Executive Summary:

Salares Lithium Inc. (TSX-V:LIT) is a lithium exploration company that has a 117,904 hectares (117.9 square kilometers) land package, which is significantly comprised of brine salars (salt lakes) in the Atacama region of Chile.  This land package is the largest of its peer group and the company’s ‘Salares 7′ project consists of 7 salars, of which 5 are clustered within 155 kms. These 5 salars are 100 percent owned with a local partner resulting in no severed ownership.

Location, Location, Location

Located adjacent to the Antofagasta Desert, the most arid place on earth, the Salares Lithium property package is situated in the Atacama Desert area of Chile. This region possesses specific geologic and meteorological characteristics that have resulted in its brines accounting for over 50 percent of the world’s current lithium production, as subsurface brines have become the dominant raw material for lithium carbonate production worldwide because of lower production costs compared with the mining and processing costs for hard-rock ores.  Recently, the Fraser Institute published its Survey of Mining Companies 2009/2010, ranking Chile as the seventh best mining jurisdiction in the world and the only Latin American nation listed among the top 10.

Update: Size Matters

In evaluating mineral properties, identifying the reasonable prospects for economic extraction is a critical success factor.  Economic feasibility is a function of the mineral reserves, both the grade and the size.

In late August of 2009, a NI 43-101 technical report was written after geochemical analysis of water samples collected from a June field visit confirmed that the salars consist of lithium- and potassium in quantities that are highly anomalous and indicative of the positive lithium potential.  Following this report earlier this year, Transient Electromagnetic (TEM) surveys were utilized to more precisely define the saline-rich zones within the salars.

During a recent conference call with management,  Chief Executive Officer Todd Hilditch explained that the TEM survey lines were extended beyond the boundaries of the salar Las Parinas on to areas covered by alluvial and volcanic material. The survey identified a continuous brine bearing horizon (reservoir rock) that extended up to 2.5 kms from the salar edge and underneath the adjacent rocks. The three survey lines averaged approximately 9 kms long each. In essence, the TEM surveys have helped identify that the potential size of the host reservoir rock within each of the salars may be much bigger than what you see on surface.

Geodatos of Santiago, Chile, who completed the geophysics survey, has calculated the brine bearing horizon within the northern portion of the La Isla salar to have a volume of 2.459 billion kilolitres (kilolitres are equivalent to cubic metres). Using a resistivity cut-off of 2 ohm/metres (interpreted by Geodatos as possible brines) the calculated volume of this horizon was increased to 5.393 billion kilolitres.  A gravity survey for the project is required to identify the basement level of the salars (beyond a depth in excess of 200 metres for both La Isla and Las Parinas), and will be the next phase of the project as well as completing TEM surveys on all of the Company’s remaining salares.

This is a very significant new development that might serve as a paradigm shift in the lithium space.  It represents the potential of a considerable tailwind for Salares Lithium, since no other exploration company has been able to prove the extension of a brine horizon beyond the surface yet, and as a result of recent developments, those that have 100 percent ownership of lithium salars and the adjoining ground might receive a boost for their resource estimates.

Salares Lithium expects to start drilling its largest salar (La Isla) within the next few weeks.

Lithium Demand Outlook

As part of the American Recovery and Reinvestment Act of 2009, the U.S. Department of Energy funded $2.4 billion in grants to accelerate the development of United States manufacturing capacity for batteries and electric-drive components and for the deployment of electric-drive vehicles. The grants, designed to help launch an advanced battery industry in the United States, represent the single largest investment in advanced battery technology for hybrid and electric-drive vehicles ever made. Lithium-ion battery technology figured prominently in the grant awards, with approximately $940 million in grant money received by lithium battery materials suppliers, lithium battery manufacturers, and a lithium battery recycler.  Serving as a context for lithium exploration and mining companies, the demonstrated initiative by both public and private sector interest in further developing advanced battery technology will enhance the secular demand for lithium in the mid to long term range.