actions in front of us, we have one that we like the best that we think is probably the commercial first plant, that we're going to build. And we're going to -- that's one we will pilot first. And we likely will also do some testing on some other systems as well that we think could have better performance but are less advanced, and we're looking at those as well. And in Q2, we're going to put out the key KPIs. So the key performance indicators. What we expect to see as a result from those systems and those results are tied to what we need to see for a commercial plant. So if we get those results that were outlined, then we should be able to turn that into a commercial process. And so we all know in Q2 so that you can watch for them as we commission the plant in Q3 and then produce the results from that plant. We expect the plan to operate for 2 to 3 months before we'll have results because really a pilot is a pilot. It's meant to test. So you're testing all of these different levers that you have at your disposal to increase the performance. So you test those for a while. Once you get a system that you really like, you operate that for quite some time to see it actually operate in a continuous environment, day and night, seeing that you're being able to mimic that. And that's really what we need to actually build a commercial plant is that testing. So that happens. And when that's done, we'll then outline the results to the market based on the KPIs that we put out prior to the pilot starting. And that really does match, then we have a commercial system, and we can go towards commercial design. And that's a fundamental step change for E3. Through all of this work, we also produce a concentrate. So the third piece of our process won't be piloted, and that is the lithium hydroxide production. We have opportunities to test that at facilities for companies that have these types of systems operating when they're doing their design. So we will be sending the concentrate that we produce to those companies to do that test work so they can design us the commercial system. And the result of that will be that they will be producing a better grade lithium product through the back end in that. So -- and then after we finish Phase 1, we're going to move into Phase 2 of the pilot, which is testing other systems. And then into 2024, we're also going to continually -- likely continue operating the pilot as needed to test various different parameters for the design as well as just simply to produce concentrate to make the lithium hydroxide as we test that design. And all of this leads up into the feasibility. But by the end of this year, we'll have the pre-fees out. And I think that's a really big marker because that books the first Western Canadian reserve for the market. So very excited to have that out. It also -- it's for the confidence in a project that is one big step to -- because you have now costs outlined at a plus minus 25%. You've done a lot of testing to develop the flow sheet that you know you can then make the products that the product is at battery grade that, that can be sellable for the price that you're expecting to get in. So a lot of confidence gets outlined in that pre-feasibility study. So that's 2023. And then we move into 2024, if all of that is successful, we can step right into feasibility. And that starts the permitting process that we go through. That starts the detailed ending design of the pilot -- sorry, the main facility as we pilot as well. And then it leads us to that -- the end goal of project financing to be able to afford to construct this plant, which, if everything goes well there, we're talking construction in 2025. So for the field pilot, again, a high-level overview in the previous slide, more detail here. So the premier -- or the premier engineering design was done. We selected the location. We submitted the permitting for that location. We've selected Scovan bidding process to do the design and commission design and commissioning. And then that will lead to, obviously, the construction side of things. We have the funding in place. So we talked about in the news announcement between $4 million and $6 million. The estimate that we have from the engineering design was $5 million but we put some error bars on it because through the detailed design, we'll refine that cost. We expect the cost to come down, but there are a couple of things that we haven't quite got final cost on, and we just want to be a bit conservative between the $4 million and $6 million. Keep in mind that, that's the construction cost, and then we'll have to operate the pilot as -- into 2020 -- Q3 of 2023. So there will be the operation costs as well, which are on top of that. But the company has all of the capital to complete the design and operations of the pie -- as well as the pre-fees and all of the design work we're doing back on the hydroxide production flow sheet in the bank through either the cash we have on hand or through the grant funding that we plan to get back. And one of the things about SIF is that, as I mentioned, it was granted -- we applied for it in August 2021. And although granted in 2022, we can go back and retroactively claim 34% of all the project costs from August 2021, which we expect, including all the drilling we did, which we expect to be about a $3 million to $4 million claim that we should get here also in Q1. We're expecting to see that it will be our first claim through the SIF program. So it really will outline the process for us and how we get -- we do this whole claims with SIF, but that also contributes to our bank balance. We have Alberta Innovates is also funding the pilot through the $1.8 million. They've given us 2 of the 3 tranches for that, and we expect the third one, once we get the pilot out the door. So the pilot costs would be covered about 45% of the podcosts covered through either Alberta Innovates or SIF for the construction and then the operation is covered 34% through SIF. So obviously, that helps, continue us in our cash burn as we go through into the end of 2023, so we expect to have enough cash to get us well into the first part of 2024. And so right now, we're just working very hard, taking off these what we believe to be very big value creation milestones for the company as we go through. So looking at that perspective of creating value, you look at our market cap today, about CAD 140 million. You look at our peers, they're sitting somewhere between $700 million and $1 billion, most closer to the $1 billion. When you look at the metrics of the value of the projects versus the production amount that really -- that ratio is pretty much the same. We have one of the bigger resources as well. When you look at why these companies have the value differential it's a factor of time, it's what they've accomplished. So things like the pilot plant, things like commercial contracts, things like the prefeasibility study. And those things create value because they derisk the project. They get you closer to commercial operations. And in that light, we expect E3 also go through similar value trading exercises. And we expect that to happen incrementally. It never happens overnight. You never have one day where you create all of their value. It accretes over time as you continue to step forward. And we've seen that. And I think that with our peers, we've seen that with ourselves. I mean, we were trading -- until the PA was announced, we're trading $0.40 to $0.60. That's where we sat for years. Now we've been in the past couple of years at the $2 to $3 range. And I think that we're going to see another step change here as we get this value -- as we get these parts of our project derisked. We're adamantly working and actively talking to industry partners in terms of the offtake side of things. And I think that's another big corporate level thing that the company can do to also derisk finding customers. And that generally happens around the pre-feasibility study time frame with these companies. And E3 has definitely seen significant interest in our project. We've got a very strong ESG, a foundation to stand on as a direct extraction project, having a very small footprint, having no freshwater interaction because of we're a closed-loop system. We don't have an open pit or evaporation pond. And that's very attractive. And then you look at the jurisdiction that we're in being Western Canada relative to where the things produced today and then you look at the global jurisdiction, which is -- there's a big deglobalization effort largely led by the U.S. and the EU and Canada, obviously, follow suit in that as well. And domestic supply of lithium today is 4,000 tonnes. And you look at what it's needed by 2029, the goal is 0.5 million tonnes. So if you're trying to get that supply locally in the IRA, specifically targeting free trade "domestic supplies" and E3 in Canada is one of those. There's a lot of supply that has to be brought onto the market to just support North America, let alone global. And the growth is much bigger in North America than it is in other places. So we have an answer to that. We've got 20,000 tonnes of what we believe, plus or minus. Our first phase of the plant we operate at, but we will scale that first plant and then we can build multiple plants. And we believe that we can scale our operations to 200,000 to 300,000 tonnes over time. And that's really when you look at our resource base, and I talk about that metric. You look at the amount of brine that we hold and you look at the scale of this and the size of resource. We can -- we have the opportunity to become a global player in the lithium industry. We can produce more than the current largest operation today, which is more or less about 125,000 tonnes. We believe we have enough brine, and we can produce enough of that brine to get somewhere between 200,000 and 300,000 tonnes out of the ground, and that can operate, we think, between 40 and 50 years. So absolutely massive opportunity here to develop. So I'll go back now and wrap this up. I just wanted to talk quickly about the cap structure. One of the big things that's happening in a week from now, February 8, we have all of our warrants that are currently outstanding expire. And I think that's a really important milestone for E3 because we'll no longer have any overhang. We have the Imperial warrants that are prepaid and already given us some money for those warrants. So you can effectively consider them part of the cap structure because they are already paid for, so there's no exercising and then selling. They've already advanced the capital for them unlike warrants that are out there that can create a bit of a hurdle for the stock to get over because when people exercise generally, they sell at least a portion of them. So that creates a bit of selling. And that's selling overhang [indiscernible]. And so we're very excited about that. It will be the first time pretty much since we've been public that we haven't had a more overhang. So that's been very good for us, tidy that up on the cap structure side of things. I think the market responded very well to news today. I think the market has been waiting for this type of news and we continue to see this progress as we go. But we are still very tightly held, 63 million shares outstanding today with a market capital of $140 million. So we still got a strong capital working balance right now, $16 million of working capital that we can deploy, plus the SIF contributions that will come in through 2023 as we spend money on this project as well as Alberta Amvest capital. So still very well funded as we go into the next 12 months. So when you look at our ability to keep this company running and the requirement for us to raise capital, obviously, there will be a capital raise at some point in the future, but certainly after some of these key milestones are accomplished and we move into the more engineering side of things into 2024. So that wraps it up, Koby. It looks like we've got a ton of questions, so maybe we can start jumping into those.

Yes. Yes, for sure. So first off, thanks for the informative the presentation again, Chris. And as you mentioned, we'll start the Q&A. Again, feel free to ask questions as we go through this Q&A part. Comment box is always open. Yes, lots of questions. I've tried combining some of them. So apologies if there's some repetition here, Chris. But to kick us off, someone wants to know the difference between a PEA and a PFS. As well, can you touch on any changes with your anticipated development plan between these studies?

Yes. So PEA is a preliminary economic assessment. So it's a very important study for a company -- a resource company to do because it's the first real look under the hood what your economics of the project can be, but it's all desktop studies. It requires very little actual design and test work. The one key piece that you need to do is you need to be able to demonstrate recovery. And so for companies like us, that's the direct extraction. So you have to have at least some testing can be lab-based testing, but you need some testing at that scale to get a project through the PEA scale -- level. When you move to prefeasibility study, it's a true engineering design of the facility. So it's not a desktop study. It's an actual engineering design, and it requires a much more detailed test work. So not only do you need to produce the -- a lab DLE demonstration, which is what you need for the PEA, you need to have scale of that. You need to demonstrate that it can operate at bigger volumes. And then you needed to take that product and you need to have -- you run through the process of designing a downstream process because the value that you create is producing, if you want to capture the battery market, the value is producing a battery-grade product. So you need that 99.5% pure or better. So you need to be able to demonstrate that you have a viable technology that can take your concentrate from the directed traction, and you can put it through that and create a product. And then you need design the plan. And you need to do a lot more work on the reservoir as well because you have to understand how it can produce. So your understanding of the reservoir has to be much higher. And I think that's actually probably one of the fundamental differences between a PEA and a PFS, that a PEA can be done on inferred resources and a prefeasibility study requires measured and indicated. And so it is a requirement for us and other companies that go to that level to do the network, and that's why we're getting this out. It's part of the next step to the prefeasibility because when you do a prefeasibility study, you book a reserve. So you go from resources to reserve, and that happens because you have a higher confidence reservoir, which is M&I, is what that culminates in. And then the design of the plant is obviously much more detailed and the costing down to plus/minus 25% where PEA costing can be as high as plus minus 50%.

Right. Very well said. So we have some questions on the IP. Is your technology patented? Or is it patent pending? Do you have CAs in place with all your contractors? As well, maybe can you touch on the licensing opportunities for your technology?

Sure. So in terms of the patents, there are 2 patents that are published. You can -- they're under the previous company E3 Metals. You can type into Google, E2 Metals patents, 2 will pop up. We do continually patent more pieces of this. And so there are other patents out there that are not public, and we continue a patent strategy or, I should say, an IP protection strategy. Some of that is pending. Some of that is trade secret. So it's stuff you don't find in patents. And that intellectual property protection strategy is something that tech development companies deploy, and we have one as well, very important to making sure we protect what we have. We don't do anything with anyone unless they're under nondisclosure. So 100% we protect our -- everything we do with nondisclosures or CAs. So that is definitely a company policy. And what was the third question, Koby?

If you could touch on the licensing opportunities.

Yes. So I think that as we get through this next pilot stage, E3 is going to have the confidence to start vending out. We've talked about this for quite a while. One of the things we took a step back on, the side of things is that we realized that working with these other companies, and we have been talking to quite a few, it was starting to really distract us from our goal. And to the point where we either need to staff that or we needed to put it down. And we decided that the best course of action for E3 was to put it down. So we put it down. But moving forward, as the technology gets over the line here with the pilot and as it starts being designed commercially, we have all of that equipment that becomes free to use in terms of its availability, and then we can start testing other brine. So we still look at this as enabling the local and potentially globally direct extraction industry by providing by being one of the technology providers. But now when you look across the industry, there are more options available than there ever were for direct extraction. People have been hard at work, including E3, but other companies as well is commercializing this technology. And it is likely that within the next year, you're going to see the first commercially scaled version of a DLE system operating. And I think that is incredibly important because what it does is it derisks for the whole industry. Direct extraction 3 years ago, 4 years ago when we were really trying to push this story and get the technology developed, but we didn't have something that was quite commercially yet. That was the biggest thing that we got derisked or sort of devaluing on is the DLE and to the point where people didn't even believe direct attraction is going to be saying, and they would sort of frost on it. But now that is gone. These companies -- the technology companies have clearly demonstrated that these are viable that in the next year, as I mentioned, we'll demonstrate that they are commercial. And for the industry at large, I think that's a fundamental change and enables companies like us to be able to talk and point to a plan to say there you go, that's operating, or is going to look similar to that. And so I think that whole industry, that whole question is going to disappear. And I think bigger to that, I think in 10 years from now, most new lithium being brought in the market will be from direct extraction. When you look at the ESG criteria that you required to meet, when you look at the cost of these things and the cost is going to only come down as companies like us build these plants, and we make them more efficient, even us, we see the cost of our first plant being higher than the second plant just because we know that we'll be able to bring efficiencies down as we grow. You're going to -- I think you're going to see DLE as the winner for production because you can bring them on fast, they'll probably have the lower end of the cost profile, and they'll enable the market to keep up in terms of the demand for the batteries themselves. So that's my prediction for the 2030 will be a DLE -- new lithium will be DLE.

Yes. I think you really answered a bunch of questions there. So thanks for that. Yes, I agree. It seems that at least by my thought there's more lithium technology companies and there are actual resource development companies. So...

And that's important, right? Because not all are going to win, right? But you don't need all to win. You just need a couple of really solid technology options with a good group of people behind them that know how to commercialize. And then companies like incumbents in the space can look around and they can test and they can pick the one they like and then they can go forward. And when you look at the value, like we've been developing technology, and a lot of people attribute the value of E3 to the tech, but it's an enabler. The value is the 24 million tonnes of resource we have at our disposal. And the technology, if we can unlock that economically, which we demonstrated at the PEA level and soon to demonstrate at the plus minus 25% level, I think you're going to start to see that like that value shift back to the resource is going to -- for a company like us, like long-term value is going to be created with that. we will catch up to our -- the value of the producers at some point. And that's not a 2024 thing. That's 2026 to 2028 thing. But we will catch up to that value because we will start to produce more and more lithium. And we'll be doing at a very strong price environment, which will enable us to scale rapidly because we'll be able to pay off our -- the leveraged financing that we'll have to get on this project and go on to design and build the second and then the third and so on.

So an interesting question regarding your tech, someone wants to know about do you recycle the sorbents or once they're used after x number of hours, do you have to toss them? What's the life cycle like of your sorbent material?

Yes. There are sort of 2 ways to do it. I mean, generally, they wear out. And you can capture that wear out through recycle stream, downstream, so you can pull some of the components out. And then the real wearing out, eventually, they just -- they get -- they break down over long periods of time. And all I exchange materials, whether they're resins or sorbents, they all break down over a long enough period of time. And at that point, once they've broken down, generally, you're capturing that because they break down small enough that they start to come through and then you actually -- you have a process downstream to collect those. So you sort of constantly clean that up. But they reach a certain point where they just stop working. And that point, you just clean up the tank and you put a new set in. But that material still has all of the elements you need in them. So you would basically grind them back up and remake the material through a process. And that's one of the things that -- one of the reasons why we want to have the production of the material on site for our material is that it makes that significantly less expensive because we can sort of be collecting and keeping that material, and we need to remake it. We can remake it without having to go and buy a lot of those reagents, again, most of them will have on hand and that will just be a continual process as we get into operations. We won't have one of those plants that every plant will just have one, and that will be as we scale, it will feed everything but it is an important piece of this. When you look at this we have a bit of foresight in front of us. We understand all these things so we can engineer the plant to be very efficient in these types of aspects where we can reuse as much of the material. And it's the same philosophy that comes with like what else can we make, right? Like we have magnesium, and we're looking at the ability to make a magnesium product, that's not something we focus on. And probably something E3 will develop ourselves, but it's a way that we can partner with other companies to reduce the overall operating cost by capturing other value because we've already paid for the brine to get the surface. We might sell capture the value. It's not a focus for E3 because the lithium is obviously the most valuable thing by several orders of magnitude, but it will help in the long term. Even heat, we can scavage the heat out of these brines. And there's a lot of heat that we can scavage. And we can use that heat locally. We can -- we can provide it to a local community for nearby, for district heating, we can use it for greenhouse. We can grow plants with it 24/7, 365. So there's lots of applications that create value from the heat as well. So all of these things we'll be able to look at, again, first plant, and then we'll talk about this in our corporate update. The first plant is going to be just the lithium. Let's just get lithium off and start making revenue. We can build those types of added benefits once we get the first time running.

Okay. So touching on the resource now I mean our 24.3 million tonnes is the largest resource I've seen by 43-101 standards, but also by non-43-101 standards, honestly. So how many wells were sampled to delineate this resource?

Over a 100.

Okay.

I don't have the exact number, but it's certainly well over 100, including the 3 that we drilled. From the oil and gas operations, there were a bunch of available like producing assets that have very what we call high water cut. So the majority of the fluid coming out of these wells is water, but there's a little bit of oil and they're using what we call the industry separate or 3-phase separator and separating the gas oil from the water, and then they put the water back down. So we can sample that water, and we can analyze it. So we've been doing that since 2017. So we have a very robust data set, and we sampled a lot of these wells 2, 3, 4 times, 5 times. And so we are able to demonstrate also over time that the listing concentration doesn't change. And that time factor is a big important thing for the M&I grade because not only does it demonstrate consistency. But as you pump longer and longer, those molecules, lithium will come from further and further away, so you can use time as a proxy in liquid resources like brines as a proxy to distance from the well. And so you actually gain confidence just by sampling over time. So that's been important. But yes, we've got 6 years of testing data at our disposal for this. So the confidence is very high from that perspective.

Right. And you touched on it a bit there with the hydrocarbons and sour gas. Now is that something you'll have to deal with prior to running your brines through your DLE circuit? And maybe what's the general process like?

Sure. So looking at it, we don't have oil where we're producing from, and we definitely confirm that with these drill holes. But there is some gas. It's not a lot of volume of gas, but there is gas. So when we take the brine out, we decompress it, right? Because it's under pressure. And as you bring it to certain -- the pressure is released. So what you do is you put in something called a 2-phased separator. And the 2 phases are gas and liquid. And so because of oil, you don't need the third phase, which is separate oil from water, so you just -- you put it though and this is a standard oilfield equipment that is almost at every single oil well or somewhere along that processing stream. You separate the oil from the gas. The gas we treat and the water we put through to our DLE system. And that is a high-level summary of how it works. And what that does is it enables us to work at basically atmospheric pressure, so we don't have to have it. The brines coming at the DLE system under incredible pressure. And it allows us to operate safely without having any gas in the system as we push it through the DLE. And any system out there whether you're in the solvency or you're in the smackover, you're in the Leduc, you have to pretreat of some fashion, all of them require some pretreatment. The solvency requires a big pretreatment because you've got silicon iron that are dissolved in the water and you have to get those out first before you can put it through DLE, we've got gases and so it's a commonplace technology. But when we talk about our wells and you look at our PEA, we do talk about that in detail, so you can reference that stripping of that gas out and the pretreatment step that we put this brine through.

Now it seems that a lot of the lower grade brines and the technology being developed for those lower-grade brines, they seem to be using ion exchange rather than sorption or solvent exchange or membrane. So why is that? Why does ion exchange seem to work better for lower-grade brines if that is the case, of course?

Yes. I think generally, I would say, 2 years ago, I mean, we've been in this now for quite some time. A lot of people are running around with membrane technology calling a direct extraction. And the smart people in this space, and I put someone like an Alex grant in that basket was out there adamantly same that's not DLE. And he was right. The reality is that if you want a process to remove lithium from brines, you're never going to filter it out. You have to find some chemical means. The benefit of Ion Exchange that's used for extracting metal out of liquids globally for all sorts of different metals, calcium, uranium, even use it for processes for just municipal water treatment. I mean a water softener in your house and your basement is ion exchange technology. So -- and we've been saying this for a long time. The reason ion exchange from our perspective before people were only on ion exchange or absorption technology and the mechanisms of ion exchange and absorption are very similar. The reason we went with ion exchange is because of the volume, you can move high volumes through ion exchange technology. That's what they're designed to do. And we use ion exchange even in Alberta at these volumes. And one example of that is SEDI. So when they pump the steam down to get the oil out, they have to -- the permits make them we have to reuse that water. And so they have to treat the water to reuse it. So they -- and the volumes are very similar to the volumes we're going to be treating. They have to treat. And that treatment process is generally ion exchange because most water treatment facilities, regardless of what you're treating for deploy at least in part ion exchange processes to treat that water. So they're very efficient. They're very low cost relatively to other systems. The difference in each ion exchange system is the material that's in the tank, the actual residues or sorbents, whatever you call it, that does the extraction of whatever metal you're trying to get out. And that's what has been developed. That's what industry has been working on is an efficient material. That's what E3 has been working on, that's what our peers have been working on. The technology that we're putting that material in there's only a handful of available options in solid liquid separation processing which is what effectively ion exchange processing is. You have a liquid, which is your brine and you have solid, which is your material, your ion exchange sorbent and you have to mix them together and then you have to separate them. And you have to do that at large volume and you have to do it very quickly. So columns are very common in ion exchange systems. You can use certain reactors are another way to do this, if you have smaller brine. And it really comes down to grain size and weight of the material. And it's getting a bit technical on that end. But the point is, is that for every grain size, for every weight of material and for every kinetics, which is how fast the listing can be bound to your material, there's a process option for you out there. And so you can find that process option, you can develop it and then you can commercialize because they're out there somewhere commercialized doing the same thing just not for lithium. So I think that is why a lot of people have landed. And now I would say, I would agree with you that the winning technologies that are actually out there being commercialized, or ion exchange or absorption for the most part.

Okay. And I mean we are running up on time. But quickly, can you comment on the -- any offtake discussions. We've seen automakers get very, very involved, GM and Thacker Pass being the elephant in the room, of course. So when can we expect your first offtake? Are you currently in discussions? Or are you kind of waiting to get that hydroxide or carbonate sample in order to advance those discussions?

Yes. I mean, you look at the -- just to put it into perspective, the size paradigm of the investment usually is proximal to -- proportional sorry to the advanced stage of the project. So you look at GM and Thacker Pass is the far end of that spectrum. Thacker Pass is feasibility done, they're moving towards commercial operations. And you saw GM invest $650 million in 2 pieces, about half each into that company in that project. And then you look at like some of these nonbinding MOUs that have been signed with companies that are still prospecting or exploring. And that's the other side of the spectrum, which don't have any terms and they don't really mean much other than the building relationships. And E3 has been a bit more strategic. We have those MOUs. We haven't announced them because they're nonbinding, they're not material. And we don't want to give away our strategy to those people who would buy our product, and we have been for some time. And those conversations definitely mature as the project matures. So for 2023, given that how many -- how much of this project is going to mature, and the 2 big things obviously are the pilot and the pre-fees, those conversations get more and more serious. And so I'm not going to give a projection of time. They happen when they happen. They happen at the right time for the right reasons. And that's usually when you're at a derisked level that they're looking for and you're going to get the value from the deal that you're looking for? And so those 2 things come together in and around sort of that plus/minus pre-feasibility study level. But it is -- we have an active department of people in E3 that are working on those every day. That's all they do is talk to customers, build those relationships as we go over the next -- to the point where we'll be -- that will become the sales department and the marketing department for our product. So that's staffed and that's active. So it is a matter of time, but how long it's hard to sort of put a pin on that by any stretch of imagination.

Okay. And someone wants to know your anticipated cost per tonne.

Well, in terms of cost, I am limited what I can say. The only thing I can quote is the preliminary economic assessment, which is 2 years old, it outlined USD 3,656 per tonne of lithium hydroxide produced at battery grade, updated economic tool of the pre-feasibility study by the end of this year.

Just to give our audience a context here, what's kind of typical on the cost curve these days?

It sort of ranges and it also like you have to be very careful what you're reading and what actually they're producing. So you look at spodumene prices are -- I think there were $5,000 a tonne, but that's for a 6% spodumene concentrate. The hydroxide and their operating costs are like $500 a tonne or thereabouts, $400 to $500 per tonne. And again, that's for a spodumene concentrate, that's a mining operation. The salars in South America, generally, they've been quoted at somewhere around $2,500 per tonne. Again, generally, that's not the battery-grade products. That's the stuff they make in South America, and then it gets shipped off for finding better grades. So there's a cost for shipping and then refining on top of that. If you look at the full life cycle, there was an estimate done this not my number is done by the RK Equity crew at $8,500 per tonne for hod rock out of Australia being shipped to China refined and to look better good hydroxide, $8,500 per tonne. So -- and the spectrum there is like Lithium America has just put out a PEA and I can't remember off the top of my head what the OpEx was there, but it was in the realm of ours. I think it was -- I cannot quote number because I can't recall, but it is comparison to our PEA operating cost as well with their PEA. So I think a bit higher. So there's -- there are ranges. Really -- the real important factor here is, we don't need to be the cheapest. And that's our goal. Our goal is to be at the bottom quartile. So we want to be in the bottom one quarter, 25% of costs relative to the market but we don't need to be the cheapest. And we see a lot of other efficiencies in terms of water recycle or sorbents, the eluent recycle that makes the project more efficient, more momentarily friendly. And those things are equally important, might add $10 to your operating cost per tonne, but they're important because they have a huge metric because one of the things you get measured on, and I think this becomes very, very important as lithium supply starts to normalize, which is probably into 2030, your total life cycle, how you produce lithium is going to be evaluated against your price in the future. I firmly believe that's where the market will go. And again, it won't be in the short term because people are going to get with the lithium they can get, but as the market matures, you're going to see that metric. And I think we're going to see us design something that's going to have a high value in that sense.

Yes, something that I think about, Chris, is how you have 24.3 million tonnes. That's -- you're going to have economies of scale, your PEA was based on less than 2% of your current resource, right? So if you're able to scale up and your PEA was based on 20,000 tonnes a year. So if you're able to scale that up to what you said before, I believe you said 200,000 to 300,000, you're going to see that all-in cost presumably go down with the economies of scale.

Yes, I think the first plant is not going to be the biggest we can build. It's just going to have a nice capital number that we think we'll be able to raise because it's the first plant, right? But then the next -- that next scale-up will be incrementally larger than the first plant. And then we can build another plant elsewhere on the reservoir, and that will just be that full size. You won't go in instruments. You would just build the full-size plant. And then you build that, that would be extremely efficient on a cost per tonne basis for construction because now you've built at a 50,000 to 70,000 tonne range straight out of the gate, and you have learned a lot and you build to make it more efficient. So absolutely, the first plant, really, it's about getting it up and running, demonstrating we can do it and making good money. And so those are sort of the metrics we're looking at because we want to be able to use that revenue, obviously, to pay off the debt that we'll have to get to build the plant. And then also use it as leverage to build the second phase and then whatever phases after that, whatever other plants after that continue to grow. But the whole project is completely is a different -- the whole thing is a different paradigm when you're making revenue, right? Like it just changes everything completely. And so our goal is to design and fast track that as best we can without skipping anything. Obviously, we'll still be doing it thoughtfully because we want to make sure that it operates successfully. And I think that's how we create value. And if someone does try to come and take E3 out, that's what they're going to be buying is the validity of that exercise, building something that's real. So that's our goal right now. We just -- we want to get revenue fast, and we want to build something that produces a better quality product at a decent size. So that -- and again, all of that in a corporate update, we'll have more details on.

Okay. Okay. Chris, we're beyond 3:00 p.m. now EST. Is it okay if I ask you a couple more questions?

Sure. I can keep it going.

All right. So one more -- one question on -- someone wants to know about the checkerboard pattern that they're seeing in the land package. And just for context to this listener, this is very typical, especially in the oil and gas sector in Alberta. So can you touch on the checkerboard pattern? Is it an issue for you?

Yes. So the checkerboard basically is crown holdings against free holding, mineral rights. So we have accumulated all the crown hold mineral rights in our area. Imperial in the Clearwater area is the big freeholder, and that's what we auctioned. So that brings that checkerboard together. And when you look at the new regs that came out so Alberta just released new regs, it's very clear from those that as you develop you can incorporate for older or you don't have to. And we've always had a mentality that we plan to work with the freeholders. But from a royalty perspective, from a production perspective, you don't have to. You can drill as long as your wells on your crown block you continue to develop. But our philosophy has always been to secure that land and develop with it. So that's how we've built our business, and that's what we'll continue to do.

So it's like not that you're going to be this guy, but there will be blood movie, when he is drinking the other guys milk shake?

Yes. I mean, effectively, that's how the oil and gas industry has always operated it. Yes. But again, it's why you work with the companies because you -- this isn't a movie. This is real life, and you develop these things with people, you collaborate. And all of that is in currently important to building a real business. So absolutely, this will be blooding it out there in Alberta. Now maybe back 50, 60 years ago.

Right, right. Okay. All right. Well, last question, Chris. Was there any questions that maybe I should have asked you and didn't?

No. I think we've -- I mean, it's been an hour that we've covered a pretty comprehensive review of where this project is out. We've been waiting for this announcement to come out to do this update and really give the market something to dig into. And we'll continue to give more information with the next -- over the next couple of quarters leading up to the pilot operating in Q3?

Awesome. Awesome. So yes, a lot still look forward to this year. I'm looking forward to seeing that update. So Chris, I do want to thank you for joining us today. It's been a pleasure to hosting you. And also thank you to our viewers. Again, this is the most registrants we've had on a webinar, so a big milestone for us at Red Cloud. Hopefully, a big milestone for you as well, Chris.

Absolutely. Very happy to be on here, and thank you, everyone who's had the opportunity to join in and the 170 people that are still on the call after an hour and 10 minutes. So very good.

Yes. Thanks, everyone. So if you want to learn our thoughts at Red Cloud, what we think about E3 as well as other companies that we watch, we do publish all of our research on our website. It's free of charge, just go to redcloudresearch.com. And just a reminder that our next webinar will take place tomorrow. Tim Lee will be sitting down with Corrado Gold. So that's tomorrow, February 3, 11:00 a.m. Eastern, 8:00 a.m. Pacific. Thanks again for tuning in, and have a great day.

Thank you.