Pure Energy Minerals Limited

Transcription

1 (TSXV: PE) (OTCQB: HMGLF) Equity Research and Market Intelligence December 21, 2015 Price (as of December 21, 2015): CAD 0.53 Beta: 0.85 Price/Book: 6.4x Debt/Equity Ratio: N/A Listings: TSXV, OTCQB Emerging Low Cost Lithium Supplier Pure Energy Minerals Limited ( Pure Energy or the Company ) is a mineral exploration company, headquartered in Vancouver, Canada. The Company explores for lithiumenriched brines that can be processed into in-demand battery grade chemicals such as lithium hydroxide and lithium carbonate. Focused on its Clayton Valley South Lithium Brine project, located in Nevada, USA, the Company is working with global partners to deploy cutting-edge, disruptive technology in order to enable low-cost production of the key highpurity lithium chemicals required for the burgeoning battery industry. The Company has secured over 9,300 acres of lithium placer mining claims in Clayton Valley, which are adjacent to the only active lithium mine in North America (operated by a global lithium producer), and therefore is uniquely positioned in the lithium space. Investment Rationale Recent Agreement with Tesla should enhance growth prospects Source: Yahoo! Finance Recent News 19-Nov-15: Pure Energy initiates mini pilot plant study at Clayton Valley project in association with a Tenova Group Company - Bateman Advanced Technologies. 16-Nov-15: Pure Energy begins second phase of drilling work at its Clayton valley project. 02-Nov-15: Pure Energy expands land holdings by securing additional 1320 acres of lithium placer mining claims in the Clayton valley. 16-Sep-15: Pure Energy enters into an agreement with Tesla Motors, Inc. to supply lithium hydroxide for a period five years. 04-Aug-15: Pure Energy collaborates with SRI International, a research and innovation center, to develop efficient methods of lithium extraction from brines. 29-Jul-15: Pure Energy publishes inferred resource estimate of Clayton valley project to be 816,000 metric tons of LCE. Shares Outstanding: 63,590,596 shares Market Cap: CAD 33.7 CAD $ Week High: CAD Week Low: CAD 0.17 Note: All currencies in Canadian dollars unless otherwise specified On September 15, 2015, Pure Energy entered in to a conditional agreement with Tesla Motors, Inc., to supply lithium hydroxide for a period of five years. The Company targets to complete a Preliminary Economic Assessment of its Clayton Valley South Lithium Brine project in Q2 2016, which should help advance it to the next stage. As the Company is one among the limited suppliers for the Tesla s Gigafactory, it stands to benefit significantly from the continuous revenue generating opportunity. Strategic Location and Prospective Claims should provide tremendous upside Pure Energy s Clayton Valley project is located at about 3.5 hours away from Tesla s Gigafactory, which has a planned annual battery production capacity of 35 gigawatt-hours per year by Such close proximity to end markets may help the Company to gain benefits such as cost synergies, convenience, and time savings. Further, a conducive business environment for mining companies in Nevada should help Pure Energy to continue its project development and execution smoothly. Clayton Valley is one of the few locations globally known to contain commercial-grade lithium-enriched brine, which is understood to date as being the lowest cost method of lithium production. The Silver Peak lithium mine, located in the northern area of Clayton Valley adjacent to Pure Energy s claims, has been in production since 1967, and is currently operated by Albemarle Corporation. Resource estimates at the project may prove attractive, as the Company published a NI inferred resource estimate of 816,000 metric tons of Lithium Carbon Equivalent (LCE) at grades of lithium ranging from 37 ppm to 400 ppm. As mentioned earlier, completion of a Preliminary Economic Assessment ( PEA ) should help the Company to provide an estimate of resources and project economics with a higher degree of confidence. Technology Partnerships provide significant Operational benefits In March 2015, Pure Energy, in partnership with Bateman Advanced Technologies (BAT), a Tenova Group Company, completed the lab scale test work for extraction of lithium from brine samples collected at the Clayton Valley project. Using BAT s proprietary LiP and LiSX processes, the Company achieved promising results such as nearly 100% lithium recovery from brine and production of a 99.9% purity in lithium chloride solution. BAT s technology is in an advanced stage of development and provides the Company with potential operational benefits such as low operational cost, low capital investment, time saving and has the ability to provide different battery-grade lithium end-products (chloride, carbonate and hydroxide). It also enables the Company to be less dependent on weather conditions, unlike traditional process of lithium extraction from brines that rely on evaporation ponds.

2 The Company also has an agreement with Korea giant, POSCO, regarding application of its proprietary lithium processing technology at Clayton Valley and potential commercial opportunities. POSCO has advanced relationships with other lithium exploration companies, including deploying pilot plants and other early-stage project investments. In addition to BAT and POSCO, Pure Energy has research partnerships with SRI International and University of British Columbia to study and develop technology on extracting lithium from brines. End market applications favor strong growth in lithium demand Demand and pricing for lithium is growing significantly, driven by applications such as batteries, ceramic/glass, metals, grease, air treatment, polymers and others. Batteries play a pivotal role in the growth of lithium demand due to the recent exponential increase in energy storage, primarily for transportation, grid storage and consumer electronics. Average pricing for battery grade lithium hydroxide (LiOH) has increased by 20% in 2015 to about US$8000 per ton. Demand remains strong in Q and suppliers are currently sold out of LiOH. This trend should further magnify batteries contribution for lithium demand from 40% in 2014 to 65% in In addition, the scheduled launch of new model electric vehicles by prominent auto makers should drive demand for lithium. According to Stormcrow Capital, demand for lithium is estimated to grow at a CAGR over 7% to reach 410,000 metric tons in 2025 from current levels of 200,000 metric tons. To put this in perspective, this growth will require ten new projects to come online that each produces 20,000 tons per year LCE by Electric vehicle (EV) launches should benefit lithium miners Due to increased awareness for clean fuel and global governments emphasis on reducing carbon footprints and air pollution, prominent auto manufacturers across the world have increased production or planned to increase the production of new models of electric vehicles in the near future. Reputed auto makers such as Daimler, BMW, Nissan, Ford, Fiat, BYD and Mitsubishi have already launched electric vehicles. Further, companies such as Lexus, Audi, Volkswagen, Porsche, and Volvo are developing new ones. For the next few years, scheduled new product launches include 2016 Tesla Model X, 2015 Mercedes-Benz S-Class Plug-In Hybrid, the enhanced Nissan Leaf with extended range, 2016 Audi A3 Sportback E-tron, 2016 BMW 330e Plug-In Hybrid, 2017 Chevrolet Volt and 2017 Chevrolet Bolt EV. Such new product launches should contribute to significant growth in the global EV market. In addition, air quality policies in China promoting the uptake of EVs will also continue to drive growth in important markets. According to International Energy Agency (IEA), global EV sales increased at a CAGR of 170% from 2010 to It is further estimated to grow at a CAGR of 77% by Expected growth in the EV market should help the lithium suppliers. Company Overview Pure Energy Minerals Limited is an exploration and project development company focused on developing its Clayton Valley lithium brine project in Nevada, USA. The Company is headquartered in Vancouver, BC, Canada and its common stock listed on the Canadian TSX Venture Exchange (TSXV: PE), U.S. OTC Markets (OTCQB: HMGLF) and the German Xterra Trading Platform (FRANKFURT: A111EG). Recently, Pure Energy is one of two junior lithium companies that have entered into a conditional lithium supply agreement with Tesla Motors Inc. ( Tesla ). As per the agreement, the Company will supply lithium hydroxide to Tesla for a five year period. Pure Energy s management has extensive experience in finance, project acquisition, exploration, development and mine construction. The Company also collaborates with multinational partners such as POSCO, SRI International, University of British Columbia and Bateman Advanced Technologies, with the goal of establishing and deploying low-cost and environmental friendly lithium processing technologies. We now discuss the Company s Clayton Valley project, partnerships & collaborations and consulting functions in detail below. Clayton Valley Lithium Project Location and Geology The Clayton Valley Lithium project, an early stage exploration project, covers 3,773 hectares (9,324 acres) and is located in the southern half of Clayton Valley in Esmerelda County, Nevada, USA. Pure Energy is focused on producing high quality-high value lithium compounds such as lithium hydroxide (LiOH) and lithium carbonate (Li 2CO 3). These compounds are in high demand from the fast growing lithium-ion battery market. Out of the total project area, option agreements with GeoXplor Corp and Nevada Alaska Mining Company have been executed for 2,850 hectares (7,042 acres). As per the option agreements (discussed below), Pure Energy has rights to earn 100% interest in the claims subject to certain conditions. In addition, Pure Energy also engages GeoXplor Corp. as its site operator for the claims that encompass the related option agreement. 2

3 The project is adjacent to Albemarle Corporation s Silver Peak lithium brine processing operations (in operation since 1967) where lithium brines are processed to produce lithium chemicals. Clayton Valley is well connected by highways and has access to power, water and labor with the nearest settlement three miles away. The valley is an internally drained closed-basin and is surrounded by mountains, hills and ridges on all four sides. The location contains an underground unconsolidated water bearing system (or aquifer system) which is host to lithium-enriched brines and contained by the surrounding rock. Exhibit 1 displays a graphical representation of the working of an aquifer system. Exhibit 1: Generalized representation of an aquifer system Modified Source: Drilling activity to date has returned results from two aquifer systems that underlie the Company s placer claims, namely, Main Ash Aquifer ( MAA ) and Lower Aquifer System ( LAS ). MAA and LAS are made up of a series of ash/tuff layers, interbedded with gravel, sand and silts. The drilling results confirm the presence of lithium bearing brines at both the aquifers. Exhibit 2 displays an idealized cross section of Clayton Valley. Exhibit 2: Idealized Clayton Valley cross section shows the aquifer system Current Project Status Source: NI Pure Energy Minerals Inferred Resource Report On November 16, 2015, the Company announced mobilization of drilling equipment by its operator (GeoXplor), thus commencing the second drill program at the Clayton Valley Project. This stage of exploration includes the drilling of three wells located between approximately 2.8km to 6km (1.7 miles to 3.7 miles) south of the most southerly existing well CV-2. The Company has engaged Harris Exploration Drilling and Associates Inc. ( Harris ) to conduct resource assessment well drilling and installation. The program is expected to conclude in the first quarter of 2016 along with the publication of a revised inferred resource report. Permission to undertake drilling activity was granted through the receipt of the Notice of Intent Work Permit issued by the Bureau of Land Management ( BLM ) on November 9, As per the Permit, the Company is allowed to drill three new wells. The Company plans to drill wells to depths of up to 500 meters in specified sites that have been selected from the earlier conducted seismic reflection survey. The Company has also secured sufficient funding for this phase of exploration through the recent exercise of warrants. Project Feasibility Pure Energy is currently in the process of determining if the lithium resources are economically recoverable and has announced plans of completing a Preliminary Economic Assessment by the second quarter of Recent pumping tests conducted by the Company show that brine solution from the aquifers can be sustainably pumped at commercially viable rates similar to the production rates used on the adjacent Silver Peak operation. In addition, the Company, in collaboration with Bateman Advanced Technologies plans to employ a new and more efficient extraction technology. Preliminary testing of this technology has returned very positive results. The Silver Peak operation has been successfully processing similar (not verified by the Company) brine at its property since 1967 using traditional technologies that are approximately 40-50% efficient. Given the similar nature of resources and deployment of more efficient technologies, Pure Energy is very optimistic about it's project s potential. 3

4 Partnerships and Collaborations Tesla Motors Inc. On September 15, 2015, Pure Energy entered into a five year commercial lithium supply agreement with Tesla to supply lithium hydroxide to its battery Gigafactory located in Reno, Nevada, USA. Reno is located just 3.5 hours away (Exhibit 3), Further, other than Pure Energy, only Bacanora Minerals (LSE: BCN) and Rare Earth Minerals (LSE: REM), who are jointly developing a lithium mine in Northern Mexico, have currently entered into a lithium supply agreement with Tesla. Pure Energy s Nevada location is positioned to benefit from the development of the Gigafactory. This agreement potentially opens up future project financing opportunities and future stability for Pure Energy s overall business. Exhibit 3: Pure Energy s resource to Gigafactory only 3.5 hours by road Bateman Advanced Technologies Source: Google Maps In December 2014, the Company entered into a partnership with Bateman Advanced Technologies, a global supplier of advanced products, technologies and engineering services for metals, mining and mineral industries. Through the partnership, Pure Energy engaged BAT to conduct bench-scale testing of their proprietary lithium extraction technologies (selective mineral extraction). Testing of these new processes demonstrated extracted lithium purity greater than 99.9% and a lithium extraction efficiency of nearly 100%. Bateman Advanced Technologies enables efficient, fast and cleaner extraction of lithium from the brines (Exhibit 4). If successful, it will facilitate low-cost, fast, efficient and continuous supply of high purity lithium products with a much smaller environmental footprint. Such clean and efficient initiatives by Pure Energy strengthen its position as a potential supplier to the clean tech sector. Exhibit 4: BAT s new innovative lithium extraction technology layout Source: Pure Energy Minerals Website Effectively, this technology is a solvent extraction process, which has been commercially proven for decades for other metals and has displayed significant advantages over the conventional solar evaporation lithium production process. Exhibit 5 displays the advantages of the new technology over the conventional method. 4

5 Exhibit 5: BAT s technology displays significant advantages over traditional techniques Criteria New Technology Conventional Technology Time taken for extraction 8 hours 1-2 years Resource use efficiency 99% lithium extraction 40-50% lithium extraction Purity 99.9% (high) low er Sustainability High Low (results in large w aste piles) Compact and Cost Cheap; requires 100x100 meters of land Source: Pure Energy Minerals Website Expensive; requires acre ponds Weather Not dependent Dependent Ability to recycle Yes No Feed solution Requires brine w ith lithium contentration greater than 20 ppm Requires much higher concentration POSCO On March 5, 2014, Pure Energy and POSCO entered into a non-binding Memorandum of Understanding. The agreement provides potential joint business opportunities associated with the exploration and commercialization of the Company s mineral claims at Clayton Valley, including testing of POSCO s proprietary lithium extraction technology. On May 19, 2015, the Company and POSCO enhanced the Memorandum of Understanding. The enhancement extends the scope to include investment opportunities, introduction to potential customers and consolidation opportunities. SRI International On August 4, 2015, Pure Energy and SRI International announced a collaboration to develop a novel, cost-effective technique for lithium extraction from geothermal brine solutions. The technology being developed uses a new selective ion exchange method to separate metals from geothermal brines effectively and at a low cost. This partnership will advance Pure Energy s technological leadership position in the lithium market landscape. This research program is fully funded by the U.S. Department of Energy. The University of British Columbia Pure Energy and University of British Columbia entered into a partnership to collaboratively study aspects of selective lithium ion removal from brines and also to understand the exchange of lithium between lithium-containing solids and brines collected from the Clayton Valley Project. On June 11, 2015, the Company and the University received a grant of CAD $25,000 from the Natural Sciences and Engineering Research Council of Canada to fund the collaboration s research efforts. Exploration Activity Pure Energy, along with its operator GeoXplor, conducted exploration activity in late 2014 and early Prior to Pure Energy s exploration efforts, Rodinia Minerals Inc. ( Rodinia ) (previous holder of minerals claims options) undertook exploration in The following is a summary of the exploration works carried out by both the companies on the property. Rodinia conducted a Reconnaissance Gravity Survey in This survey established a general view on the size and depth of the bedrock. Exhibit 6 displays the results of the survey. The 15 kilometer long basin is North East-South West trending with maximum depths of 1,600 meters. 5

6 Exhibit 6: Gravity survey showing estimated depth to bedrock in Clayton Valley Source: NI Pure Energy Minerals Inferred Resource Report Towards the end of 2014, Pure Energy contracted Hasbrouck Geophysics to conduct a Detailed Gravity Survey on the Northern part of the basin to establish an enhanced definition of the shape, size and depth of the target formation. Further, through this survey, the location of the eastern bounding fault line of the basin was estimated and the data was combined with the earlier survey conducted by Rodinia. In , Rodinia completed a drilling program (Exhibit 7). Further, Pure Energy in added to the data collected through Rodinia s drill program by completing a drilling program (CV-1 and CV-2). Brine samples were extracted and analyzed for chemical composition. Further, in , Pure Energy conducted downhole geophysical logging of borehole CV-1 with the goal of determining brine bearing zones. On completion of the geophysical logging, CV-1 borewell was widened to facilitate installation of a quasi-production well and test the pumping rate of the brine. Exhibit 7: Drilling Summary (including Rodinia) Pure Energy's Hole No. BLM Hole No. Total Depth Drilled SPD-78 SPD meters SPD-79 SPD meters CV-1 CV meters CV-2 CV meters Source: NI Pure Energy Minerals Inferred Resource Report In Q1 2015, the Company conducted a Seismic Reflection Survey of the entire Clayton Valley property and surrounding areas. The survey was conducted to help define the in-basin fault, identify the depth of the basin to the bedrock and lastly locate and identify the different unconsolidated sediment/rock layers laterally throughout the basin. Finally, the Company conducted a pumping test at CV-1, which successfully demonstrated commercial-level brine productively at 150 GPM for 8 hours. Exhibit 8 displays the result summary of the exploration model. 6

7 Exhibit 8: Cross sectional display of the intersected geology Source: NI Pure Energy Minerals Inferred Resource Report Resource Estimation As per the NI Draft Inferred Resource Report, Pure Energy estimates the inferred resources at approximately 816,000 metric tons of Lithium Carbonate Equivalent ( LCE ). Further, the brine contains grades of lithium ranging from 37 parts per million (ppm) to 400 ppm. Exhibit 9 displays the inferred resource estimates from the two main aquifer systems. Exhibit 9: Inferred resource estimate shows 816,000 metric tons of LCE Zone Saturated Thickness (meters) Lithium grade (mg/liter) LCE (metric tons) NorthernZone Upper Transitional- Part of MAA ,300 Northern Zone MAA ,700 Northern Zone LAS ,000 Southern Zone MAA ,000 Southern Zone LAS ,000 Total Source: NI Pure Energy Minerals Inferred Resource Report 816,000 However, the current estimate is at an early stage of exploration and to arrive at a probable and proven (indicated and measured) resource estimate, additional data needs to be gathered through exploration work. Further, the inferred resource estimate was completed using parameters including a conservative estimate of the resources thickness and assumption of low lithium grades for the large southern zone lower aquifer system. 7

8 Future Plans & Strategy Pure Energy determined that the Clayton Valley project warrants continued exploration work to upgrade the resource estimates and establish a Preliminary Economic Assessment by the end of the second quarter In addition to the current well drilling (commenced in fourth quarter of 2015), the Company has laid out the following future tasks. Continuously monitor and evaluate the drawdown effects, if any, at wells constructed on the Company s Clayton Valley placer claim area due to production at the adjacent Silver Peak Mine. Extension of the drilling activities into the southern part of Clayton Valley property to ascertain and confirm the lateral distance of the lithium bearing brine zones and its lithium concentration. Further, the Company plans to drill deeper wells (>500m) to assess that thickness of the lithium bearing zones. Based on feasibility, the Company will employ new techniques of drilling such as Dual Wall Reverse Circulation (DWRC) drilling or other traditional drilling techniques such as mud rotary. Undertake further seismic reflection studies to accurately define lithium brine zones. Improve understanding of the property s hydrogeological characterization through extended pumping tests of the aquifer systems. Undertake chemical and physical testing if the brine and soil samples to allow improved understanding of the resource characterization. Pure Energy has also estimated costs at US$3.47 million (CAD$4.26 million) for undertaking these activities. Exhibit 10 shows the breakdown of this cost. Ownership Status of Claims Exhibit 10: Expenditure estimate of future activities Recommended Tasks Estimated Cost US$ Notes/ Remarks Drilling activities Assumes 4 similar boreholes plus $ 2,700,000 one deeper borehole and one monitoring w ell Well Installation, Pumping Tests and Hydrogeological Reporting $ 520,000 Seismic Reflection Survey and Reporting $ 200,000 Soil, brine, porosity lab samples $ 50,000 Total $ 3,470,000 Assumes 3 w ell installations and 2 long term pumping tests Assumes approximately 10 km of transects Source: NI Pure Energy Minerals Inferred Resource Report As mentioned earlier, Pure Energy has entered into two lease agreements with GeoXplor Corp and Nevada Alaska Mining Company to earn rights to 100% interest in their claims. We now discuss the two lease agreements and their status in detail. GeoXplor Corp. Claims GeoXplor Corp s ( GeoXplor ) claims lie north of Pure Energy s claim area and consist of eighty contiguous placer claims (grants the discoverer the right to mine on public land) that cover 1,806 hectares approximately. GeoXplor s first staked the claims several years ago. The claims have been earlier held by other junior mining companies. On April 30, 2014, Pure Energy and GeoXplor entered into a lease agreement for 100% interest of the claims. The lease agreement was later modified on December 3, The following table presents the general terms of the agreement. 8

9 Date Exhibit 11: Terms of the agreement with GeoXplor Expenditure Cash Requirement by Payments Pure Energy Share Issuance 30-Apr-14 $ - $ 100,000 1,000,000 Within one year $ 750,000.0 $ 250, ,912 Within two years $ 1,000,000.0 $ 250, ,912 Within three year $ 2,000,000.0 $ 250, ,912 Within four year Pre-feasibility study or commercial production $ 250, ,912 Total $ 3,750,000.0 $ 1,100,000 1,707,648 Source: NI Pure Energy Minerals Inferred Resource Report Note: All currency in US$ To date, Pure Energy has met the minimum work commitment of US$0.75 million exploration expenditures within one year from the effective date. In accordance with the agreement, Pure Energy has made the first two cash payments totaling US$0.35 million and has issued 1.17 million shares. There are three remaining conditions to be met within April 30, 2016, 2017 and Upon satisfying the conditions and acquiring 100% interest in the claims, Pure Energy will be liable to pay a royalty equal to 5% of gross revenues from sale of lithium concentrates. Further, the Company may reduce the royally by 50% to 2.5% of gross revenues by making a single one-time payment of US$7 million. Finally, GeoXplor shall receive a minimum advance royalty of US$0.25 million from the fifth anniversary of the effective date and all subsequent anniversaries thereafter until the agreement is terminated. Pure Energy appears to be on course to meet these targets and earn 100% interest in GeoXplor s claims. Nevada Alaska Mining Company Claims Nevada Alaska Mining Company s ( NAMC ) claims lie in the southern and eastern part of Pure Energy s claim area. The claims comprise of fifty-four placer claims covering 1,044 hectares (2,580 acres). NAMC first staked the claims in On May 31, 2015, Pure Energy entered into a lease agreement that enables the Company to earn 100% interest in the placer claims. The following table displays the terms of the lease agreement. Exhibit 12: Terms of the agreement with NAMC Cash Date Share Issuance Payments 31-May-15 CAD$ ,620 Within one year CAD$ estimated Within two years CAD$ estimated Within three year CAD$ estimated Within four year CAD$ estimated Within five years and each year thereafter US$75000 Source: NI Pure Energy Minerals Inferred Resource Report The Company successfully paid CAD$35,000 and issued 226,620 shares and satisfied the first condition of the agreement. The Company also has the option to acquire 100% interest in the claim by paying NAMC US$0.5 million cash or by issuing share of the Company of equal value. In this option, NAMC has the option to retain 3% Net Smelter Return. Although only early milestones of the lease agreement have been met, Pure Energy has expressed its desire to successfully satisfy all future conditions. Esmeralda Minerals LLC Claims Esmeralda Minerals LLC ( Esmeralda Minerals ) is a wholly owned US subsidiary of the Company. The Esmeralda Mineral s comprise of forty eight placer claims and cover 390 hectares (963 acres) approximately. In addition, on November 2, 2015, Esmeralda Minerals secured an additional 520 hectares (1,320 acres) of placer claims. As the claims are 100% owned by Pure Energy s subsidiary, no lease fees, royalties, expenditure requirements or other terms are required. 9

10 Company Timeline and Key Events Exhibit 13 below shows the reverse chronological timeline of the evolution of Pure Energy, summarizing some key annual events for the Company since Exhibit 13: Timeline summarizing significant annual events Date 19-Nov-15: 16-Nov-15 Event Pure Energy announced its mini pilot plant study using brines collected at the Clayton Valley project in collaboration with Bateman Advanced Technologies. Testing will begin in Q at the BAT research facility in Israel. Launched the second drill campaign at its Clayton Valley South project. 02-Nov Sep Aug Aug Jul Jul Jun Jun May May Apr Apr Mar Jan-15 Dec 2014 Expanded land holdings to 9,234 acres by adding 1,320 acres of direct-ownership lithium placer mining claims. Entered into an agreement with Tesla Motors Inc., for potential supply of lithium hydroxide. Haywood Securities Inc. entered into an agreement with Pure Energy to provide strategic advisory services and help the Company unlock value of its assets. Collaborated with a research institute, SRI International, for developing novel, cost effective methods of lithium extraction from brines. Funding provided by US Department of Energy. Listed on OTCQB Marketplace under the symbol HMGLF. In TSX Venture Exchange the Company s shares trade under the symbol PE. Published an inferred resource estimate of 816,000 tons of Lithium Carbonate Equivalent (LCE) at Clayton Valley Lithium Brine Project. The Company and Professor Pierre Kennepohl of the University of British Columbia received a grant of CAD$25,000 from Natural Sciences and Engineering Research Council of Canada ( NSERC ) for a collaborative study on aspects of selective lithium removal from brines, and also how lithium is exchanged between brines and lithium-containing solids in samples from Pure Energy s Clayton Valley Property. Signed a lease and option agreement with Nevada Alaska Mining Co. Inc. ( NAM ), where by NAM provided exclusive lease and exploration license to conduct exploration and testing at mining claims located in Esmeralda County, Nevada. Also NAM has granted an option to acquire 100% ownership interest in the property. Signed a Memorandum of Understanding ( MoU ) with POSCO to extend the scope of previous MoU to include commercial and investment opportunities Expanded land holdings of the project in Clayton valley to 8,037 acres by adding 963 acres of direct-ownership lithium placer mining claims. Successfully completed initial exploration program at its Project in Clayton valley, including seismic reflection survey, well drilling and pumping test. Lithium-enriched brines encountered at all wells. Achieved 99.9% purity and nearly 100% lithium extraction on the lithium brine process testing through the application of TBT technology (bench scale). The Company s shares are accepted for continuous trading in XETRA (Germany) under the symbol A111EG. Completed detailed gravity survey at the northern part of Clayton Valley claims and confirmed lithium brine prospects. Closed private placement for gross proceeds of CAD 2.23 million. Sep 2014 Closed private placement for a gross proceeds of CAD 990,000. May 2014 March 2014 March 2014 May 2013 Entered into an option agreement with GeoXplor Corp., through which the Company could earn 100% interest in certain placer claims in the property at Esmeralda County, Nevada. Entered into a partnership with Phoenix Water to collaborate and propose the first location for installation, testing and demonstration of technology to process lithium and other by-product minerals at the Company's mineral claims. Entered into an agreement with POSCO to explore business opportunities in the areas such as exploration, technology deployment and commercialization of lithium and other by-products. Mr. Robert Mintak appointed as Chief Executive Officer of the Company. Oct 2012 Source: Company filings Harmony Gold Corp. acquired Pure Energy Minerals Limited in exchange for the issuance of 2,462,500 Common shares of the company (as adjtd. for a 1-for-4 reverse split in April 2014) with a fair value of Canadian Dollar 689,

11 Industry Overview Over the past two decades, new applications of lithium have been discovered, resulting in a significant transformation of the lithium industry. Currently, lithium is produced from two sources, lithium bearing minerals and lithium-enriched brines. Both find uses in technical applications such as ceramic, glass and metallurgical industries, and chemical applications in the battery, aerospace, pharmaceutical and metal market. Despite multiple applications and uses, growing demand from the Electric Vehicles ( EV ) and Energy Storage Solutions ( ESS ) market is expected to continue to drive the demand and pricing for lithium chemicals. We now present a detailed description of the lithium industry s dynamics and its future direction. Lithium demand to grow over 7% CAGR till 2025 due to growth in use of batteries As mentioned earlier, lithium has major applications in the battery, ceramic/glass, grease, metals, polymers and other markets. As seen in Exhibit 14, the battery market contributed 40% of the total lithium demand in This figure is expected to grow to 65% by 2025 primarily due to the increasing battery needs from the EV, ESS and portable devices market. Exhibit 14: Lithium demand growth from the battery market Source: Pure Energy Minerals Corporate Presentation Expected growth in the battery market along with other lithium applications should enhance potential growth prospects for lithium. Stormcrow Capital estimates the overall lithium demand to grow by 7.4% annually to reach 410,000 metric tons by 2025 from the current levels of 200,000 metric tons (Exhibit 15). Exhibit 15: Lithium demand estimated to grow at 7.4% CAGR till , ,000 Lithium demand (in Metric Tons) 350, , , , , ,000 50, Source: Stormcrow Capital 11

12 The demand growth for lithium products in general is expected to outstrip the supply by 2020; however, demand for battery grade LiOH has already outstripped supply in This resulted in pricing increases of 20% in 2015, on the back of significant pricing increases in Possible peaking production coupled with growing demand outlook could result in lithium prices trending up in the futures. Exhibit 16 displays the various scenarios that could play out in the future. Exhibit 16: Lithium demand could outstrip supply by 2020 Source: Credit Suisse, 2014 Supply-Demand disparity could cause an upward trend in lithium prices As seen in Exhibit 17, from 2009 to 2011 lithium prices fell by 30% as a result of the global downturn. However, over the last 3 years, increasing demand for from EV and ESS markets has helped prices recover to exceed 2009 levels. It is also expected that batterygrade lithium chemical prices could rise further in the future due to continued supply-demand disparity. This continuing favorable price scenario should benefit lithium producers and developers. Exhibit 17: lithium carbonate trending upwards could benefit Source: Benchmark Mineral Intelligence Shifting focus of automobile manufactures to EV space to drive demand According to the International Energy Agency ( IEA ), global EV sales grew from 2010 to 2014 at a CAGR of 171%. Further, IEA s Report* estimates the Electric Vehicle Initiative member countries to target deployment 20 million EV s on road by 2020, from the level of 0.65 million EV s at the end of This represents a growth in EV s by a CAGR of 77% from 2014 to Recently, Citigroup announced its forecast of pure EV to reach 290,000 by 2016 from approximately 150,000 in Further, Citigroup estimates production of pure EV at 1.04 million vehicles approximately, a seven fold jump in five years from current production levels. Such growth is largely due to demand from environment-conscious consumers forcing automobile manufacturers to realign their strategies to include EV s in their product portfolios. Other factors such as decreasing EV vehicle costs, favorable government policies (especially in China) and increasing fuel prices should contribute to the shift in consumer demand. 12

13 Nissan led in global sales of EV with its Leaf model at 61,000 units in This was followed by the Mitsubishi Outlander PHEV (31,600), Tesla Model S (31,600), Chevrolet Volt (21,200) and Toyota Prius PHEV (19,000). Recently, Tesla announced that plans to have an annual battery production capacity of 35 gigawatt-hours per year by Similarly, Ford estimates that by 2020, 10-25% of its fleet will comprise of EV. BMW has also embarked on an EV strategy and plans to convert all cars in segments above the 3-series into plug-in EV by In YTD 2015 sales, Tesla Model S displaced Nissan Leaf as the top selling EV in the US (Exhibit 18). Similarly, sales of Tesla Model S has been picking up in Europe and is now effectively competing with European stalwarts like Volkswagen, BMW, Renault, and Japanese companies Nissan, Mitsubishi and Toyota. Recently, Tesla launched the Tesla Model X and began deliveries in Tesla guided for 55,000 vehicles in 2015, out of which it is suggested that Model X deliveries will be around 5,000 vehicles. Almost all automobile manufacturers are lining up new product launches. Nissan has announced the launch of Nissan Leaf with extended driving range. Chevrolet has also announced the launch of the revamped 2017 Volt in early Exhibit 18: Tesla Model S has displaced Nissan Leaf as the top selling EV in US in YTD YTD 2014 YTD 2015 Source: The EV and battery industry witnessed a number of deals. On October 28, 2015, General Mining and Galaxy Resources signed a lithium supply agreement with Mitsubishi Corporation. As per the agreement, General Mining will supply lithium from its Mt. Cattlin lithium mine for four years with an option for a one year extension. Similarly, Nemaska Lithium signed a Memorandum of Understanding with Johnson Matthey Battery Materials that includes a provision for a long term lithium supply agreement. Further, as earlier mentioned, Bacanora Minerals and Rare Earth Minerals signed a lithium supply agreement with Tesla. With lithium mining and extraction economics turning attractive, there has been increasing investment in the industry. Recently, Neometals, Mineral Resources and their Chinese partner Jiangxi Ganfeng Lithium commenced expansion of the Mt. Marion lithium resource located in West Australia. Despite estimated increase in lithium prices, prices for lithium-ion batteries are estimated to fall by 50-60% from 2014 ($550kWh) to This is primarily due to increased energy density, use of efficient silicon electrodes instead of traditional graphite electrodes that increases longevity and minimal maintenance. Tesla s management predicts that prices for lithium-ion batteries could fall to US$100 per kilowatt-hour (kwh) by 2020, thus making EV much more affordable and efficient in the future. Similarly, the U.S. Department of Energy s stated goal targets reduction in the lithium-ion batteries from US$325 per kwh to US$125 per kwh by

14 Exhibit 19: BEV sales grew faster at 33% vs PEV sales at 13% in Vehicles sold during the year PEV BEV Source: SignumBOX estimates lithium-ion levels in batteries for Hybrid Electric Vehicles ( HEV ) are in the range of 0.8 to 2kg, for Plug-In Electric Vehicles ( PEV ) between 1 to 10kg and for Pure Battery Electric Vehicles ( BEV ) between 8 to 40kg. HEV and PEV have an internal combustion engine as well as an electric motor. However, unlike PEV and BEV (fully electric), HEV batteries cannot be charged using an external power source. Instead the batteries are charged using energy captured from braking using kinetic energy recovery systems. This drawback has resulted in consumers preferring PEV and BEV to HEV. Automobile manufacturers have recognized this change in consumers preference and are focusing more on brining to the market PEV and BEV. As seen in Exhibit 19 above, there has been a trend of increasing sales of BEV compared to PEV due to innovation and development of battery technology that improves mileage and eliminates the dependence on an internal combustion engine. High usage of lithium-ion in EV batteries coupled with fast growing EV market is expected to grow the lithium demanded from the EV manufacturers by a CAGR of 27.3% from 2011 to Exhibit 20 shows the lithium-ion for EV battery demand forecast from 2011 to Exhibit 20: High demand from EV manufacturers should drive lithium growth 250,000 Lithium demand from EV manufactureres (in LCE Metric Tons) 200, , ,000 50,000 0 Source: SignumBox - Lithium Industry: Outlook and Perspectives 14

15 Dependence on Energy Storage Solutions (ESS) should supplement demand Increasing adoption and installation of renewable energy systems led by solar energy should create the need for reliable and efficient energy storage solutions. Exhibit 21 shows the historical and estimated annual solar global capacity addition in gigawatts. Exhibit 21: Capacity addition of solar energy systems is set to rise in the future Annual Capacity Addition (GW) Total Global Capacity (GW) 0 0 Annual Capacity Addition High Scenario Capacity Addition Low Scenario Capacity Addition Total Global Capacity Source: Global Market Outlook for Photovoltaics , EPIA Research is being conducted by several established players such as Tesla, Panasonic, BYD, Samsung and others to develop efficient low cost batteries. Recently, Tesla announced the plan to produce the Powerwall, a home battery system, and the Powerpack, a commercial version. SignumBox estimates the lithium demand from domestic and grid ESS to growth at a CAGR of 21.3% to 7,400 metric tons from 50 metric tons (Exhibit 22) Exhibit 22: ESS growth to add to lithium demand Lithium demand from ESS market (in LCE Metric Tons) Source: SignumBox- Lithium Industry: Outlook and Perspectives 15

16 Exhibit 23 displays initiatives taken by various governments to support the EV industry. Exhibit 23: Support for EV manufacturers and markets from various Governments Source: SignumBox- Lithium Industry: Outlook and Perspectives 16

17 SWOT We now briefly study the strategic outlook for Pure Energy by summarizing the strengths and weaknesses of the Company, along with the opportunities and threats in the external environment. Strengths Location Advantage and Good Mineral Potential Pure Energy s mineral claims are strategically located in the mid-way between Reno and Las Vegas. The Company could gain advantage of cost synergies associated with proximity to end markets (Tesla Gigafactory is located near Reno). Further, Nevada being one of the best mining jurisdictions across the world provides favorable environment for the Company s exploration activities. Pure Energy s resource estimate is attractive, as it published inferred resources to be 816,000 metric tons LCE at its Clayton valley project. Further, the project contains grades of lithium ranging from 37 ppm to 400 ppm. The neighboring Silver Peak mine has proven the commercial potential for lithium brines found within Clayton Valley. Agreement with Tesla Business opportunities with leading companies in the world should strengthen the Company s reputation in the market. In September 2015, Tesla Motors, entered into an agreement with the Company to supply lithium for a period of five years to its battery gigafactory located 3.5 hours away. The agreement requires the Company to meet a few terms and conditions with regard to product quality, project execution and timing of the delivery. Strategic Partnerships Partnership agreements with world-class entities in the industry should help the Company to advance its project to production stage. In November 2015, Pure Energy entered into an agreement with Bateman Advanced Technologies to expand testing of bulk brine samples collected at its Clayton Valley project using BAT s research facility in Israel. Previous bench scale testing in early 2015 enabled the Company to achieve virtually 100% lithium extraction with purity greater than 99.9%. Therefore, the partnership with BAT may allow the Company to employ new technology which has benefits such as high purity, less time consuming, non-dependent on weather and high lithium extraction efficiency. Similarly, the Company has partnership with SRI International to develop novel efficient technology for extraction of lithium from brine solutions. In addition, the company has a partnership with University of British Columbia to conduct collaborative study related to lithium brines and a MoU with POSCO to engage in business opportunities related to exploration and commercialization of lithium and other mineral by-products. Weaknesses Lack of Revenues and Cash Flows Pure Energy is strictly an exploration and development company, and thus its operating cash flow is negative. For the quarter ended September 30, 2015, the Company had negative operating cash flow of CAD 0.13 million. The Company has demonstrated an ability to raise capital required to conduct exploration and project development work; however, the ability to fund their strategy in the future remains subject to work progress, results and macroeconomic fundamentals. Opportunities Growing Lithium End Markets The consumption of lithium has grown significantly due to extensive use of rechargeable batteries and is forecasted to continue in the coming years. Lithium has other applications such as ceramics and glass, lubricating greases, alloys and air treatment applications. According to Stormcrow Capital, global lithium demand is forecast to grow at CAGR of 7.4% to reach 410,000 metric tons by Growth in demand for lithium should enhance commercial opportunities and revenue generation prospects for Pure Energy. The buoyant lithium market should also create tension for potential consolidation of lithium development opportunities. EVs Innovation in Automobile Space With a focus on manufacturing environment friendly vehicles, auto makers across the world have launched or planned to launch new models of EVs. A few of the scheduled new products launches include 2016 Tesla Model X, 2015 Mercedes-Benz S-Class Plug-In Hybrid, 2016 Acura NSX, 2016 Audi A3 Sportback E-tron, 2016 BMW 330e Plug-In Hybrid 2016 BMW 330e Plug-In Hybrid and 2017 Chevrolet Bolt EV. Such new product launches should contribute for the growth in the EV market. According to IEA, the global EV sales increased at a CAGR over 170% since 2010 to Further, it is forecast to grow at a CAGR of 77% till Such growth in the expected EV sales should drive demand for lithium batteries. 17

18 Threats Competition Pure Energy operates in the mineral resource industry, which is in highly competitive in nature. It competes with lithium miners across the world based on factors such as price, quality of lithium, number of acres of mineral claims and partners for joint ownership. There are number of companies in the industry with greater financial resources, technical capabilities and operational expertise than that of the Company. Further, value of the Company s potential reserves may be affected due to low commodity price scenario arising from competition or excess inventories in the market. Regulations The Company s exploration activities are subject to various laws and regulations. It has to abide to policies governing development, production, imports, exports, taxes and royalties, waste disposal, occupational health, environmental protection and safety. Further, the Company requires certain approval or licenses for development of mineral properties. Adherence to such policies and procedures could increase the costs of exploration activities. Further, changes in the regulations or delay in acquiring any permits could increase the compliance costs affecting profitability. Changes in Technology Research and development in the field of batteries could change the technological landscape. Research across the world currently is focused on extending the battery life or using fewer amounts to lithium for attaining the same power density. Further, researchers are mulling ways of using aluminum along with lithium to create batteries, which has four times the capacity of lithium-ion batteries with ability to degrade less over time. Such technological breakthroughs could potentially decrease lithium demand. However, few market experts feel this is highly unlikely in the near term. Nevertheless, this may present a challenge for the Company s growth prospects in the future. Financial Performance We now discuss Pure Energy s financial performance for the first quarter ended September 30, The Company follows July-June period as its financial year. As mentioned earlier, the Company s Clayton Valley project is in its exploration stage and the project currently does not generate revenue from its operations. The Company s cash burn for the quarter ended September 30, 2015, was CAD 0.08 million, indicating a survival period of 20.7 months with the available cash of CAD 1.6 million (Exhibit 24). An improvement in cash burn levels and an extended survival period were largely due to two factors- CAD 1.1 million financing via a private placement and reduced exploration and evaluation expenditures. At normalized levels, the burn rate equals CAD 0.15 million, indicating a survival period of about 5 months. Operating cash flow Net investing cash flow Net financing cash flow Cash position (quarter end) Burn Rate per month Survival period (in months) Dec 2012 Mar 2013 Exhibit 24: Pure Energy s cash burn analysis (in CAD 000s) Jun 2013 Sept 2013 Dec 2013 Mar 2014 Jun 2014 Sept 2014 Source: RBMG Research Dec 2014 Mar 2015 Jun 2015 Sept 2015 Avg. Burn Rate $(191) $(235) $(198) $ 97 $133 $ (54) $(133) $ (75) $ (891) $ 96 $(560) $ (137) $(179) $(284) $ (60) $ (73) $ (35) $ (59) $ (25) $(334) $ (364) $ (224) $(1,021) $(667) $ (101) $(271) $ 508 $ - $ - $ (30) $ - $ - $ 326 $1,257 $2,130 $ 138 $ 686 $1,146 $ 513 $ 766 $ 471 $ 200 $233 $307 $229 $ 88 $ 906 $2,069 $ 1,282 $ 742 $1,649 $ 745 $(158) $ (99) $ (90) $ 21 $ 25 $ (26) $(156) $ (146) $ (372) $ (308) $(409) $ (80) $(150) NM NM Exhibit 25 shows the Company s Income Statement for the quarters ended September 30, 2015 and September 30, In 1Q16, the Company reported net loss of CAD 0.84 million, indicating an increase of four times over the previous year. Operating costs increased by four times compared to previous year, mostly due to increase in consulting fees, management fees and investor relations and regulatory expenses. 18