Exxon reportedly spent >US$100M acquiring its project and just started drilling its first well 6 weeks ago with a view of getting to first production by 2027.
$0.018
Opened: 04-Mar-2024
Shares Held at Open: 9,916,667
What does PFE do?
Pantera Minerals (ASX: PFE) is a micro cap lithium brine exploration and development company which is operating in the Smackover Formation in South West Arkansas, USA.
The Smackover Formation is home to large lithium companies such as Standard Lithium, Albemarle as well as oil giant, Exxon Mobil - which are all investing large amounts of money, seeking to produce lithium from this area.
At the time of writing, PFE controls over 10,000 leased acres directly next door to Exxon’s Arkansas lithium brine project, and is aiming to expand this land holding quickly.
What is the macro theme?
Lithium is a critical material used in Electric Vehicle (EV) battery cathodes.
We believe battery metals are the most compelling investment theme of this decade. A lithium supply deficit is anticipated between 2024-2030.
Lithium rich brines and the complementary technology, Direct Lithium Extraction, are an emerging option for addressing this anticipated supply deficit.
In addition, we think that domestically sourced lithium will be a top priority for the US, in the wake of the US$370BN Inflation Reduction Act which creates strong incentives for critical minerals production.
Our Big Bet for PFE
PFE to return 10x by making a discovery and defining a deposit significant enough to move into development studies.
Why did we invest in PFE?
PFE right next door to $643BN Exxon
Exxon reportedly spent >US$100M acquiring its project and just started drilling its first well 6 weeks ago with a view of getting to first production by 2027.
Surrounded by (much) bigger players
PFE is also in the same neighborhood as $25BN Albemarle, $383M Standard Lithium, $790M Tetra Technologies.
Cheap re-entry into historical oil wells
PFE doesn't have to drill new wells, instead, it can just re-enter old oil and gas wells and extract lithium brines. This is cheaper to do than drilling whole new wells.
Direct Lithium Extraction (DLE) tech advancing
All over the world, DLE tech is progressing extremely quickly. PFE is in a unique position where it gets to benefit from the work and investment Exxon is doing next door - Exxon is working on DLE technology.
Supportive local government and regulations
We attended the inaugural Lithium Innovation Summit in Little Rock, Arkansas and saw firsthand how much the state wants to make lithium a key pillar of its economic agenda.
Federal government incentives
The US government is looking to incentivise critical minerals production inside the US. The $370BN IRA includes incentives that reward producers inside the US/friendly countries.
Arkansas already has a brine processing industry
Arkansas is a globally significant brine processing hub. Arkansas produces ~40% of the world’s bromines by extracting it from brines.
Small market cap of ~$11M
PFE’s market cap is well below its regional peers & has a lot of room for growth as it delivers catalysts at its project.
Fast mover into the Smackover
PFE’s ground was picked up BEFORE Exxon Mobil entered the Smackover Formation & put the region on the map as a US lithium hot spot.
Large JORC exploration target released
PFE’s exploration target is between 436,000 and 2,966,000 tonnes of Lithium Carbonate Equivalent (LCE) - big enough to host a resource the size of its neighbour Standard Lithium’s project.
We have had previous success with a DLE stock
We built our position in Vulcan Energy Resources in a down lithium market and then at its peak during the lithium bull market had a return from our Initial Entry Price of 5,420%.
PFE Strategic Advisor previously sold a project to Rio Tinto for US$825M
PFE recently appointed Tim Goldsmith as its strategic advisor. Tim sold the Rincon lithium brine assets to Rio Tinto for US$825M in March 2022.
What do we expect PFE to deliver?
Objective #1: Rapidly increase acreage in Smackover Formation
PFE, is aiming to rapidly grow its footprint in the Smackover Formation. This could make the company attractive to majors in the area or another company looking to gain exposure to the region. To do this PFE will need to continue leasing acreage quickly.
Milestones
10,000 acres leased
15,000 acres leased
20,000 acres leased
+25,000 acres leased
Objective #2: Convert exploration target into a maiden JORC resource
PFE has already defined a 436,000 to 2,966,000 tonnes of Lithium Carbonate Equivalent (LCE) exploration target. We want to see PFE convert that into a maiden JORC resource estimate.
Milestones
Release an exploration target
Acquire existing 2D seismic/geophysical data
Re-enter old oil and gas wells
Sample the wells for lithium brines
Maiden JORC resource estimate
Drill new well
Results from new well drilled
Objective #3: Secure brine samples for further analysis and pilot plant DLE testing
We want to see PFE secure a brine sample to test in a DLE pilot plant to see if the brines on the company’s acreage are amenable to producing lithium (i.e they have a high concentration of lithium and/or low levels of contaminants).
Milestones
Secure brine sample
Analyse sample
DLE pilot plant testing
What could go wrong?
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.
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.
Funding risk
PFE held $1.8M in cash at the end of 2023. PFE is a micro cap stock and will need to raise more capital to continue expanding its foothold in the Smackover Formation. Capital raises can lead to dilution and may take place at a discount to market prices, 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 a DLE tech will be advanced enough to effectively extract lithium from PFE’s brines.
Commodity price risk
Lithium prices have pulled back relatively strongly recently and that is impacting investor interest in small cap lithium companies. There is a chance the lithium price stays low for an extended period of time which would impact PFE’s share price negatively.
Market risk
There is always the possibility that broader market sentiment gets worse and shares as a whole trade lower, taking PFE’s share price with it. Alternatively, there could be further sector specific pain ahead where junior explorers suffer a lot more than the broader market.
What is our investment plan?
We will apply our standard plan for early stage exploration Investments.
We invest early, hold on to our position in anticipation of a major catalyst and Top Slice/Free Carry ~20% of our position.
For PFE, the major catalyst is likely to be more land acquired or the results of the brine sampling for DLE.
Disclosure: Disclosure: S3 Consortium Pty Ltd (the Company) and Associated Entities own 9,916,667 PFE shares, 2,994,167 PFE options. The Company has been engaged by PFE to share our commentary on the progress of our Investment in PFE over time.