VSA Morning Miner, 01/08/19

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Bacanora Lithium (LON:BCN)

Bacanora Lithium (LON:BCN) has provided an update on the previously announced proposed investment by Ganfeng Lithium. Three approvals are required from the Chinese authorities and the first of these has been received from the PRC Ministry of Commerce with two now outstanding. Ganfeng are continuing to progress through the regulatory process and we believe that this initial approval, combined with Ganfeng’s prior track record in gaining approval for overseas investment confirms our positive view that all necessary approvals will be completed.

Although the shares are up 88% YTD, trading in a new higher range following the proposed investment announcement, we continue to believe there is considerable further upside potential with the remaining approvals providing near term catalysts. Our target price, which includes assumptions for the project financing, assumes a risking of 0.6x P/NPV which we believe is fair for a project with financing and commissioning risk. However, successful completion of the financing along with Ganfeng’s technical support will, in our view, further unlock that remaining value. Based on our analysis we believe that the shares are currently trading on c0.1x NPV highlighting that despite the support from Ganfeng, which will strengthen the BCN’s ability to fully finance the Sonora project the shares continue to offer an attractive opportunity for investors at this point.

We reiterate our Buy recommendation and 114p target price.  




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