Texas Smackover Lithium Play

Has anyone developed a Map of where most of this Lithium lies or where leasing is taking place?  

I haven't heard anything more after the initial request for possibly leasing some of our holding along the Texas/Arkansas border in San Augustine County several months ago. 

Standard Lithium: The Ridiculous Potential Of Texas

Apr. 03, 2024  Austin Craig  seekingalpha.co

 

The following is an excerpt from the article.  To view it in full with graphics, use this link:  https://seekingalpha.com/article/4681812-standard-lithium-ridiculou...

Summary

• Standard Lithium has intriguing lithium properties in Arkansas and Texas.
• LAC just received a $2.26 billion dollar loan from the US Government. SLI could be next.
• Powerhouse Exxon acquired a property for $100 million directly across from Standard Lithium.
• The Texas Lithium property is a gem, with lithium brine grades that average 644 mg/l.

Lithium's Demise is Premature

Reading the headlines, one might glean that lithium batteries are kaput and were just a fad. While some companies are indeed slowing down concerning EV timelines, others like Tesla (TSLA) are working on producing a $25,000 automobile. The reality though, is capital is still flowing into large EV production facilities from car makers, battery production facilities, and lithium mining projects. Not to mention the Federal government just moved a step closer to giving Lithium Americas (LAC) a $2.26 billion dollar loan. Hence, investors might be wise to take notice and follow the money.

While many excellent lithium companies exist in both Argentina and Nevada, today let's consider a rather unique lithium play in Arkansas, namely Standard Lithium (NYSE:SLI).

This should interest you as powerhouse Exxon (XOM) just purchased mineral rights next door to SLI for a mere $100 million. Again, Lithium Americas just snagged an utterly mindboggling amount of government funding at a mere $2.26 billion. The nay-sayers can murmur about lithium's demise all they like, but the harsh reality is the U.S. government is waking from its slumber regarding critical elements independence from China and are moving forward. A $2.26 billion loan to LAC does wonders to show other lithium companies and investors the path to production, whilst giving weight to validating clay-based lithium extraction. Digressions aside, let us begin exploring Standard Lithium.

Locking In Supply Of Lithium

Some time ago news of General Motors (GM) investing in Lithium Americas arrived. This effectively locked out all other carmakers from LAC. The importance of this and the impact cannot be easily put into words. It changes the entire ecosystem. It is a call to an economic supply war among car makers. Some car producers will realize this; they will adapt and invest in lithium companies or secure off-take agreements. Others will ignore this competitive advantage that rivals will enjoy and instead suffer the consequences of being at the mercy of lithium market prices.

Before this development, the automotive makers all avoided entering into direct investments, but GM just started a hot economic fight. Car makers could be forced to marry into projects to secure supply and the associated discounted prices.

Remember, mines on average take 10+ years to go from exploration to pulling pay dirt out of the ground. Yet, Standard Lithium has a few unique advantages that could ramp things up. They are not located on BLM land. Hence, they do not need permission from the BLM. Also, they are co-located on a pre-existing industrial operation which could speed up timelines when it comes to permitting issues.

The Standard Lithium Projects

The Standard Lithium plan is simple: Take a phased approach and build out a commercial plant to prove that the KOCH-SLI joint venture DLE extraction technology works. Then keep expanding.

Standard Lithium has four projects. Two are located in Arkansas (The first is a three stage Lanxess project and the second project is called the "South-West Arkansas Project"). Then you have the Texas Lithium project and lastly the California project called "Bristol Lake".

For this article, we will be concentrating on Arkansas and Texas, as California seems rather dormant. Let's look at the projects. First, an overview of the Smackover formation that SLI plans on operating in. As you can see in the graphic below the Smackover formation in gray extends from Texas to Florida. Standard Lithium's focus is Arkansas and Texas (for now) but they could expand inside the Smackover formation. Let's look at Arkansas first.

Looking at Arkansas, we can see the first phase is the multi-stage "Lanexx 1A project" as seen below on the right. This project has three phases with phase 1 targeting production in 2026. The South West Arkansas project on the left of the graphic is the second main project.

The SLI Lanxess project will be constructed in three phases. This reduces capex costs but more importantly the intent is to prove to the market that the KOCH-SLI DLE technology works at commercial scale. During phase 1 the project will weigh in at a Capex cost of $365 million to build the plant; the output of lithium will be 5,400 tonnes per year per the DFS. Opex cost per ton comes in at $6,810. SLI's after tax NPV is $550 million at an 8% discount rate and lithium selling price at $30,000 over the mine life. Lithium grade is 217 mg/l. Now 217 mg/l is not incredible, but SLI will be tapping into the back end of an existing operation. Thus, no wells have to be drilled which lowers expenses and speeds up permitting as it will be co-located on a preexisting bromine operation. Below we can see the pre-existing Lanxess operation along with the SLI pilot plant in red.

A lithium grade of 217 mg/l is decent enough to get the ball rolling. For comparison Albemarle's (ALB) Silver Peak operation sports grades of 123 mg/l while the Salton Sea has grades of 204 mg/l.

While the lithium output of SLI is not tremendous at 5,400 tonnes, nor is the project costs compared to some of the larger projects. Even with some inflation we might estimate the project cost has grown to $400 million. Still peanuts compared to LAC's Thacker Pass capex of $2.93 billion for 40,000 tonnes of output (phase 1). Granted this is not an apples-to-apples comparison. Each project has a different mine life, a different medium they are working with, etc. The point is if you want to dip your toe into a massive project you can do it in phases with SLI. This allows you to test the waters at a smaller level. Once the project is proven at scale you go for the prize which is Texas but first, let's take a closer at the 2nd main project of Standard Lithium.

The South West Arkansas Lithium Project

As we can see in the below graphic, the lithium grades continue to improve the further we move from the Lanxess project (217 mg/l lithium) and travel eastward. As we near the second project we start to encounter lithium grades that average of 437 mg/l.

The key takeaway to remember is Standard Lithium has plenty of expansion plans in Arkansas that total to 48,600 to 53,600 tonnes of lithium if they build out all of the current plans for Arkansas. Note the key words -- current plans. The Smackover formation is quite large and ripe for expansion given some longer time frames. Note all the pre-existing wells in lower Mississippi to Florida.

New expansions in the Smackover could happen but let's look at Standard Lithium's gem, the Texas project. They say things are bigger in Texas. Lithium grades of lithium certainly are.

Texas Is The Lithium Gem

So why go through all the trouble to build out Arkansas? Well, again, it is to prove the KOCH-SLI DLE process works at a larger commercial scale. Remember the Lanxess project sports 217 mg/l and South West Arkansas has 437 mg/l but then enter the East Texas project at 644 mg/l. That is the highest brine grade in North America according to SLI and Standard places the potential project size at 100,000+ tonnes per year.

 

The SLI Texas Project (SLI)

This high grade of lithium in Texas should translate into lower capital and lower operating expenses. The NPV (net present value) of this Texas property could be impressive. However, we will have to wait for a study to confirm that. Yet, Texas is the gem of the projects. Additionally, Texas has bromine (that ALB mines in Arkansas) along with potash. These could be very attractive to ALB as they are already producing Bromine in Arkansas.

 

Local Lithium Demand

Tesla is building out a lithium refinery on the Texas gulf coast (noted by the red X in the graphic below) to feed its car production facility in Texas. This car plant will require lithium and with the close geographic proximity to SLI it stands to reason that Tesla could buy lithium from SLI. Do note all of the potential lithium demand below.

Exxon Joins the Lithium Fray

One final thing to ponder is the energy powerhouse Exxon acquired a rather large block of mineral rights (120,000 acres/187.5 square miles or 485.6 square k/m) for $100 million smack next to Standard Lithium. In the graphic below it is on the bottom right in a darker blue listed as the Galvanic property. Also take note that Albemarle is next door too. Two massive companies each next door could prove to be interesting.

Given the excellent water, transportation, and energy infrastructure (along with lithium mg/l values) I was not too terribly surprised that Exxon moved quickly. It is a very nice confirmation of Standards project potential when a giant moves in next store. Exxon has plans to drill the property and they are currently hiring for DLE lithium positions with first production targeted at 2027.

Additionally, Standard and Exxon also have Arkansas state Governor support from Sarah Sanders:

“South Arkansas is our state’s all-around energy capital, producing oil, natural gas, and now, thanks to investments like ExxonMobil’s and their combination of skills and scale, lithium,” said Arkansas Governor Sarah Huckabee Sanders. “My administration supports an all-of-the-above energy strategy that guarantees good, high-paying jobs for Arkansas – and we’ll continue to cut taxes and slash red tape to make that happen.”

Risk

Standard is a penny stock and has limited capital ($21.5 million CDN as of December 31, 2023). Granted, KOCH is in bed with the company having acquired a little over 7% of the stock some time back. Yet capital is not infinite. They will require a partner or partnerships to push this from story to reality. However, with today's news that Lithium Americas received $2.26 billion from the U.S. government to develop its lithium mine "Thacker Pass" in Nevada, this bodes well that Standard Lithium could also receive a loan that would allow them to fund most of the projects. Yet again, the company has limited capital. They have a burn rate and Mr. Murphy is always on the prowl. For investors, opportunity cost is also a factor.

To invest in Standard Lithium, you could be in for a very long wait that might take several years, if not more, to fully pan out. I think the risk to reward is worth the wait, but this requires an investor mentality as opposed to a trader mentality of chasing whatever is the hotness of the week.

Conclusion

For the patient investor, who is not risk adverse and willing to conduct due diligence, I view SLI as an intriguing value play. The size of the resource is large. Ample infrastructure exists to include water, rail, and power. Exxon moving next door validates the land, and lastly, Lithium Americas receiving a $2.26 billion loan for a lithium mine shows investors the way from concept to building out a project. The Texas project has very good grades of lithium and Arkansas is pretty good as well. At a buck and change I am buying, and I can afford to wait for these seeds to germinate and grow.

This might have already been asked and discussed, but am I right that as a Franklin County land owner, I should continue to patiently wait for the dust to stir and then settle regarding future lithium/brine leases? Is it likely that the day will come when an offer similar to an oil and gas lease will happen— per-acre fee plus royalties tied to amount of substance taken along with its going rate? I try to pay attention but it’s hard to know where to check in.