Arctic Fox Lithium; will drilling in Quebec hit pay dirt?

Lithium (“Li“) prices, as measured by the battery-quality spot price for Li carbonate in China have fallen dramatically since November but remain well above prior peaks of ~171,000 yuan/tonne. In US$ the price was ~$34,400/t on March 30th down ~60% from a high of ~$85,000/t.

Major producers like SQM reported long-term contracts signed at an average of $59,000/t in the 4th qtr. As a frame of reference, no economic studies of Li projects used a price > $20,000/t prior to mid-2022, so any price in the $30,000s is quite strong.

I’m tracking 156 pre-construction juniors listed in Canada, Australia, the U.S. & London that have one or more Li property or project in Canada. Eighty-two have prospects in Quebec, which is rapidly becoming the rock star of N. America.

Eight Quebec Li juniors have market caps above $100M, led by Patriot Battery Metals at a whopping $1.7 billion. Much has been written about Quebec’s mining-friendly institutions & investment groups. There’s flow-through funding that minimizes equity dilution & tax credits on exploration.

Quebec enjoys consistently low-cost, green hydroelectric & nuclear power, and sits between Manitoba & Ontario, provinces also eager to become vibrant EV/Li-ion battery mining & manufacturing hubs. Over time, all three jurisdictions will host multiple Li processing plants serving dozens of mines & satellite deposits.

Volkswagen is building an EV battery plant in SW Ontario, GM & POSCO are building a cathode active materials facility in Becancour, Quebec and Vale/BASF are also developing a project in Becancour. Ford, Stellantis, Honda, LG Energy Solution & Umicore are investing billions more.

Where are all of these major companies going to get Li? I count ~30 companies with projects that have reached (at least) the maiden resource stage.

Albemarle is forecasting a need for 3.7M tonnes LCE/yr. in 2030, roughly 4x current production. After existing producer expansions and new brine/DLE projects are accounted for, an incremental 1.0+M tonnes LCE/yr. from hard rock sources will still be required.

That’s twenty new 50k tonne LCE /yr. mines in the next 6.75 years. Clearly, dozens of satellite deposits will be needed. These deposits could be as small as single-digit millions of tonnes LCE.

In reviewing the property packages of dozens of companies, it’s clear that early-stage prospects need to have surface outcrops of (potentially) Li-bearing pegmatite. Most companies report outcrops, but not all. And, some outcrops are of other things besides pegmatite.

Arctic Fox Lithium (TSX-v: AFX) [market cap = $7.4M on March 31st @ 16c/shr.] has two properties totaling nearly 5,000 hectares in the James Bay region of Quebec. This is an early-stage exploration — never been drilled — opportunity. Management is still building out its team.

Importantly, both of Arctic’s properties have surface outcrops of pegmatite where, (subject to funding) an experienced team will explore, map and take rock chip samples in May/June, and drill 10 to 20 (50-60 meter) holes in September/October.

Initial drill results should be in hand by year end. The above map shows Arctic Fox’s Kana Lake is 112 to 154 km from Winsome Resources’s & Patriot’s projects, ~100 km from Q2 Metals, and 82 km from Allkem’s James Bay.

The Pontax project is just 12 km from James Bay and ~50 km from Critical Elements’s Rose project. Both Rose & James Bay are advanced stage projects that will have processing facilities. Not on the map is Brunswick Exploration with a few dozen owned & optioned properties across Quebec and a market cap of $160M.

If drilling this Fall finds decent grade Li2O mineralization, it doesn’t require a large footprint to host millions of tonnes. How much is 1M tonnes of 1.00% Li2O (in the ground) worth? For juniors that have announced maiden resource estimates and are pre-PEA, tonnes of LCE are valued at $77 to $380, see Chart #1.

In Chart #2 I show a wide range of scenarios from 1.0M tonnes of mineralization at 0.90% Li2O, to 10.0M tonnes at 1.20% Li2O. I also show possibilities of 20-40M tonnes, (far less likely, but can’t be ruled out).

If Arctic can define 5.0M tonnes at 1.00% Li2O, and the market values those 123,650 tonnes LCE at $100/t, that resource would be worth $12.365M. Importantly, this is not a base case assumption. There could be zero (0) tonnes of Li2O, we simply have to wait for the first drill results.

Earlier I detailed how great Quebec is as a mining destination. That will have a large bearing on what LCE tonnes in the ground are worth. As a thought experiment, imagine what 123,650 tonnes LCE might be worth if there’s one processing plant 150 km away.

That one plant would have all the negotiating power, it would capture the lion’s share of the economics.

Now imagine 3 or 4 processing facilities, one 12 km away, another 50 km, another 82 km & another 112 km. That’s what Arctic Fox will have with Allkem, Critical Elements & Winsome and perhaps others. Instead of $100/t, companies in Quebec could be worth well into the $100’s/t LCE in the ground in the coming years.

Companies like to talk a big game, but let’s face it, most deposits will end up as satellites, not standalone mines. The range of possibilities from zero to $100s of millions (the higher scenarios should be considered long shots), make this year’s drill program incredibly important.

Management, with the help of strategic advisor Gary Claytens, is wise to drill 10 to 20 relatively low-cost shallow holes, enough to get a good initial read of the properties.

By year end investors should have drill results. Just a few multiple-meter hits of 1.00%+ Li oxide (LI2O) (0.9% probably ok) and the Company would be off to the races. To be clear, there’s no guarantee that Arctic’s prospects have any meaningful concentrations of Li2O at all.

The 2,756-hectare Pontax North property is 12 km south of Allkem’s James Bay project and 12 km north of a prospect owned by Stria Lithium’s in northern Quebec that has been farmed out to Australian-listed Cygnus Metals (EV = $38M).

In addition to earning into Stria’s prospect, Cygnus has facquired surrounding properties of its own and has ambitious plans. Stria’s/Cygnus’ best intercept to date is a very nice 21.4 m grading 1.16% Li2O.

Arctic engaged Noranda Royalties to compile geological data on its Kana Lake & Pontax North properties. The work will provide details on the pegmatite outcrops & rock samples, and inform the team on similarities to other discoveries in the area. So far at Pontax North, 18 outcrops have been confirmed, with 13 identified as pegmatite.

Arctic’s Pontax contains a 10-km pegmatite trend, mapped by Quebec Ministère de l’Énergie et des Ressources Naturelles (“MERN“), that’s under-explored despite its Li potential.

The claims in the northern portion of the block contain a Li-prospective zone that shares a similar geological setting to Allkem’s James Bay. Allkem is developing a 321k tonne/yr. spodumene concentrate mine from a high-grade mineral resource estimate of 40.3 Mt @ 1.40% Li2O.

The 2,132-hectare Kana Lake project is in the James Bay region of Quebec. During a Summer/Fall 2022 survey program conducted by MERN geologists identified this area as a new, prospective zone for Li.

During a survey of the property, MERN geologists identified a pegmatite trend at Kana Lake over six km long with at least 10 pegmatite outcrops. Most of the pegmatites are over 900 sq. meters in size.

Kana Lake’s pegmatites appear to be consistent with the Fliszar Li showing to the south (not on the Company’s property) where three grab samples returned up to 1.83% LiO2, 0.34% cesium, 1.11% rubidium, 126 ppm niobium, 374 ppm tantalum & 0.30% boron.

While it’s too early to know if any other minerals besides Li could become by/co-products, the first step is getting boots on the ground in the next few months and then shallow drilling across both properties.

Once the spot price of battery-quality Li carbonate price in China stops falling, we could see investors flow back into Li juniors. The rebound has already started in ASX-listed juniors on the news that hard rock developer Liontown Resources flatly rejected a bid (at a 64% premium) from Albemarle.

Readers should consider taking a closer look at high risk/high return potential Arctic Fox Lithium (TSX-v: AFX) ahead of sample results this Spring/Summer.

Disclaimers: Peter Epstein of Epstein Research [ER] has no prior or existing business relationship with any person or company mentioned in the above article. Like most penny stocks, Arctic Fox Lithium is a very high risk company. The commentary is for information on. Readers should consult with a trusted financial advisor before making investment decisions. This article is not a solicitation to buy or sell any security. Readers should conduct their own due diligence.

If sample assay results this Spring/Summer do not return anomalous Li2O levels, the value of this company could decline substantially.