Proactive Investors - Run By Investors For Investors



VSA Morning Miner, 20/05/19

Click here for PDF version

Keep reading VSA research for free – Click here for our position on MIFID2


Bacanora Lithium (LON:BCN)

Bacanora Lithium (BCN LN) has announced a proposed strategic investment by Ganfeng Lithium, China’s largest lithium producer and the third largest globally. The transaction includes investment at the project and corporate level for a total value of £21.96m (US$27.8m) at an equivalent price of 25p/sh, in line with the recent share price. This investment by one of the industry majors confirms our view of the attractive economic and technical potential of the project as well as highlighting the ongoing need for the majors to secure additional production capacity given the strong demand backdrop.

The corporate level investment of £14.4m for 57.6m shares at 25p/sh. also gives Ganfeng the right to a Board position as well as pre-emption rights on new equity issuance. The project level investment into a subsidiary of BCN gives Ganfeng the right to acquire 22.5% of the project for £7.56m (equivalent to a 25p/sh. valuation) and the option to acquire up to 50% within 24 months of the initial investment based on market valuations at the time of exercise. The project level investment also provides the right to appoint a Director to the Board of the project level company.

In addition, Ganfeng on completion of the strategic investment will receive exclusive offtake rights to purchase 50% of all lithium products for stage 1 (100% capacity of 17.5ktpa) as well as an option to increase to 75% of all lithium production at Stage 2 (100% capacity of 35ktpa). All production is to be purchased at market prices.

Our prior valuation assumption had incorporated the potential dilution from strategic funding at 50p/sh. Updating our model to reflect this strategic investment and proposed reduction in BCN’s interest at the project level results in a 13% reduction in our target price to £1.00/sh.

With Ganfeng’s support as a cornerstone investor we believe that BCN is now well placed to secure the remaining project financing. We had previously assumed around US$180m would be required in equity given the existing RK Mining debt facility (US$150m) notwithstanding commitments from other strategics such as Hanwa for US$25m.

Although we remain convinced that the pilot plant in Hermosillo acts as a major derisking factor in the BCN investment case we believe that Ganfeng’s support in the finalisation of the EPC engineering contract, the implementation of the plant design and construction as well as project commissioning should provide investors with significant additional comfort given Ganfeng’s expertise in the sector.

We reiterate our Buy recommendation although reduce our target price to £1.00/sh. to reflect the proposed strategic transaction.




Disclaimer: This research report has been prepared by VSA Capital Limited and is solely for, and directed at, persons who are Professional Clients as defined under Annex II of the Markets in Financial Instruments Directive, Directive 2004/39/EC, or as defined in the FCA Handbook. Persons who do not fall within the above category should return this research report to VSA Capital Limited, New Liverpool House, 15-17 Eldon Street, London EC2M 7LD, immediately.
This research report is not intended to be distributed or passed on, directly or indirectly, to any other class of persons. It is being supplied to you solely for your information and may not be reproduced, forwarded to any other person or published, in whole or in part, for any purpose, without out prior written consent.
This research report is exempt from the general restriction on the communication of invitations or inducements to enter into investment activity and has therefore not been approved by an authorised person, as would otherwise be required by Section 21 of the Financial Services and Markets Act 2000 (the "Act"), as amended by The Financial Services and Markets Act 2012.
Neither the information nor any opinion expressed constitutes an offer, or an invitation to make an offer, to buy or sell any securities or any options, futures or other derivatives related to such securities.
The information and opinions contained in this research report have been compiled or arrived at by VSA Capital Limited (the "Company") from sources believed to be reliable and in good faith but no representation or warranty, express or implied, is made as to their accuracy, completeness or correctness. All opinions and estimates contained in the research report constitute the Company's judgments as of the date of the report and are subject to change without notice. The information contained in the report is published for the assistance of those persons defined above but it is not to be relied upon as authoritative or taken in substitution for the exercise of the judgment of any reader.
The Company accepts no liability whatsoever for any direct or consequential loss arising from any use of the information contained herein. The company does not make any representation to any reader of the research report as to the suitability of any investment made in connection with this report and readers must satisfy themselves of the suitability in light of their own understanding, appraisal of risk and reward, objectives, experience and financial and operational resources.
The value of any companies or securities referred to in this research report may rise as well as fall and sums recovered may be less than those originally invested. Any references to past performance of any companies or investments referred to in this research report are not indicative of their future performance. The Company and/or its directors and/or employees may have long or short positions in the securities mentioned herein, or in options, futures and other derivative instruments based on these securities or commodities.
Not all of the products recommended or discussed in this research report may be regulated by the Financial Services and Markets Act 2000, as amended by The Financial Services and Markets Act 2012,  and the rules made for the protection of investors by that Act will not apply to them. If you are in any doubt about the investment to which this report relates, you should consult a person authorised and regulated by the Financial Conduct Authority who specialises in advising on securities of the kind described.
The Company does and seeks to do business with the companies covered in its research reports. Thus, investors should be aware that the Company may have a conflict of interest that may affect the objectivity of this report. To view our policy on conflicts of interest and connected companies, please go to:
Investors should consider this report as only a single factor in making their investment decision.
The information in this report is not intended to be published or made available to any person in the United States of America (USA) or Canada or any jurisdiction where to do so would result in contravention of any applicable laws or regulations. Accordingly, if it is prohibited to make such information available in your jurisdiction or to you (by reason of your nationality, residence or otherwise) it is not directed at you.

© Proactive Investors 2019

Proactive Investors Limited, trading as “Proactiveinvestors United Kingdom”, is Authorised and regulated by the Financial Conduct Authority.
Registered in England with Company Registration number 05639690. Group VAT registration number 872070825 FCA Registration number 559082. You can contact us here.

Market Indices, Commodities and Regulatory News Headlines copyright © Morningstar. Data delayed 15 minutes unless otherwise indicated. Terms of use