Pantera enters the Smackover- Next to $435BN “lithium hopeful” … uhhh Exxon Mobil?

Disclosure: S3 Consortium Pty Ltd (the Company) and Associated Entities own 2,410,000 PFE shares, 227,500 PFE options, and 7 Daytona Lithium shares at the time of publishing this article. The Company has been engaged by PFE to share our commentary on the progress of our Investment in PFE over time.

Oil supermajors are now racing to enter the booming lithium space.

It turns out that certain historical oil fields also contain lots of lithium rich brines underground...

Perfect for major oil companies that have the skills to extract and process underground liquids.

During the last few months we have seen US$435BN Exxon Mobil acquire land in the oil producing Smackover Formation in Arkansas, in the USA.

The ‘Smackover Formation’ is now considered to be one of the significant lithium regions globally.

Exxon’s new Smackover landholding has the potential to produce 4 million tons of lithium carbonate equivalent, enough to power 50 million EVs (source).

And this morning our Investment Pantera Minerals (ASX:PFE) announced it has scooped up the land right next door to Exxon Mobil.

PFE’s position in the Smackover is via a 35% investment in a private company that has been quietly acquiring land in the Smackover BEFORE Exxon entered the race.

PFE now joins other majors in the Smackover Formation, including:

• US$435BN Exxon
• US$22BN Albemarle (the world’s biggest lithium producer by market cap)
• US$607M Standard Lithium
• US$693M Tetra Technologies

It looks like a land rush in Smackover has officially begun:

Next we want to see PFE announce additional acreage acquired, generate an exploration target and secure lithium brine samples for further analysis.

We will be watching for more details and timelines on the above work program in the Smackover.

More on PFE’s new neighbour Exxon Mobil

Back in May this year, Exxon paid a reported US$100M for Galvanic Lithium which held ~120,000 acres in the Smackover.

After decades of profitable oil production, Exxon put to work a small fraction of its $46BN cash warchest in the lithium space - the first time ever Exxon has publicly entered the lithium industry.

Exxon’s foray into lithium is through the “lithium brine” route - which involves extracting lithium from reservoirs via wells - just like the oil industry has done for decades.

With thousands of technical people and a multi-billion dollar budget, we expect them to muscle their way into the industry quickly.

There was a much smaller private company called Daytona Lithium that moved faster than Exxon in the Smackover though. Daytona has its foot on 5,000 acres here, with a goal to acquire 50,000 more (via an exclusive agreement with a specialist, local land leasing group).

PFE has a 35% (convertible note) interest in Daytona Lithium.

Exxon has subsequently taken ground next door.

As well as Exxon and PFE, in the same region are:

• US$22BN capped Albemarle - The world’s biggest lithium producer by market cap and third biggest in terms of production capacity.
• US$607M capped Standard Lithium - has projects with >180,000 acres and a lithium carbonate equivalent resource of ~4.2mt. Standard’s projects are at the pre-feasibility study stage showing an NPV of over US$3.1BN.
• US$693M capped Tetra Technologies - a prominent brine company - has an agreement with Exxon to develop 6,000 acres of brine land, and has previously sold leased land to Standard Lithium.

The private company that PFE has invested in currently has 5,000 acres, and it's got a plan to rapidly 10x that up to 50,000 acres.

Exxon paid US$100M for 120,000 acres in the Smackover basin.

This is a landrush situation, much like a real estate play, with early movers looking to be rewarded with elevated land valuations as bigger companies get caught behind.

The key points of PFE’s news today:

• PFE has acquired a ~35% interest in a private company called Daytona Lithium via a $2M convertible note (more details on transaction below).
• Daytona Lithium (35% convertible note owned by PFE) has 5,235 leased acres in the Smackover Formation.
• Major companies including Exxon Mobil, Albemarle have projects next door.
• Exxon Mobil paid +US$100M to acquire ~120,000 acres.
• The Smackover has produced bromine from brines for over 60 years and has some of the highest grade lithium concentrations inside the US.
• Any lithium found will come from brines underground and be pumped to the surface.
• This lithium will be extracted (hopefully) via Direct Lithium Extraction (DLE) technology.
• By acquiring land quickly, PFE could become an important player in the Smackover.
• To secure its interest in the acreage, PFE has raised $2M at 7c which will fund its Daytona Lithium investment.

As we noted above, we see PFE’s investment in Daytona as a classic “land grab” that could make it more valuable to any company seeking exposure to lithium brines in the region.

Or alternatively, PFE could increase its interest in Daytona Lithium and/or develop the assets themselves.

What is clear with both options though, is that the PFE investment announced today places the company in the midst of a tectonic shift in the energy landscape of the United States.

More context on PFE’s move into USA lithium

For starters, the US has seen a number of land rushes in its time:

• The gold rush on the West Coast, California during the 1840s and 1850s
• The oil rush in the early 1900s
• The shale boom of the early 2000s
• and now this - the great lithium land rush of the 2020s.

Today’s land rush is happening in a place that once hosted great quantities of oil - the Smackover Formation.

As we mentioned earlier, US$435BN capped Exxon Mobil, one of the world’s largest oil companies, is placing a decent bet on the Smackover, recently paying +US$100M to acquire ~120,000 acres in the formation.

(Source)

The news on Exxon Mobil’s position in Smackover first broke a few months ago in May.

Since then, things have certainly moved quickly...

The region has been the subject of considerable investment by major companies like the US$607M capped Standard Lithium and US$22BN capped Albemarle.

We see this as a genuine race to secure acreage, and our tiny micro-cap Investment, PFE is now right in the thick of it.

Of course, it won’t be easy to compete with these giants in terms of sheer resources and capital.

Which is why PFE’s first “ace in the hole” is so important.

Today’s PFE announcement details a proprietary database and a 6-month exclusive agreement with a commercial “leasing abstract” company, which is the only provider in the region.

To our understanding, leasing abstract companies are capable of tracking down complex mineral rights networks and owners in these southern US states - allowing companies like PFE’s Daytona Lithium to enter into leasing negotiations.

These two things effectively give PFE a headstart on securing additional leases in Arkansas - knowing who owns what land and who to contact to start negotiations with.

These negotiations could prove complex, but it’s a great starting point for PFE.

There’s also the matter of actually extracting lithium from the brines via Direct Lithium Extraction (DLE) technology - this tech has yet to be proven at a large commercial scale.

But we think that the scale of the investment by Exxon Mobil and others in the region show that DLE could be viable here in the future.

And given PFE’s current tiny market cap of $6.7M (at 8.5c), we think there is potential for the company’s valuation to re-rate to the upside as it progresses its project.

More on the PFE - Daytona Lithium transaction

PFE has just raised $2M via a placement at 7c.

PFE intends to use all of the funds from this placement to secure a ~35% interest in Daytona Lithium, the private company with the existing leased lithium brine acreage in the Smackover Formation.

This transaction takes place via a convertible note for Daytona Lithium shares - convertible notes will be convertible into fully paid ordinary shares in Daytona at a conversion price of $11,000 per share.

Should all these convertible notes be converted, Pantera will hold ~35% of the issued share capital in Daytona, which would give Daytona a current valuation of US$3.69M.

PFE will also have the right to elect a board member to the Daytona Lithium board - helping it steer the strategy of the company.

We hold 7 shares in Daytona Lithium, from an unlisted seed investment that we made around six months ago, at the same valuation as PFE is making its investment now.

All up, we see this transaction as a good entry price for exposure to Smackover lithium acreage.

A transaction which could set PFE up nicely for valuation uplift after its first few cracks at a major discovery on its Western Australia exploration projects failed to deliver since our Initial Investment at 20c.

Pantera Minerals

ASX:PFE

What will PFE do next in the Smackover?

Its early days for PFE’s move into US lithium, having just taken a position via its interest in Daytona.

However even at this early stage, the company has offered some clues to what they plan to do (via Daytona) over the coming months:

• Continue an aggressive leasing strategy for land in the Smackover - i.e. the more acres, the better - we would expect news when additional material land is secured.
• Possible lithium exploration target to be generated - PFE (via Daytona) has advanced geological and petrophysical data that is available from historical oil and gas exploration and production previously conducted within the Daytona controlled leased acreage.
• Secure brine samples - this will allow further analysis on lithium concentrations under its ground, and set up future pilot plant DLE testing.

Deeper into the Smackover Formation

The Smackover Formation runs across southern US states, including Texas, Louisiana and Arkansas and Mississippi - its the blue area below:

PFE is particularly focussed on the southern part of the state of Arkansas.

This is part of a region that historically produced large volumes of oil. The old wells can be re-entered or new wells can be drilled to extract brine with high concentrations of lithium.

These areas have been producing oil for roughly 100 years, but the oil is starting to run dry.

Perhaps one of the main reasons Exxon Mobil and others are rushing to secure land in this southern area of Arkansas is that it already has a brine industry, primarily bromine (an agricultural and sanitation product).

And this provides a large amount of pre-existing infrastructure allowing the Smackover Formation to be quickly developed.

So not only does PFE have ready access to drilling equipment and the like, but we suspect many of the owners of acreage in this region would be keen to extract value from their land now that the oil is running out.

In short, if lithium brine is going to work in the US - the Smackover Formation would be a leading candidate in terms of location.

More on Exxon’s move into the Smackover

We covered this briefly above, and here’s some more details.

Things kicked off with this Wall Street Journal article in May which profiled Exxon Mobil’s move on the region:

(Source)

Key takeaways:

• Exxon Mobil bought 120,000 acres in the Smackover Formation of southern Arkansas from a private exploration company called Galvanic Energy.
• Galvanic said in 2022 that a third-party consultant it hired estimated their project could produce 4 million tons of lithium carbonate equivalent (LCE), enough for 50M EVs.
• The U.S. once was the world’s largest lithium producer.
• Exxon Mobil has plans to spend US$17BN through 2027 on cutting carbon emissions and developing low carbon technologies.
• Canadian listed company Standard Lithium has been operating a lithium demonstration plant in southern Arkansas since 2020 at a site owned by German chemical company Lanxess.

Speaking of the US$607M Standard Lithium...

More on Standard Lithium in the Smackover

Standard Lithium has ~186,000 acres across two projects close to PFE’s ground in Arkansas.

Standard Lithium market cap hit a peak of ~CAD$2.5BN in October 2022 just as it installed a “first-of-its-kind” direct chloride-to-hydroxide pilot plant.

The company billed this as a “a self-contained unit [that] takes the lithium chloride feed produced by the Company’s existing Direct Lithium Extraction (DLE) Demonstration Plant; [and] then converts this feed directly into a lithium hydroxide solution using a novel ion-exchange process.”

Which Standard Lithium said made its project “the only location in North America where lithium is continuously being extracted from brine using a modern DLE process and being converted into both lithium carbonate and lithium hydroxide.”

More recently in early August, Standard Lithium completed a Preliminary Feasibility Study (PFS) on its project in Smackover, which details the following:

(Source)

Key takeaways:

• Base case production of 30,000 tonnes per annum (“tpa”) of battery-quality lithium hydroxide monohydrate.
• US$3.1BN After-Tax NPV over a 20 year project life.
• Average annual OPEX of US$4,073/t of LHM.
• Indicated and inferred resource of 1.4Mt and 0.4Mt lithium carbonate equivalent, at an average lithium concentration of 437mg/L.

We see Standard Lithium as an excellent example of the potential of the Smackover Formation and a good model for how PFE could approach development of Daytona Lithium’s assets in the event of a lithium brine discovery.

Standard Lithium got its start in the Smackover Formation via a 2018 deal with an energy services company focussed on brines called Tetra Technologies which is capped at ~US$693M.

More on Tetra Technologies in the Smackover

The Standard/Tetra deal was for up to 33,000 acres of brine leases which has since expanded to ~186,000 acres.

Interestingly, Exxon Mobil also did a deal with the same Tetra Technologies...

(Source)

Key takeaways

• Tetra Technologies signed an agreement with a company known as Saltwerx to develop 6,138 acres of salty brine deposits.
• Saltwerx is a subsidiary of Exxon.
• Exxon has previously held talks with International Battery Metals and EnergySource Minerals about licensing DLE technology.

And there’s Albemarle here too

Meanwhile US$22BN capped lithium giant Albemarle has a foothold in the region with its Magnolia Arkansas Bromine facility and a large plot of acres abutting Exxon Mobil’s acreage:

(Source)

Key takeaways

• Albemarle is building an Arkansas facility to test its Direct Lithium Extraction (DLE) technology.
• As with any company in the DLE race - a successful move into the DLE sector would likely cement Albemarle's dominance in the lithium industry.

To be sure, with Exxon Mobil, Standard Lithium, Tetra Technologies, Albemarle and now PFE - it’s a complex web of relationships and competition in the Smackover.

What could go wrong?

Like any micro cap exploration company not generating any cash flow, a lot can go wrong, and all investments in this space are risky.

Here are just some of the risks for PFE that we see, specific to this project:

Deal risk

PFE currently has a 35% interest in Daytona through a convertible note facility. There is a risk that the Daytona project cannot advance to a stage where PFE can take a majority stake in the company.

Leasing risk

There is a chance that PFE (via Daytona) is not able to lease acreage quick enough or securing further mineral rights in the Smackover Formation proves to be more difficult than expected.

Alternatively, Daytona’s exclusive agreement with the land abstract provider expires before enough acreage is leased.

Exploration risk

PFE has said it intends to secure a lithium brine sample on the Daytona acreage - there is no guarantee that lithium bearing brines are found or the brines are of economic concentrations.

Alternatively, if brines are found, they could contain contaminants that reduce or eliminate the value of PFE’s brines.

Funding risk

PFE will likely need to raise more capital to continue expanding its foothold in the Smackover Formation via Daytona Lithium. Capital raises can lead to dilution and may take place at a discount, reducing the value of PFE shares.

Technology risk

PFE is relying on Direct Lithium Extraction (DLE) technology to be proven viable and then being capable of producing lithium from PFE’s brines. There is no guarantee that the DLE tech will be advanced enough to effectively extract lithium from PFE’s brines.

Market risk

While lithium is a popular investment theme at the moment, lithium prices have pulled back before and its possible supply/demand dynamics change and in turn impact market sentiment for junior lithium explorers like PFE.

We expect to be releasing a new Investment Memo for PFE at some stage over the coming weeks.