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.
Bacanora has been looking for investors to help fund construction of the mine, which has been estimated to cost US$460mln in its first phase.
In May, Chinese Ganfeng invested at 25p per share for a 29.9% stake in Bacanora, but can also take a 22.5% direct stake in the Sonora lithium project in Mexico that can rise to 50%.
If Ganfeng exercises its full 50% option over Sonora, the amount needed has effectively been halved said Peter Secker, Bacanora’s chief executive.
“With a senior debt facility with leading resource finance provider RK Mine Finance secured and the proposed strategic investment from Ganfeng, we have made significant progress towards the completion of the construction funding of the Sonora Project.”
The first phase at Sonora will see the construction of a 17,500 tonnes per annum (tpa) Li2CO3 (lithium carbonate) operation.
Through the deal, Ganfeng can also acquire 50% of all Sonora’s lithium production during phase 1, with an option to increase this offtake to 75% in phase 2 when production will rise to 35,000tpa.
Bacanora had already arranged finance of US$240mln – 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.
In June, Bacanora also published a published a feasibility study for its Zinnwald project in Germany that indicated 94,000 tonnes of reserves and a net present value of €428mln.
Costs to build the mine at Zinnwald were estimated at €159mln, which will be paid back after six years of the estimated 30-year mine life.
Peter Secker said a listing of its German business Deutsche Lithium was under consideration to fund the project’s development.
“We are already working hard to secure strategic partners to develop the project and we are actively considering a public listing for Deutsche Lithium, our 50%-owned subsidiary that holds Zinnwald, to help achieve our aim,” he said.
The mine is predicted to generate an average €58.5mln in earnings each year over its life after all-in operational costs of €13,665 per tonne of battery-grade lithium fluoride, which includes chemical processing costs of €7,450 per tonne.
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.
"Sonora has a net present value (NPV) of US$1.25bn, and US$4,000 per tonne operating costs (pre-chemical processing), which are among the lowest in the world.
“Our two projects have a combined, independently estimated NPV of more than US$1.7bn, a level that far outstrips our current £36mln market capitalisation.”
The lithium group's operating loss also fell by a quarter to US$8mln in the year ended 30 June 2019, with its cash balance growing 12% to US$14.8mln.
- Bacanora is in the process of raising US$460mln of funds for Sonora, but only needs to raise half of that money if Ganfeng takes up its option to acquire 50% of project
- Completion of the Ganfeng investment in the company
- Within six months of that Ganfeng would complete a review of the current EPC engineering design to cut the US$420mln capital cost of Sonora and accelerate construction timetable
- Based on the results Ganfeng would assist with finalising an EPC engineering contract for the mine and plant construction and help with commissioning
- A Feasibility Study last year at Sonora 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
- Zinnwald valued at €428mln
- Plan is to list German business Deutsche Lithium separately
VSA Capital said: “Although we remain convinced that the pilot plant in Hermosillo acts as a major de-risking factor in the 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.
Buy in the broker’s recommendation with a 100p target price.