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Lithium Mining Company Financing Agreement

Written By Brian Hicks

Posted February 6, 2013

Western Lithium USA Corporation (TSX: WLC) has reached a Royalty Purchase Agreement with RK Mine Finance (Master) Fund II LP, or Red Kite.

Under the terms of the deal, Red Kite will pay Western Lithium up to $20 million for a royalty on the company’s Kings Valley Project in Nevada.

As the royalty agreement closes within the next few days, a first tranche of $11 million will be funded. Once the lithium demonstration plant is completed, a second tranche of $9 million will be funded.

This would need to occur within three years after the agreement is finalized.

Western Lithium intends to use this funding to develop a process facility with the capacity of 10,000 tons per year to manufacture organoclay.

Organoclay, used in the oil and gas industry, usually sells for $2,000-$4,500 per short ton FOB shipping point, Junior Mining Network reports. The process requires mining of Hectorite clay, and the company has already begun the permitting process for such a mine in Nevada. The company expects to see production and cash flow get going early next year.

As shale operations increasingly rely on directional drilling, this kind of thermally stable Hectorite product is likely to come under heavy demand.

Later, the second tranche of funding will go toward developing a demonstration facility to showcase the company’s lithium extraction process.

Junior Mining Network reports:

Jay Chmelauskas, President and CEO of Western Lithium, commented: “Over the next year, we will focus our efforts on our specialty Hectorite drilling additive business with the expectation of generating positive cash flow for the Company in early 2014. In the longer term, we will construct a lithium demonstration plant to gain investment confidence with our project, and to realize the full potential of its asset value. We are positioning Red Kite and our shareholders and stakeholders to expected near term strong growth in the drilling industry and longer term strong growth in the lithium sector.”

The aforementioned royalty is based on all production coming out of the Kings Valley Project, and will be rated at 8 percent until both tranches have been repaid.