Pure Energy Minerals Limited
MANAGEMENT’S DISCUSSION & ANALYSIS
PURE ENERGY MINERALS LIMITED.
February 18, 2016 The following management’s discussion & analysis ("MD&A") provides a review of activities, results of operations and financial condition of the Company for the three months ended December 31, 2015 in comparison with those for the three months ended December 31, 2014. These unaudited condensed consolidated interim financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) for interim financial statements. The following discussion and analysis should be read in conjunction with the Company’s unaudited consolidated interim financial statements for the six months ended December 31, 2015 and the audited consolidated financial statements for the year ended June 30, 2015 and 2014. All monetary amounts, unless otherwise indicated, are expressed in Canadian dollars. Forward-Looking Statements Except for statements of historical fact, this MD&A contains certain "forward-looking information" within the meaning of applicable securities law. Forward-looking information is frequently characterized by words such as "plan", "expect", "project", "intend", "believe", "anticipate", "estimate" and other similar words, or statements that certain events or conditions "may" or "will" occur. In particular, forward-looking information in this MD&A includes, but is not limited to, statements with respect to future events and is subject to certain risks, uncertainties and assumptions. Although we believe that the expectations reflected in the forward-looking information are reasonable, there can be no assurance that such expectations will prove to be correct. We cannot guarantee future results, performance or achievements. Consequently, there is no representation that the actual results achieved will be the same, in whole or in part, as those set out in the forward-looking information. Forward-looking information is based on the opinions and estimates of management at the date the statements are made, and are subject to a variety of risks, uncertainties and other factors that could cause actual events or results to differ materially from those anticipated in the forward-looking information. Some of the risks and other factors that could cause results to differ materially from those expressed in the forward-looking statements include, but are not limited to: general economic conditions in Canada, the United States and globally; industry conditions, including fluctuations in commodity prices; governmental regulation of the mining industry, including environmental regulation; geological, technical and drilling problems; unanticipated operating events; competition for and/or inability to retain drilling rigs and other services; the availability of capital on acceptable terms; the need to obtain required approvals from regulatory authorities; stock market volatility; volatility in market prices for commodities; liabilities inherent in mining operations; changes in tax laws and incentive programs relating to the mining industry; and the other factors described herein under "Risks and Uncertainties" as well as in our public filings available at www.sedar.com. Readers are cautioned that this list of risk factors should not be construed as exhaustive.
The forward-looking information contained in this MD&A is expressly qualified by this cautionary statement. We undertake no duty to update any of the forward-looking information to conform such information to actual results or to changes in our expectations except as otherwise required by applicable securities legislation. Readers are cautioned not to place undue reliance on forward-looking information. BUSINESS OVERVIEW The Company is a public company incorporated under the laws of British Columbia. The Company is a reporting issuer in British Columbia and Alberta and its common shares are listed and posted for trading on the TSX Venture Exchange under the trading symbol "PE". In addition, the Company trades on the Frankfurt Stock Exchange under the trading symbol “AHG1” and on the Xterra trading platform in Germany under the trading symbol “A111EG”. On October 18, 2012, the name of the Company was changed from Harmony Gold Corp. to Pure Energy Minerals Limited. The Company’s offices are located at 1780 – 355 Burrard Street, Vancouver, B.C., V6C2G8. The Company is a mineral resource company engaged in the exploration and development of lithium brines and related processing of brines into lithium compounds. Its sole material project is the Clayton Valley South Lithium Brine project (the “Clayton Valley Project”), located in Clayton Valley, Esmeralda County, Nevada. The Clayton Valley Project is an early stage exploration project. The Company has focused its business plan on producing high value lithium compounds such as Lithium Carbonate (Li2CO3) and Lithium Hydroxide (LiOH), which are primarily used in the emerging Lithium Ion Battery market. The Company’s primary strategy is to advance the Clayton Valley Project through to production. The next phase of that process will be the completion of a preliminary economic assessment on the Clayton Valley Project, which the Company hopes to complete in Q2 2016. The results of the preliminary economic assessment will determine the manner in which the Company proceeds with the exploration and development of the Clayton Valley Project. The Company is in the process of exploring its principal mineral properties and has not yet determined whether the properties contain ore reserves that are economically recoverable. The recoverability of amounts shown for mineral properties and related deferred exploration costs is dependent upon the discovery of economically recoverable reserves, confirmation of the Company's interest in the underlying mineral claims, the ability of the Company to obtain necessary financing to complete the development and upon future profitable production or proceeds from the disposition thereof. Highlights Recent Developments
The Clayton Valley Project – Update The Company is in the process of developing the mineral properties comprising the Clayton Valley Project (the “Project”) (fig 1). We note, further to the Company’s announcement of July 28, 2015 of an inferred resource estimate on the Project of 816,000 metric tonnes of lithium carbonate equivalent, that the Company has not yet established a measured or indicated mineral reserve in respect of the Project. Fig 1: Project Location
Clayton Valley is located within the Basin and Range Province in southern Nevada and is an internally drained, fault bounded and closed basin. Basin-filling, asymmetrically thicker to the east, strata compose the aquifer system which hosts and produces the lithium-rich brine. Six main aquifers have been identified in the entire basin, and two of these have been drilled by the Company. Rodinia Minerals, Inc., a previous holder of the claims, completed a geophysical survey surrounding the existing lithium operation and identified a deep northeast-southwest structural trough in southern Clayton Valley. Rodinia drilled 2 dual wall reverse circulation boreholes in the north section of its claims (now Company claims) in 2009/10 and identified aquifers that contained lithium up to 400 ppm Li to 488 m (1600 ft) in depth. Rodinia dropped the claims in 2013. The Company completed detailed gravity and seismic reflection surveys during 2014-15 that confirmed the deep structural trough on its claims and identified 19 reflectors from sediment layers that correspond to previously identified Li-aquifer horizons. Two exploratory boreholes were completed in the north end of the claims. CV-1 “twinned” the Rodina hole SPD-9, pumping tests completed for 8 hours in CV-1 provided positive results of 150 gpm (9.5 L/s) and 225 ppm Li (Table 1) and CV-2 explored new ground further south (Table 2)
Table 1: Summary of Analytical Data CV1
Table 2: Summary of Analytical Data CV2
Note: Some samples are labelled as being from CV3. This name was used by project geologist as this was the BLM permitted name for the borehole; these samples are all from CV2.
A National Instrument 43-101 compliant Inferred Resource, announced on July 28, 2015, of 816,000 metric tonnes of Lithium Carbonate Equivalent (LCE) (table 3) has been calculated based on borehole sample chemistry, seismic and gravity interpretations of basin stratigraphy.
Table 3: N.I. 43-101 Inferred Resource Estimate
This estimate is relatively early stage in nature, and it is recommended that additional drilling and other work be conducted to supplement the data and move it towards a resource estimate with a higher degree of confidence (i.e. Indicated or Measured). Commencing in November 2015 the Company began its next phase of exploration drilling. The Company is permitted to drill three new wells that will target potential lithium brine bearing formations identified from the 2015 seismic reflection survey. This phase of the exploration program steps out southwards from the Company’s previous drilling in the northern part of the Project in order to increase drill density and confirm lithium grades in the Company’s maiden resource. This program will provide geological, hydrogeological and geochemical information for the planning and permitting of future exploration. These data will support a Preliminary Economic Assessment expected during the second quarter of 2016 with an estimated cost of $3.3 million. Lithium Brine Process Testing Commencing in January and finishing in April of 2015 the Company worked with Tenova Bateman Technologies ("TBT") to conduct lab scale test work for the extraction of lithium from raw brine collected from the Clayton Valley South Project. The test work utilized TBT proprietary LiP™ (pre-
treatment stage) and LiSX™ (main Li-removal) processes for extraction of lithium from brine (schematically displayed in Figure 2). The LiP™ process successfully removed most of the alkali earth elements from the raw brine solution, (practically all the Mg and Sr and 93% of Ca). As this stream would be further polished in an industrial application, the results indicate excellent performance. The LiSX™ process target purity of lithium Chloride Solution (LiCl) 99.5% was achieved and exceeded, producing a LiCl solution with a purity greater than 99.9%. Lithium concentration in the raffinate (waste stream) was below the detection limit indicating practically 100% Li recovery. Fig 2: Tenova Bateman Flow Chart
On Nov 17, 2015 the Company made a payment of $59,947 to Bateman Advanced Technologies for access to its R&D facility in Israel for mini pilot process testing and engineering. Other Highlights On April 3, 2014 the Company consolidated its share capital on a basis of 1 new common share for 4 old common shares. On May 12, 2014, the Company entered into a definitive option agreement with GeoXplor Corp. ("the Definitive Option Agreement") to earn a 100% interest in the CV and DB placer mineral claims in Clayton Valley Esmeralda County, Nevada (the “CV and DB Claims”).Under the agreement the Company has the option to earn a 100% interest by making cash payment to GeoXplor totalling US$1,100,000, issuing 1,707,648 post consolidation common shares and completing US$3,750,000 in exploration and development work on the CV and DB Claims, over the next four years and either (i) preparing a feasibility study or (ii) commencing commercial production on the CV and DB Claims within the four year term and payment of US$2,000,000 or equivalent share issuance. Pursuant to the Definitive Option Agreement, the Company has paid a US$100,000 cash payment and is committed to issue 1,000,000 common shares. Upon the Company acquiring a 100% interest in the claims (by exercising the conditions above) GeoXplor will be entitled to a royalty equal to 5% gross revenues derived from the CV
and DB Claims. The Company may reduce the royalty by 50% (to 2.5%) by a onetime payment of US$7,000,000. The Company shall pay to GeoXplor a minimum advance royalty of US$250,000 by April 30, 2019 and each anniversary thereof until termination of the Definitive Option Agreement. The advance royalty will be credited towards the calculated royalty owed to GeoXplor. GeoXplor Corp. is a private exploration and services company which is the holder of the CV and DB mineral claims which are under Definitive Option Agreement to the Company. As part of the Definitive Option Agreement GeoXplor also provides significant contract exploration services to Pure Energy on the CV and DB portion of the Company's Clayton Valley South lithium brine project. The Company has fulfilled its exploration expenditure requirement and issued all shares required to date. A list of the claims is provided in Table 4 below. Table 4: List GeoXplor CV –DB Mineral Claims
On August 11, 2014, the Company issued 187,500 shares at a fair value of $26,250 ($0.14 per share) pursuant to the property acquisition agreement on its AF Claims. A vertical drill hole, AF-1, on the Alkali Flats claims was completed in bedrock at a depth of 293 m (960 feet).
On October 3, 2014 the Company issued 1,875,000 stock options, giving the holder to right to purchase one common share per option held at a price of $0.245 per share. These options expire on October 3, 2019. On October 31, 2014, the Company issued 1,000,000 shares at a fair value of $220,000 ($0.22 per share) pursuant to the Definitive Option Agreement on the CV and DB Claims. On November 7, 2014 the Company retained BEC Environmental Inc. ("BEC"), a private Nevada Company, to provide technical assistance in support of the Clayton Valley Project. BEC’s role is to assist the Company in meeting local, State and Federal regulatory requirements. On November 13, 2014 the Company appointed Alexi Zawadzki ("Mr. Zawadzki") as Vice President of Business Development. The Company granted Mr. Zawadzki an option to acquire 400,000 shares at an exercise price of $0.235 per share for a term of three years in accordance with the Company’s stock option plan. These stock options were fully vested and exercisable on February 11, 2015. On November 14, 2014 the Company appointed Dr. Andy Robinson as Chief Operating Officer ("Dr. Robinson"). The Company has granted Dr. Robinson an option to acquire 400,000 shares at an exercise price of $0.235 per share for a term of three years in accordance with the Company’s stock option plan. These stock options were fully vested and exercisable on February 12, 2015. On February 10, 2015 the Company removed the forced warrant acceleration conversion provision with respect to the Company’s non-brokered private placements that were issued on May 30, 2014, July 14, 2014, and September 5, 2014. The Company will not provide Warrant holders with an acceleration notice and will not exercise its right to accelerate the Expiry Date of the Warrants pursuant to the Acceleration Provision. Holders of the warrants will now have three years from the respective closing date of the respective Private Placement to convert the Warrants. On March 12, 2015, the Company appointed Mary Little to the board of directors. Ms. Little was granted an option to acquire 270,000 shares at an exercise price of $0.27 per share for a term of five years in accordance with the Company’s stock option plan. These stock options were fully vested and exercisable on September 12, 2015. On March 16, 2015 the Company retained Brisco Capital Corp ("Brisco") to provide investor relations services for a period of one year at a cost of $6,000 per month. In addition, Brisco was granted share purchase options for 200,000 common shares at an exercise price of $0.23 per share vesting quarterly over a period of one year with an expiration date of two years from the date of the grant. On May 6, 2015 the Company through its wholly owned US subsidiary, Esmeralda Minerals, LLC, acquired 963 acres of placer mineral claims contiguous to and to the south of the Company’s CV and DB Claims. As the claims are 100% owned by a wholly owned subsidiary of the Company, there are no lease fees, royalties, work commitments or other encumbrances owing to third parties in relation to the claims, other than annual payment of BLM and County maintenance fees. A list of the claims is provided in Table 5 below.
Table 5: List Esmeralda Minerals Claims
On May 14, 2015 the Company issued 176,912 common shares with a fair value of $49,535 pursuant to the acquisition of CV and DB claims. On May 31, 2015 (the “Effective Date”) the Company entered into an option and lease agreement with Nevada Alaska Mining Co. Inc. (“NAM”) whereby NAM has granted the Company an indefinite, exclusive lease and exploration license (the “Lease”) to conduct mineral exploration and development testing on the CE and CD unpatented placer mining claims comprised in a property located in Esmeralda County, Nevada (the “CE and CD Claims”); NAM has also granted the Company the option to acquire a 100% interest in the CE and CD Claims. Under the terms of the Lease, the Company is required to make the following cash payments and common share issuances to NAM: On the Effective Date CDN$35,000 cash payment and 226,620 common shares of the Company. On the first, second, third and fourth anniversaries of the Effective Date, CDN$35,000 as well as such number of common shares of the Company as is then-equal to the USD$/CAD$ currency difference on the amount of such payments divided by the then-most recent closing price of the Company’s common shares; and US$75,000 on each anniversary of the Effective Date past the fourth anniversary date until the Option Payment (described below) is made and title to the CE and CD Claims is transferred to the Company or the NAM agreement is terminated. Under the terms of the option, the Company is entitled to acquire a 100% interest in the CE and CD Claims, subject to the 3% NSR, by providing NAM either a one-time payment of US$500,000 (the “Option Payment”); or such number of common shares of the Company as is equal to the Option Payment divided by the then-most recent closing price of the Company’s common shares. The Company may terminate the NAM agreement at any time on 30 days written notice to NAM. A list of the claims is provided in Table 6 below.
Table 6: List Nevada Alaska Minerals Claims