VSA Capital has raised its target price for Bacanora Lithium PLC (LON:BCN) to 114p per share, up from 100p previously, and reiterated a ‘buy’ rating on the stock following publication of the feasibility study (FS) for its Zinnwald project in Germany.
In a note to clients, the broker’s analysts noted that the AIM-listed group confirmed that it now has two advanced lithium projects capable of directly supplying battery grade product into the rapidly growing supply chain with robust economics and attractive returns.
They noted: “The FS indicates a post-tax NPV8 of €270mln, annual EBITDA of €58.5mln and initial capex of €159mln with annual lithium fluoride production of 5.1ktpa and 32ktpa SOP production.”
The analyst added: “Our DCF analysis which assumes production commencing in 2024 produces an NPV8 of €209mln and an attributable value to BCN of £49m using a 0.5x development risk factor; which on its own indicates upside to the current market cap of £38mln”.
They pointed out that lithium fluoride is one of the lesser known components of the battery supply chain although is one of two key lithium salts used to produce LiPF6 which is used in 95% of all battery electrolyte.
The analysts noted that Europe currently has around 20GWh of battery manufacturing capacity although this is expected to rise tenfold by 2028 as automotive manufacturers respond to Government legislation phasing out ICE vehicles by 2040.
They said, at the moment, Europe imports all of its battery grade lithium and despite a handful of projects making progress, Zinnwald will fill an important niche in the supply chain which would otherwise mean exporting Li2CO3 or LiOH for conversion to LiF – a high value product which currently trades above €22,000/t.
Sonora strategic investment
The analysts pointed out that Bacanora Lithium in May announced a proposed strategic investment by Chinese lithium major, Ganfeng Lithium in the group’s Sonora project in Mexico for an initial £21.96mln.
They said that investment “underpins our positive view on the Sonora project and provides Ganfeng with partial offtake rights, acquisition rights at project level, board representation as well as investment in the topco.”
The analysts also noted that Ganfeng will provide technical support, further reducing the execution risk as well as offering the potential to access cheaper Chinese equipment indicating that this strategic investment is potentially highly beneficial to both parties.
They concluded: “With confirmation that BCN now has two high quality projects capable of delivering battery grade lithium products whilst generating attractive economic returns, the current share price deeply undervalues the company’s potential, in our view.”