Fox Creek Lithium / Potash Project

Oilfield lithium / potash brine project Aquifer identified - assessing economic potential Option to acquire 100% interest

Extensive drilling by the oil and gas industry has encountered two major mineralized brine-bearing aquifer systems in west-central Alberta. Targeting the Beaverhill Lake and Leduc aquifer formations - 369 square kilometre permit area encompasses zone with most prospective reservoir characteristics. Brine already extracted as a by-product of gas production - currently re-injected back into aquifer formations. Gas well operators in area are highly cooperative - attracted by potential reduction in brine handling and disposal costs. Extensive infrastructure already in place - power, roads, rail, water, pipelines. Low cost energy availability - natural gas field, grid connected electricity, waste heat from natural gas plant, geothermal potential of hot brines. Multi-product advantages with lithium, potash, borates & bromine. Process testing and selection program underway.

The Fox Creek project is comprised of mineral rights over a 369 square kilometre area 24 kilometres south of the town of Fox Creek in west central Alberta. It is situated over oil and gas pools hosted in the Devonian age Beaverhill Lake and the southern Woodbend (Leduc) carbonate reef complexes. Aquifers composed of formation water brines are spatially associated with these oil and gas pools and contain high concentrations of sodium and calcium chloride and anomalous concentrations of lithium, potassium, boron and bromine.

The concept of developing a lithium brine deposit in Alberta originates from information found in the ARC Bulletin No. 62, Industrial Mineral Potential of Alberta Formation Waters authored by Brian Hitchon, Stephan Bachu, J.R. Underschultz and L.P. Yuan and published in 1995 (the "Bulletin"). Source data was gleaned from well logs, drill stem tests and drill core analyses and was then paired with the geochemistry data, identifying aquifers that not only met the detailed geochemical exploration thresholds but also minimum reservoir characteristics for thickness (10m), porosity (>5%) and permeability (>10 millidarcies). Content estimates were then compiled for the aquifers that met all of these criteria for economic potential.

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The Bulletin indicated that formation waters with lithium concentrations are contained in two aquifers (the Leduc-Beaverhill Lake aquifers) in three locations in west central Alberta. Based on data contained in the Bulletin, the Company believes that it has established the Fox Creek permit area over the most prospective zones for lithium recovery. The Beaverhill Lake aquifer is considered to have the best blend of lithium concentration and reservoir characteristics (derived from 183 wells, over 18,000 core analyses and 32 permeability measurements in drill stem tests).

In May of 2009, Channel Resources filed a National Instrument 43-101 standard technical report (the "Technical Report") on the Fox Creek project. The Report, prepared for the Company by APEX Geoscience Ltd. of Edmonton, provides a comprehensive description of the geology and compilation of available information pertaining to a potential lithium deposit for the project. The Report is available through the link at the top of this page.

The Technical Report reviewed the total resource distribution estimate contained in the 1995 Bulletin for lithium in aquifers that are partly captured within the boundaries of the Fox Creek property. This historical scoping type estimate is not NI43-101 compliant and should not be relied upon. However, the estimate does provide an order of magnitude level of a resource that could be present and therefore is considered useful information in guiding future work. This historical estimate is partly based on porosity and permeability data obtained from regulatory submissions from the petroleum industry operating in the area. These indicate an average thickness for the Beaverhill Lake aquifer of 46 metres, an average porosity of 7% and an average permeability of 43 millidarcies, and an average thickness for the Woodbend (Leduc) aquifer of 25 metres, an average porosity of 6% and an average permeability of 20 millidarcies. At least 25 wells drilled in the region have yielded anomalous concentrations of lithium (to a maximum of 140 parts per million) in formation water samples from the Beaverhill Lake and/or Woodbend (Leduc) aquifers.

Based on this data, the aggregate historical lithium resource contained within the Beaverhill Lake and Woodbend (Leduc) aquifers was estimated to be 515,000 tonnes of lithium (approximately 2.7 million tonnes of lithium carbonate equivalent - LCE) over an area of 3,980 square kilometres. Referencing the characteristics of the targeted aquifers, including thickness, porosity and permeability, the Technical Report indicates that "a large portion of this potential resource would be contained within the Beaverhill Lake aquifer and the southern Woodbend (Leduc) aquifer that underlie Channel's Fox Creek Lithium Property."

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The Technical Report details information on 113 oil and gas wells that have been drilled on the property and that penetrate the Beaverhill Lake carbonate reef complex at a depth of approximately 3,200 metres, 44 of which are currently active. Active wells are producing substantial volumes of brines along with the petroleum products from the Beaverhill Lake and Woodbend (Leduc) aquifers. The brine is separated from the petroleum products before being injected back into the aquifers. No lithium production from these brines has taken place to-date at Fox Creek.

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The processing of lithium from brine has been recognized as having much lower capital and operating costs than that from hard-rock sources, as well as a shorter lead-time to production. In assessing the producibility of commercial minerals from the Fox Creek brine, Channel will assess various processing techniques that are used by the producers in Chile and Argentina and various new processing technologies that may obviate the need for evaporation ponds that are used in these established operations. Some of these closed-circuit techniques have been already applied in a new brine processing plant in China and by CalEnergy Company, which uses a combination of ion exchange and solvent extraction processes to extract zinc metal from Salton Sea geothermal brines, in the Imperial Valley, California.

The composition of the brine indicates that significant quantities of potash (KCl), sodium, magnesium and boric acid are potential commercial products from the Fox Creek brine with lithium.

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Recommendations in the Technical Report for further work at Fox Creek include additional formation water geochemistry data searches, formation water sampling and analysis, potential re-entry of strategically located abandoned or suspended wells for the purpose of direct formation water sampling, land-use permitting and consultation, bench scale process testing for the recovery of lithium and co-products and water reservoir modeling. Channel is following up on these recommendations further data searches and a brine sampling program, and is working towards the preparation of a National Instrument 43-101 compliant mineral resource estimate for the Fox Creek project.

The Fox Creek project is governed by an option agreement with Polaris Capital Ltd. that Channel entered into in February of 2009, for the acquisition of a 100% interest, subject to a 2% purchasable gross sales proceeds royalty, with the following major terms:

• Payment of $10,000 and 1,000,000 common shares of Channel to Polaris upon execution of the Agreement (Paid);
• Payment of $10,000 and 1,000,000 common shares of Channel to Polaris on each of the first four anniversary dates of the Agreement;
• Following full exercise of the purchase option, the 2% gross sales proceeds royalty may be purchased at Channel's discretion at any time for consideration of $2,000,000.

The Fox Creek Project presents a unique opportunity for Channel to capitalize on an high rate of market growth for lithium carbonate, potash and other contained minerals, as well as to benefit from several project-specific advantages such as substantial existing infrastructure and easy access to energy sources.

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Rising demand for lithium in industrial applications and new battery technologies, coupled with limited new supply growth expected in the next decade, is forecasted to continue driving the price for lithium carbonate upwards.

Channel's objective at Fox Creek is to take advantage of increasing prices and market demand for lithium carbonate, potash and borates as well as the lower costs associated with production from brines. In addition to the 'green' application of lithium in the automotive sector, the development of the Fox Creek project is expected to have a much smaller environmental impact than a hard-rock mining project, simplifying the approval process and lowering permitting costs. The project's location in Alberta offers a very pro-development and business oriented environment, and a substantial resource of technical expertise.