(SEEKING ALPHA): Alpha Lithium: Gentlemen, You Had My Curiosity; Now You Have My Attention

In whispered tones I kept hearing the name Alpha Lithium (OTCPK:APHLF) from friends (and even strangers). The recurring question posed, “Why are you not covering them?” Great question. I ended up buying a little (and then more) as information rolled in. In this article, I will explain my reasoning and why this stock might be a nice expansion to your lithium EV portfolio. Before I get in deeper, realize that many lithium stocks exist. Generally, you have the leviathans prowling the deep (ALB, SQM) and (dare I say) the most aggressive Canada based lithium stock Lithium Americas (LAC). No North American lithium company can match the sheer aggression in the lithium market like LAC, but getting back on topic. The important thing to remember is while many fish exist in the lithium sea, we do not want just any fish. We want a basket of fish from large sharks to the baby piranhas and we want to avoid the bottom feeders (unless we are in them for simple speculation and trading).

Resource Evaluation – Tolillar Salar

Alpha Lithium has two resources with the most advanced being the Tolillar Salar resource in Argentina. We need to get a feel if we are looking at junk or if this is a viable project warranting more time and research. Looking at an overhead view on a map, it appears to be in a good neighborhood with plenty of other projects nearby. Simultaneously, it appears that Alpha Lithium owns the entire Tolillar Salar.

(Source: Alpha Lithium)

Infrastructure

Given the proximity to other projects, attracting talent is possible. A gas pipeline and a road (unpaved) are 10km from the property, while power is a bit farther out at 150 km north. At this point they at least have my attention to scratch the surface a bit more. How are the lithium grades? Always assign caution when you see “up to” concerning a grade of lithium. What you want to see is the average grades. With the Tolillar Salar property, we see initial results from a mere 6 holes that range from 194mg/l to 345mg/l of lithium. Well enough for a DLE operation.

Russians and Lithium Funding

Of course any project needs funding. In this case, a Russian company “Uranium One” is investing $30 million (USD) into Alpha Lithium’s subsidiary called Alpha One. This means the money is going directly into the project and it does not dilute the stock. After closing, Uranium One will have a 15% ownership stake of Alpha One and thus 15% of the project. Following the feasibility study, Uranium One has the right to further fund the project to the tune of $185 million for an additional 35% ownership in the Alpha One. Alpha One would keep 50%. According to Alpha Lithium, this would meet funding requirements to bring the project to commercialization. At this point, the project is funded IF the Russians determine everything is kosher. Also (depending on how the feasibility study pans out), a wild card is in play as an “up to $75 million” bonus payable to the company.

Lithium Project Timelines

Alpha Lithium has “nearly completed drilling” as of Dec 2021 at the Tolillar project and plans on creating a construction camp (construction target is Sept 2022). A pilot plant and various infrastructure will follow, after which a feasibility study will be concluded. Now after the financing deal above finalizes, Alpha Lithium has 30 months to conclude the feasibility study. Post feasibility study, the Russian company will decide if they will fully fund the modular project (or not).

(Source: Alpha Lithium)

Project Value Guesswork

While not exactly a NPV (Net Present Value), we can get a rough idea of the Tolillar projects value. Per Alpha Lithium CEO Brad Nichol:

“Exercising the Earn-in Right implies a value at Tolillar of US$529 million, not including any Additional Consideration. Including the maximum Additional Consideration, the implied project value would be US$604 million.”

He now converts this from USD to CDN dollars:

“Which is over CDN$750 million for the Tolillar asset alone. Uranium One has the ability to earn a 50% interest in Tolillar and Alpha will retain a 50% working interest in a salar that is funded up to the point of commercial production.”

Looking over at the Canadian ticker for Alpha Lithium, we can see the market cap is $151.82 million CDN.

The takeaway is Alpha Lithium could represent quite the value play for the patient investor who does not mind waiting a few years for the projects to mature and is willing to incur risk.

Modular Lithium Project

A lot of projects I see have expansion capability due to resources being so utterly massive. Lithium Americas (LAC) is expanding its South American project. Lake Resources (OTCQB:LLKKF) is also planning to expand its Argentenia project. I suspect Cypress Developmnent (OTCQB:CYDVF) has some interesting plans in the hopper. The point is expansions are a possible wild card that mandates a savvy investor’s attention and Alpha Lithium does offer some color concerning expansion plans. Of course, this is years out, but useful information none-the-less.

CEO Prad states:

“The modular component of the production facility is important because when Uranium One first approached me it was quite early on in the process and there was a lot of information that just wasn’t known. The data didn’t yet exist because we hadn’t yet drilled a lot and we didn’t have a lot of information yet on the salar and the chemistry. So what we decided early on was that modular was a great way to start, and with a small number, because there were so many unknowns, we’ll learn that information as we go along over the next 30 months but ultimately a modular facility is going to be able to be expanded very easily and we can expand that with cash flow that we are generating from the first module. We can invest more equity; we can put debt into the entity but we can grow this piece by piece and we can grow as we learn about the salar in the future.”

(Source: Youtube.com Interview from Dec 3, 2021)

Alpha Lithium’s initial plans are for a 10,000 ton lithium project that can be expanded. That is a key word. The project can be expanded. Factor in rising lithium prices… and Alpha Lithium: You had my curiosity… but now you have my attention. It should also be noted that the Tolillar Salar project is 27,500+ hectares. (Converted to acres weighs in at: 67,954). Hence the property is quite large. The key will be further exploration to determine if the remaining 90% of the property will yield good grades of lithium.

Resource Evaluation #2 – Salar Hombre Muerto

While still very early stage, looking at the map below we see the Hombre Muerto property on the left side. This property (at 12,355 acres+) is near land that POSCO has rights to (with some very small pieces actually falling inside POSCO’s property). Alpha plans on drilling the land once permits are approved. Additional details can be found here.

(Zoomed in view of the eastern claims.)

(Source: Alpha Lithium)

Lithium Supply & Demand News

Demand for lithium is rising and future demand is in the works via various projects that will come online in the future. Projects such as:

• Unconfirmed reports place Ford at investing $40-50 billion in EV.
• A Porsche Taycan goes coast to coast on 2.5 hours of charging.
• Firestone offers charging stations.
• LG Energy to spend $1.7 billion on battery factory in the US.
• Glencore & Britishvolt to build lithium / cobalt recycling plant in the U.K.
• US Gov to put $5 billion into EV chargers nationwide over five years. An additional $2.5 billion will be released later on. (Total $7.5 billion)
• EV models will double by 2024.
• Pentagon to stockpile rare earths (includes lithium).
• Mississippi snags a $500 million Nissan EV plant.

The Flip Side – Risk

While lithium demand is exploding, the carmakers are still experiencing problems acquiring semiconductor chips. This is not problematic for most junior miners at the moment, as many of the smaller companies are not near production. Hopefully, the issues ease up and Intel (INTC) along with TSMC (TSM) open new chip factories in the United States. However, these will take several years to come online. (Consider this just a potential issue and be aware.)

Another thing to ponder is all the media hyped, fear mongering over Ukraine. I could get into a rather lengthy explanation for why I think nothing will come of this, but for the sake of brevity I do not see major hostilities breaking out unless the Ukraine moves to join NATO. Russia recognizing the two republics is an interesting development but quite natural from a Russian prospective. Expect various noneffective sanctions via the United States, but will Europe cut off Russian energy which they are so dependent? Very doubtful and even if they did China is more than willing to buy Russian energy. A full discussion on this is a bit outside the scope of this article, but it is worth to ponder in passing. Does the Ukraine really want a piece of Russia with its 15-1 air superiority? Doubtful. Does the U.S. want to enter that fray with China pressing on Taiwan? Doubtful. Expect a lot of chatter from the talking heads.

The wild card here is IF things were to go south before the deal closes it could have a negative impact on the stock. Another risk is obviously capital. As of last December, Alpha Lithium had $22.2 CDN in working capital. Given the successful raise of $25 million CDN we can see the company had about $47.2 million CDN around the end of December (give or take) once you consider burn rates.

Corporate Musings

Reading over the December 2021 prospectus (located at https://www.sedar.com , Punch in Alpha Lithium and then scroll down to “Short form prospectus”), it presents us with some rather interesting rabbit holes to ponder. We can see the company is structured thus:

(Source: Sedar)

Now L2 Cobalt was incorporated Nov 2017. That was quite some time ago (thus company priorities may have changed), but recent developments are interesting. Looking at “Alpha One Lithium B.V. (Netherlands) you have to wonder what they are looking at (along with the intent for that segment) as it was incorporated in November, 2021.

Alpha Lithium Acquisition Plans?

Looking at the prospectus, we see the company plans on acquisitions:

(Source: Sedar per Alpha Lithium Dec Prospectus – Highlights are the authors)

We see that Alpha Lithium successfully completed raising capital to the tune of $25 million CDN and in the PR they once again discuss acquisitions. It appears they are willing to acquire more land near the second property called Hombre Muerto or maybe this is simply raising capital to pay off the land they previously bought, as they have to make payments till it is paid off. Lastly maybe they are in fact planning to do something with Alpha One Lithium B.V. (Netherlands).

Conclusion

Alpha Lithium is a company that (given its massive land holdings) could easily expand its resource size and that would fill the bill to attract investors: Get additional drilling completed along with a preliminary feasibility study and move on from that point. Given the project will be built in stages, I think we are looking at a well funded company with tremendous growth potential. On the flip side, nothing is certain; much depends on if the future PFS study yields favorable results that attract the Russians to fully fund one of the two projects.

The second point is we have covered just one of the two projects fully in our analysis. The company has a second potential lithium asset that could also develop into an interesting wild card.

This is a stock to buy and put in your drawer for a few years as things develop. As news continues to roll in, the savvy investor will reevaluate the stock and make adjustments (be it add or sell off). Overall, I have built up a small position: I’m taking my own advice.