Lithium company looking to mine old oil brine

Chris Doornbos, chief executive of Calgary-based E3 Metals Corp, looks at Alberta's vast depleted oil and gas reservoirs and sees opportunity.

His company is testing technology that, if successful, would extract lithium from the brine in old wells, which eventually could find its way into the batteries that power electric vehicles.

“It's a big opportunity for the province because producing lithium is very similar to producing oil and gas,” said Doornbos, a geologist who previously worked for Suncor Energy Inc. “There's a huge repurposing side to this because not only are we looking at using the infrastructure, but we're looking at the people and the skillsets — everything that oil is to Alberta, lithium could be as well.”

Like the oil sector, lithium has been anything but smooth sailing. On Thursday, E3 Metals announced it hopes to open its first facility to test its technology by the end of the month — a precursor to a pilot project that cost about $500,000 to develop — and its stock promptly dropped 11 per cent.

Doornbos shrugged off the dive as a fact of life for small market-cap company — about $111 million, ranking it among the largest lithium developers in Canada — and how investors often use news events as opportunity to exit stocks, anticipating high trading. Indeed, zooming out, the company has experienced an incredible surge since this fall as its stock has risen 500 per cent from about 39 cents at the end of September to $2.77 at close Thursday on the Canadian Venture Exchange.

Still, the investor sell-off highlights the challenges that lie ahead for Alberta, as E3 Metals and other companies angle for a piece of the action in the world's fast-growing electric vehicle supply chain. Lithium prices are suddenly rising again, but the small scale of the market, especially in comparison to oil or other commodities, means increased volatility, and tight competition.

“There are plenty of companies trying to essentially produce proprietary technology called direct lithium extraction,” said George Miller at Benchmark Intelligence in London, who studies the lithium market. “From our perspective, that's something that's yet to be proven at commercial scale.”

He added, “I think it's got a lot of potential, but we've yet to see the results.”

Still, direct lithium extraction technology is likely to stay in the news, at least for a little while. After nearly three years of falling prices, the lithium market is once again predicted to fall into deficit in 2021 and prices are jumping.

In January alone, the price for lithium used in batteries is estimated to have surged more than 40 per cent, according to Miller. He credited rising electric-vehicle production and sales in China during the latter half of 2020, and similar sentiment in Europe, as catalysts for the rise, which he said has exceeded previous runs.

“It's the largest price move we've ever seen,” Miller said.

He estimated global lithium production at 300,000 tonnes per year, minute compared to commodities such as copper, estimated at 18 million tonnes; and lithium is opaque, with most sales transactions occurring in private. Miller said he obtains his pricing estimate by tracking sales reports, talking to insiders and following the market

The burgeoning electric-vehicle market, however, means lithium demand is expected to grow by 25 to 30 per cent per year for the next decade, reaching two million tonnes by 2030, according to Miller. In Canada, that demand forecast is creating opportunities for lithium developers, whether they aim to extract from wastewater brine or hard rock mining.

There are at least 60 companies trading on the TSX or TSX Venture exchange that are exploring for lithium, about 38 per cent of which are focused on property in Canada, according to a TMX Group Ltd. spokeswoman.

While surging lithium prices have attracted investor attention to E3 Metals, there have also been stumbling blocks in recent months.

In November, Philadelphia-based Livent Corp., which supplies battery metals to Tesla Inc., cut ties with E3 Metals barely a year after striking a deal to invest US$5.5 million, citing capital constraints. Its exit came weeks after it announced the purchase of half of the Quebec-based entity that controls Nemaska Lithium Inc., which filed for court protection after cost overruns forced it to halt development of a lithium mine and electrochemical plant in Quebec. Before leaving Livent had invested only US$2 million in E3 Metals.

Sid Rajeev, head of research for Fundamental Research Corp. in Vancouver, whose firm is paid by E3 Metals to provide analyst coverage, said the exit forced E3 to look elsewhere for financing.

Last month, E3 announced a bought deal, which it hopes to close next week, Doornbos said. It would raise $7 million by issuing 5.9 million shares at $1.185 apiece — a roughly 55-per-cent discount to its midday trading price.

“We are seeing a lot of companies doing financing at a big discount,” said Rajeev, adding the bought deal still stands at a premium to its trading price last fall.

Echoing comments made by Miller, he wrote that if the technology works, it could be “revolutionary.”

The company controls 250,000 acres in south-central Alberta, and claims seven million tonnes of inferred lithium carbonate equivalent. It hopes to produce 20,000 tonnes of battery-quality lithium hydroxide monohydrate per year through a multistep process that uses ion exchange to extract lithium out of oil and gas brine.

Next, the lithium is further refined, fed into electrolyzers to produce an even more pure lithium hydroxide solution, crystallized into lithium hydroxide salts and finally ready to be transported for sale.

“The hard part is already done,” said Doornbos. “We've been developing this technology for four years, we have proof of concept, we just need proof of scale.”

Miller, the Benchmark analyst, said there are good reasons why people call lithium the new oil, given its connection to transport, but it's not a totally accurate comparison. Oil is a fuel, whereas lithium is a component of a battery that can be continually recharged.

“Really, the goal in the (electric-vehicle) industry is to be mining as little as possible and recycling as much as possible,” he said. “I don't think you can really say the same of the fossil fuel industry, there's no replenishing there.”