What it 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 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).
Chinese group Ganfeng invested at 25p per share for a 29.9% stake in Bacanora, but also took 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.
In November 2019, fund manager M&G also raised its take to 19.9% through a US$10mln placing.
While the company had to place its pilot plant at the project under care and maintenance in March due to the coronavirus, it has completed bulk sampling for plant and engineering designs.
Meanwhile, kiln optimisation testwork focusing on waste hear recycling and kiln retention time is ongoing in the US, with kiln design and engineering work completion scheduled for the third quarter of 2020.
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 it's doing
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.
Zinnwald: Bacanora owns 50% of the project, while the other half is held by Solarworld AG, which is currently in administration, and has committed to provide a minimum of €1.35mln in funding to the project over the next two years.
A feasibility study for its Zinnwald project in Germany indicates 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.
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.
How it's doing
in September, Bacanora said the Sonora project remains on schedule for initial site works to start in the first half of 2021, subject to the completion of financing.
At the same time, the company noted that all engineering work is now taking place off-site.
Ganfeng, meanwhile, has completed its flow sheet design testwork for the production of battery-grade lithium.
These will be integrated into a larger scale design. It remains on schedule to deliver final engineering packages at the end of 2020.
Starting site works in the first half of 2021 would enable production to start in 2023.
What the boss says: Peter Secker, chief executive
“By 2030, EV demand will account for more than 75% of consumption, up from 30% in 2019,”
“As a result, demand for lithium for electric vehicles would surge to 1.4 million tonnes by 2030, almost a five-fold increase from the current 300,000 tonnes of demand in 2019.”
- 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
- 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
- Zinnwald valued at €428mln
- Plan is to list German business Deutsche Lithium separately
"The backdrop for lithium and the shift towards electric vehicles continues to gain momentum with rising EV sales in Europe despite the impact of lockdown, up 57% YoY in Q1 2020, as well as major new investment planned by the EU which implies significant demand growth over the medium to long term. This will, of course, feed through to demand for raw materials and we see recent weakness in the sector as a significant buying opportunity within a larger, long term structural shift", said analysts at VSA Capital.