Frontier Lithium Inventory: North American Hard Rock First Class Play (OTCMKTS: LITOF)

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thesis

Soon, Frontier Lithium Inc. (OTCQX: LITOF) One of North America’s best rock solid lithium rides. The junior Canadian miner has already managed to find 41.9 million tons of measured, specific and inferred (“M&I&I”) at 1.54% Li2O in approximately 27,000 hectares of land in the northwestern part of the province of Ontario. But in a recent interview with Trevor Walker, the company’s president and CEO, he suggested that investors might see a significant upward adjustment to the size of the resource. That’s because the company plans to do about 15,000m of drilling on the property this year, roughly equal to the total amount of drilling done since the project began in 2013.

In this report, I will review the novice miner and explain why I think it is a high probability guessing game.

PAK . lithium project

The Frontier claims lie at the southern end of “Electric Street,” an area in Canada that is geologically similar to Australia’s famous Greenbush Belt. The Canadian company, which has a strong management team, is developing the 100% owned PAK Lithium project which it hopes to turn into an integrated operation. This will include both a mine and a lithium conversion facility where lithium hydroxide will be produced. The conversion facility will likely be built in the town of Thunder Bay, giving the company access to the Great Lakes and the ability to ship the hydroxide to OEMs in Michigan and eastern Canada.

PAK . lithium project map

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The company has so far only carried out purposeful exploration work on two deposits, the Spark and Buck deposits which are located approximately 2.3 kilometers from each other. But this drilling yielded great results from high-quality Li2O with an exceptionally low iron content.

M & I & I’s total resources of PAK deposits of 9.3 million tons at a rate of 2.02% le2O has an iron content level of less than 0.1% Fe2a3, qualifying it for the tougher glass and ceramic market. Although the miner may not sell in this market, higher purity lithium will nonetheless fetch a higher price. Sharara deposits amount to 14.4 million tons of the specified resource with a ratio of 1.40% to2O and 18.1 million tons produced at 1.37% Li2s.

Border Deposit Information

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And when it announced exploration plans for 2022 last week, Frontier also released results from channel sampling conducted at Bolt pegmatite, located between PAK and Spark. These lithium grades showed ~1.5% Li2O, consistent with the results the company obtained when sampling the Bolt in 2020, the year it was discovered.

Bolt pegmatite sampling results

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Other pegmatites are located in Frontier, Pinnock, about 30 km northwest of Buck. And although the company did not do the same amount of work on site, the channel sample taken at 16 m returned 1.96% Li.2O. Demonstrate great potential when Frontier finally completes additional exploratory work on site.

Lithium deposit border map

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Milestones

In February of last year, Frontier completed its preliminary economic assessment (“PEA”) which yielded an 8% net present value after tax of $974.6 million and an after-tax internal rate of return of 21%. This is based on a capital expenditure estimate of US$685 million, which is a production assumption of 23,174 tonnes per annum of lithium hydroxide (“LiOH”) that has been implemented over the 26-year project time horizon. Estimated production costs were $4,083/ton for LiOH and this was all based on the realized price of $13,500/ton for LiOH.

Frontier Lithium PEA Results

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As I’ve mentioned in other articles, actual costs are likely to rise given Canada’s tight labor market, as well as high inflation driving up prices in nearly every industry. Compensating, however, is the significantly higher market price of LiOH today as well as the potential for increased production resulting from additional discoveries.

The production assumption of 23,000 tons per year and the 26-year project life assumption used in the above calculations were based on the size of the resource that Frontier had at the time. This number has grown since then and is likely to increase further after drilling is completed this year. This should lead to better numbers in the Initial Feasibility Study (“PFS”) and provide additional support for Frontier’s planned lithium hydroxide converter construction. A larger number of resources will also come in handy when management eventually looks to secure more funding.

Finance

Frontier currently has just over $10 million on its balance sheet. This will likely be enough to complete the aforementioned drilling program and produce the PFS, which management said it hopes to release in September. Following the issuance of the PFS and an updated quantification of resources, the company will likely seek to raise the cap through an equity issue at the end of this year or the beginning of 2023. The goal of the second quarter is 2024 to issue a final feasibility study. The company’s schedule targets the first quarter of 2027 to start commercial production.

Frontier lithium timeline

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Conclusion

This means that existing shareholders can expect several catalysts over the coming months in the form of drilling results and the final release of the PFS. But management will also be very eager to announce any positive resource upgrades in anticipation of a cap increase in the fall or winter; This may also help drive liquidity into the stock. I started a position in anticipation of these triggers and recommend the stock as a speculative game.

Risks

Investing in a small mining company is always risky. Frontier isn’t producing anything, and management’s best estimates suggest the company will turn negative cash flow for years to come. Many novice miners never reach production, and a single negative press release can cause the stock price to incur significant losses from which it will never recover.

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