Surrounded by big neighbours… PFE about to re-enter well for lithium

Disclosure: S3 Consortium Pty Ltd (the Company) and Associated Entities own 9,403,012 PFE shares and 2,994,167 PFE Options 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.

Back in 2023, Pantera Minerals (ASX:PFE) began securing land rights over the Smackover Formation in Arkansas, USA.

Why?

PFE had cottoned onto recent activity in the historically oil producing Smackover which pointed to it potentially becoming a future lithium hotspot.

The idea was that old oil wells could be cheaply re-entered to extract lithium rich brines.

A nearby company was doing the same thing.

Meanwhile, PFE continued to quietly build its land position in the Smackover.

Turns out PFE was right about it becoming a lithium hotspot...

In the last 12 months (even while lithium has been out of favour) interest is growing, capital is flooding in, and development has been accelerating in the Smackover Formation:

• Global energy supermajor ExxonMobil enters Smackover with ~US$100M acquisition Galvanic Energy.
• The US Government gives Standard Lithium and Equinor US$225M in grant funding to develop their projects.
• ExxonMobil drills its first well, a further seven wells would follow.
• Equinor (Norwegian oil giant) does a JV with Standard Lithium and invests more than US$130M to get its hands on a 45% stake in two Smackover lithium brine projects.
• ExxonMobil signs an MOU with EV battery maker SK On (South Korean battery giant) to sell them ~100k metric tonnes of lithium from the Smackover, to be used in batteries manufactured inside the US.
• Lithium guru Joe Lowry says the “Smackover is where the US will have brine & DLE success”.
• Arkansas Governor Sarah Huckabee-Sanders launches an annual Lithium Summit in the capitol, Little Rock. We attended the inaugural event to see it ourselves.

And PFE is now weeks away from re-entering one of the historic oil wells on its acreage - to confirm just what kind of lithium concentration is found on its ground.

This is the next potential share price catalyst for PFE.

In the lead up to its first well re-entry, today PFE released a 3D subsurface model that confirmed its ground has the “potential to host a large and world-class lithium brine resource”...

... just like its giant neighbours ExxonMobil and Equinor/Standard Lithium.

PFE’s shiny new 3D subsurface model was based on 38 historic wells that penetrate the formation and was done by SLB (the mega oilfield services group formerly known as Schlumberger).

So PFE now knows what the underground geological structure looks like, and that it has the POTENTIAL to host a large, world class lithium brine resource...

.. but does it contain high concentrations of lithium?

We will soon get our first look at this, with PFE’s upcoming well re-entry that will test the lithium brine concentrations present on its acreage.

Samples from the well will be tested by multiple DLE technology providers.

PFE has been chatting to DLE technology providers, and all this work lead to a pilot plant test on site in early 2025.

We think this could all be part of a PFE master plan to demonstrate to its deep-pocketed neighbours how valuable its acreage is for lithium production, and ultimately get acquired.

This is just speculation on our part and a lot still needs to go right for PFE, but finding a resource next to a large, producing neighbour is a strategy we have seen work well before.

PFE’s “early mover” land package in relation to its neighbours now looks like this:

PFE has a rights issue live right now, which is offering PFE investors the opportunity to buy shares priced at 2.2c - a discount to today’s opening price of 2.5c.

Participants are also allocated 1 new option for every 2 shares subscribed for.

The options will have a strike price of 5c, and a three year exercise period from date of issue.

The ex date is tomorrow meaning any investor that invests in PFE today will be able to participate in the rights issue.

We are participating, averaging down our entry price, in the expectation that the lithium winter is almost over, the Smackover is a genuine upcoming lithium production region and PFE has some major catalysts ahead (see our full investment thesis including risks here).

The US doesn't want to lose out to China when it comes to lithium.

And they are backing this up with capital.

The US Department of Energy just committed US$3BN to the battery & critical materials sector.

US$500M of the funding package was directed toward the Direct Lithium Extraction (DLE) and lithium - the exact sector PFE is in.

(Source)

DLE is an emerging technology for extracting lithium from brine, often from old oil wells, where companies can pull lithium rich brines to the surface for processing.

ExxonMobil has placed a big bet on DLE being a big part of the next lithium boom cycle, and it could well be the backbone of the US lithium industry in the Smackover Formation.

The US$530BN oil supermajor ExxonMobil has been committing hundreds of millions to the lithium brine space over the past couple years, and has earmarked the Smackover Basin as its base of operations.

Back in 2023 PFE moved quickly to secure land in the Smackover, when there were early signs it could become a hub of future US lithium production.

That’s one of the big reasons why we are Invested in PFE, it's the only ASX-listed company with DLE projects in the Smackover in Arkansas.

ExxonMobil scoured the planet to find the best place to build a lithium business.

They chose the Smackover Formation...

... and they chose land that happens to be right next door to our PFE.

ExxonMobil recently drilled a well literally on the border of PFE’s ground...

But it’s not just ExxonMobil that is drilling new wells into the Smackover...

Due to the Smackover Formation’s well established ability to produce high-grade lithium brine, it has also attracted the interest of Equinor (a Norwegian state owned oil major) and Albemarle (North America's largest lithium producer).

Albemarle had a pre-existing bromine operation there, and is now building an Arkansas facility to test its version of Direct Lithium Extraction (DLE).

Below is the map again - all the big parties (and PFE) that hold land in the Smackover Formation.

Little PFE holds a commanding ground position sandwiched between ExxonMobil, and some ‘multiple’ mysterious new parties in a “competitive leasing area”:

(Source)

Across the major players in the region there are nearly a trillion dollars in market cap - and then there’s PFE is capped at just ~$11M.

The region has caught the attention of the US Government too.

The Joint Venture between Standard Lithium and Equinor was one of the projects that received DoE funding under the “Investing in America” initiative.

US$225M in funding.

That’s a lot for the $414M capped Standard Lithium (which by US standards, is definitely a small cap).

(Source)

So the Smackover is clearly where a lot of the bigger players are placing their bets, and now also where the US Government is allocating funding.

At these early stages of development for companies in the region, it is about leasing as much land as possible, as quickly as possible.

It's like the land grab we saw during the US shale boom almost a decade ago - the strategy for many oil companies was to first focus on growing acreage, then develop them later...

Growing the land package is a big part of the PFE story.

It has currently leased +26,000 acres of land and has an exclusive abstract area that covers 50,000 acres.

It is also in competitive lease negotiations outside of this area.

The bigger PFE’s land package, the more noticeable it becomes for its bigger neighbours.

PFE does not yet have a resource, but has a 436,000 to 2,966,000 tonne LCE exploration target.

The plan is to convert this into a JORC resource in the coming months.

As we noted above, PFE will also re-enter an old oil well to collect brine to sample for lithium.

This is due to commence around November 4th.

We think that the resource could be a trigger for some urgency from nearby operators to start to look more closely at what PFE is doing in the region...

This morning PFE put out a relatively technical announcement but we think there were some pretty key bits of news to take away from it...

PFE showed us that there is interest in ground to the west and to the north of its project.

(Source)

It shows that PFE is getting surrounded by other players in the Smackover, which we think points to PFE potentially having some of the “juiciest” bits of the underground formation on its leased acres.

(ExxonMobil drilled a well to the east of PFE’s acreage, literally on the border of PFE’s ground too)

We think this “encirclement” by other Smackover players makes a lot of sense given the new data from today’s announcement.

In today’s announcement, PFE mentioned that thickness across the Smackover range between ~50 feet and ~280 feet.

The 50 feet runs along the southern border of PFE’s ground.

The ~280 feet runs toward the north-east.

Across PFE’s area of interest the average thickness in the centre is ~160-200 feet.

Porosities also seem to be increasing to ~25% as you move closer to that north eastern section of PFE’s AOI.

That tells us that PFE’s ground captures a large chunk of the “sweet spot” of the Smackover Formation inside its project area.

(Source)

Things like reservoir thickness and porosity matter because they determine how big a resource is and how likely it is to flow to surface.

This tells us that there is no real benefit in picking up ground to the south, the “good ground” so to speak is the stuff that extends east/north and horizontally to the west.

From our interpretation of the announcement, this is the area that we think is most interesting from a porosity perspective.

If our interpretations are correct then PFE’s ground sits right in the middle of the area’s everyone else is looking to develop.

(Source)

PFE is aiming for a JORC in the coming year...

The “lithium brine geochemistry and permeability data” from the re-entry program will be fed into SLB's model.

Which will help PFE move closer to a JORC resource.

We think that the JORC resource could be a big catalyst for PFE because it will show the rest of the market, and more importantly the bigger players in the region, how big PFE’s project could become.

PFE’s current exploration target is 436,000 to 2,966,000 tonne Lithium Carbonate Equivalent (LCE).

We think any JORC resource published that sits between those numbers would be an excellent result.

And anything toward the upper end would knock the ball out of the park with a resource bigger than some of PFE’s neighbours.

Ultimately, how PFE can progress its project will determine whether or not the company has a shot at delivering our Big Bet, which is as follows:

Our PFE Big Bet:

“PFE to return 10x by making a discovery and defining a deposit significant enough to move into development studies”

NOTE: our “Big Bet” is what we HOPE the ultimate success scenario looks like for this particular Investment over the long term (3+ years). There is a lot of work to be done, many risks involved - just some of which we list in our PFE Investment Memo. Success will require a significant amount of luck. There is no guarantee that our Big Bet will ever come true.

The Smackover formation is going mainstream...

We came across this recent video, which lays out why the Smackover is attracting the big names from the oil industry looking for lithium:

(Source)

For us, the video is a good way of contextualising things and understanding why the majors are doing what they are doing in this part of the US.

It also brought back echo’s from a Robert Friedland keynote address at a conference in London where he said the big oil companies could be the world’s biggest lithium producers if they really wanted.

Friedland’s view was that old oil and gas wells had heaps of brines that were filled with lithium - something the oil & gas industry up until very recently saw as another contaminant for their projects.

Fridland was referring to Saudi Aramco (the big Middle Eastern oil producer) but we think the same applies to the likes of Exxon and Equinor too.

Our view is that the big oil & gas companies are just scratching the surface with the push into the lithium space, and that the Smackover could be the big unlock for the industry.

These companies have massive amounts of cash to make this happen...

For a company like PFE, being in this region is a big deal (and honestly a little bit out of place given the giants right next door).

But, the PFE’s ground was pegged BEFORE Exxon made the move into the Smackover Region... and so they had early mover advantage.

This has given PFE a seat at the table of the most attractive lithium brine area in the US, and now we wait for the company to deliver a JORC resource and show its peers (and the market) that the company is worth paying close attention to.

The latest from PFE’s CEO & Executive Chairman - Barnaby Warburton:

We also listened to the latest from PFE’s CEO & Executive Chairman Barnaby Edgerton-Warburton on Monday.

Non-executive director Tim Goldsmith had some choice words as well.

Tim Goldsmith was CEO of Rincon Mining when it was acquired by Rio Tinto for $825M in 2022.

Given that Rincon Mining was the first major lithium brine success story on the ASX, Goldsmith has the necessary contacts and industry expertise to help PFE advance its USA lithium brine project - particularly around the use of Direct Lithium Extraction (DLE) technology.

The webinar gives a pretty good ~13-minute overview of where PFE is and what to expect from the company next.

Our key takeaways from the webinar were as follows:

• PFE is the only ASX-listed junior in the Smackover.
• The Smackover Formation hosts some of the best brines in the world (very high grade, perfect for DLE).
• Exxon looked all around the world and earmarked the Smackover as the best place to set up their lithium activities.
• Subsurface work shows that PFE is in the right place to conduct the well re-entry which is due to commence November 4th (results December/January).
• Lithium is a very volatile commodity, at today’s prices, it feels as though the lithium market will not have enough supply to meet the future demand.
• Regardless of which way the US Election goes, both parties are trying to wean themselves off of China - this bodes well for companies developing lithium in the US.

We recommend watching the full webinar, it's a good watch:

(Watch the full video)

What’s next for PFE?

PFE laid out what the next few months should look like pretty well in today’s announcement.

The focus centres around the following milestones and catalysts:

• Well Re-Entry (commence November 4th)
• Results from Well Re-Entry (late December / early January)
• Results from DLE testing (Pilot Plant) - Next Year
• Build land position - Ongoing

🔲 Well Re-Entry Commenced (Pathway to maiden JORC resource estimate)

For PFE to convert its exploration target into a maiden JORC resource it will re-enter an old oil and gas well that sits inside its project area.

The re-entered well will then be used to extract lithium brine and identify valuable data such as:

• The lithium concentration (grade)
• The potential impurities
• The porosity/permeability (how easy can the lithium be extracted)

This data will be fed into the SLB resource model that was updated today and could eventually help give PFE a maiden JORC Resource.

The resource number will be important as it moves PFE into a new stage of developing its project.

🔲 Direct Lithium Extraction (DLE) testing results (commercialisation)

The second major catalyst centres around seeing whether or not PFE’s brines can be processed by DLE tech providers.

The re-entry will bring up samples (hopefully with a high lithium concentration) which PFE can then send off to DLE (Direct Lithium Extraction) tech partners.

(Source)

PFE expects the test to lead to discussions on a pilot plant for early 2025...

🔲 Expanding current land position (ongoing)

PFE also teased the potential for “Continued Smackover Project growth through the acquisition of additional acreage”.

Whether this will come from PFE’s exclusive abstract area, or further afield, we don’t know at this stage.

(Source)

What are the risks to our PFE Investment Thesis?

Exploration risk

PFE has said it intends to secure a lithium brine sample on the company’s 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.

Source: “What could go wrong? - PFE Investment Memo 4 March 2024

PFE is planning a well re-entry in November.

There is no guarantee that this re-entry program finds economic quantities of brines OR any lithium in them.

If this risk was to materialise we would expect the PFE share price to re-rate a lot lower than where it trades today.

Leasing risk

There is a chance that PFE is not able to lease acreage quick enough or securing further mineral rights in the Smackover Formation proves to be more difficult than expected. This could be due to increased competition from other companies fighting to get a hold of acreage.

Alternatively, the exclusive agreement with the abstract provider expires before enough acreage is leased.

Source: “What could go wrong? - PFE Investment Memo 4 March 2024

A big part of the PFE story is that it was an early mover in a region that is becoming more and more a part of the lithium conversation around the world.

There is always a risk that PFE is unable to lease more ground.

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 a DLE tech will be advanced enough to effectively extract lithium from PFE’s brines.

Source: “What could go wrong? - PFE Investment Memo 4 March 2024

No matter how much lithium/brines PFE is able to find, it wont be worth much if the company cant prove that it can be processed into finished products.

PFE plans to do some DLE testing after its re-entry program is complete.

Once that testing works start, “Technology risk” will be one we hope the company can overcome.

This is just one of the many risks to our Investment Thesis - we list more risks in our PFE Investment Memo here.

Our PFE Investment Memo

Below is our Investment Memo for PFE, which provides a short, high-level summary of our reasons for Investing.

In our PFE Investment Memo, you can find the following:

• What does PFE do?
• The macro theme for PFE
• Our PFE Big Bet
• What we want to see PFE achieve
• Why we are Invested in PFE
• The key risks to our Investment Thesis
• Our Investment Plan