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Bacanora Lithium Ltd: DEEP DIVE
OVERVIEW

Bacanora Lithium focused on providing key battery metal for electric vehicles from big Mexican project

The world-class Sonora Lithium Project in Mexico benefits from a large, scalable and high-grade resource which is indicated at over 5mln tonnes of battery grade (99.5%) lithium carbonate equivalent
Electric vehicles
OVERVIEW: BCN The Big Picture
Bacanora also has a 50% interest in, and joint operational control of, the Zinnwald Lithium Project in Germany
  • Sonora holds one of the world’s larger lithium resources

  • High-grade resource indicated at over 5mln tonnes of LCE

  • Also has 50% interest in Germany’s Zinnwald Lithium Project

 

What Bacanora Lithium does:

Bacanora Lithium Ltd. (LON:BCN) is an AIM-listed company focused on developing the world’s next major lithium project in Mexico, with the metal a key component for batteries used in electric vehicles.

The company is rapidly commercialising the world-class Sonora Lithium Project in Mexico which benefits from a large, scalable and high-grade resource indicated at over 5mln tonnes of battery grade (99.5%) lithium carbonate equivalent (LCE).

The firm has a 100% interest in the La Ventana concession and a 70% interest in the Mexilit and Megalit concessions at Sonora which is located 190km north-east of Hermosillo in northern Mexico.

The group also has 100% ownership of the Magdalena Borates Project, which covers 7,870 hectares in Sonora State, and is an opportunity to develop boric acid production to be sold in the domestic Mexican market.

In Europe, Bacanora also has a 50% interest in, and joint operational control of, the Zinnwald Lithium Project, located approximately 35km south-east of Dresden in the eastern part of Germany.

Zinnwald represents a strategic asset located in close proximity to a thriving market for lithium and energy products, which is being fuelled by Germany’s electric automotive industry and the rise of renewable energy storage.

How is it doing:

Over the past three years, Bacanora has built a lithium carbonate pilot plant in Hermosillo, to upgrade and process ores from the Sonora Lithium Project.

Over the past 24 months, that plant has been upgraded to include the full metallurgical flow sheet of pre-concentration, flotation, roasting and lithium carbonate precipitation. In mid-2016, the facility was upgraded to allow it to run continuously on a 24/7 basis. 

On 14 March 2019, Bacanora revealed it is in discussions with a number of potential cornerstone investors as part of the process to secure full funding of US$460mln for the Sonora Lithium Project in the second-quarter of 2019.

In a statement noting recent press speculation and a spike in its share price, the group said the discussions were ongoing and added that it will provide an update to the market as appropriate.

Bacanora had earlier in the week said it remains focused on completing its funding in the second quarter, with a view to the commissioning of the chemical processing plant at Sonora and first production in the second half of 2021.

In February 2019, Bacanora reported first-half results showing a US$4.29mln loss as the investment into Sonora and Zinnwald continued, while at the end of the six-month period, Bacanora had US$20.46mln of cash and equivalents.

The company also highlighted that it had secured US$240mln during the period as part of the Sonora project financing – including a US$150mln senior debt facility with RK Mine Finance and a US$25mln equity commitment from offtake partner Hanwa.

A US$65mln equity commitment from the State General Reserve Fund of Oman expired in July 2018 and talks are underway about renewing the agreement.

Zinnwald

Meanwhile, Bacanora reckons a new licence grant for its Deutsche Lithium subsidiary has the potential to “significantly increase” the life of mine at the Zinnwald lithium project.

On 20 March 2019, the group revealed that Deutsche Lithium had been granted an additional five-year exploration licence which covers 42 square kilometres and completely surrounds Zinnwald.

Historical drilling has shown that the Altenberg licence forms part of the same geological unit that hosts the historic lithium-tin-tungsten deposits at Zinnwald and Falkenhain, where Deutsche Lithium has existing mining and exploration licences.

It said a feasibility study is on track to complete in the second quarter for Zinnwald, which currently has a resource of 142,240 tonnes of contained lithium. Bacanora bosses believe the new licence grant has the potential to increase the resource there.

What the boss says – CEO Peter Secker:

“The world needs lithium to power the electric vehicles we may one day all be driving and also to help store energy generated from renewable sources.

“The Sonora Lithium Project hosts a large, open-pit, scalable resource, with a US$1.25billion project NPV and operating costs among the lowest in the industry and we believe that Sonora is ideally placed to become a major supplier of battery grade lithium for many years to come and in the process generate substantial returns for investors.”

Inflection points

Bacanora is in the process of raising US$460mln of funds for Sonora, a process it expects to complete in the next three months.

Earlier in March, Bacanora said it was in discussions with a number of potential cornerstone investors as part of the funding for Sonora.

 A Feasibility Study last year indicated a US$1.25bn pre-tax net present value with Life of Mine costs of approximately US$4,000 per tonne, putting it among the lowest in the industry.

First production scheduled for the second half of 2021.

Blue Sky:

Analysts at VSA Capital have a ‘buy’ rating and 115p per share price target on Bacanora Lithium shares, well above the current level of 21.75p.

In a note focused on the Zinnwald license extension, the VSA analysts said based on the previously defined resource, they have attributed a value of £38mln for the project, using a peer-based EV/resource metric, implying 10p per share. 

They said that given the proximity of the German licences and the reported geological similarity, and the historic workings for tin, tungsten and lithium across both areas, in their view, there is potential for an extension of mine life to that defined in the feasibility study.

The analysts pointed out that Bacanora is planning to produce a lithium fluoride product at Zinnwald, which is one of the most valuable lithium products with recent pricing indicated at around US$22,000 per tonne and could be used by the local German chemical industry.

The VSA analysts also noted Bacanora’s comments on recent share price volatility and the changes to its register prompted by investment strategy revisions at Blackrock and Capital Group.

They said: “With this technical selling now indicated to be complete we expect stronger support for the stock ahead from a trading perspective.”

Overall, the VSA analysts think the fundamentals for Bacanora remain unchanged with Sonora remaining a highly attractive asset which is, in their view, “deeply undervalued”.

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