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Bacanora a buy for Numis as it looks for more offtake news

Published: 12:04 21 Dec 2016 GMT

Lithium-based battery
Negotiations for battery grade lithium carbonate offtake are advanced with potential Asian partners

Numis Securities has totted up the pluses and minuses of yesterday’s update from Bacanora Minerals Ltd (LON:BCN, CVE:BCN) and called it about even.

Industry-wide cost increases in reagents and energy are likely to result in higher operating costs; however, this is more than offset by recent increases in battery grade lithium carbonate prices, with producer Orocobre reporting current term prices levels of US$9,000-10,000 a tonne, against the US$6,000 a tonne used in the March pre-feasibility study, Numis notes.

The broker has updated its estimates for Bacanora, increasing its long-term lithium carbonate price assumption to US$7,700 a tonne from US$6.500 a tonne, its operating expenditure assumptions by a fifth, and its initial stage 1 capital expenditure estimate for Bacanora’s Sonora lithium project to US$300mln from US$240mln.

The net result?

The net asset value (NAV) per share remains the same and because the target price is based on NAV, so does the target price of 130p.

Numis was encouraged by news that negotiations for battery grade lithium carbonate offtake are advanced with potential Asian partners.

“We view this as an important endorsement for Sonora as it evidences that potential customers are comfortable with compatibility of the project's lithium carbonate for battery applications. It also shows that offtake customers are comfortable with BCN's flow sheet and we add that Bacanora's pilot plant has produced battery grade lithium carbonate for six months,” Numis said.

Guidance for completion of the banking feasibility study is now summer 2017, rather than late in the first quarter, as was previously indicated.

This is likely to be one of the major share price catalysts, along with further offtake news.

“With lithium prices showing strong growth, Bacanora is one of the most advanced stage developers and should benefit from a shorter lead time to production than brine based projects,” the broker concluded.

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