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VSA Morning Miner - Bacanora Lithium

Published: 09:55 20 Aug 2019 BST

Bacanora Lithium Ltd - VSA Morning Miner - Bacanora Lithium

VSA Morning Miner, 20/08/19

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Bacanora Lithium (LON:BCN)

Bacanora Lithium (LON:BCN) has provided an update in relation to the previously announced investment by Ganfeng Lithium. Following the receipt of the first of three approvals the company has now confirmed that the second has been processed by the National Development and Reform Commission (NDRC) and received by Ganfeng. The final approval from the State Administration of Foreign Exchange (SAFE) is expected to be received following a Ganfeng Board Meeting due to be held in the coming weeks.

The shares have pulled back from July intraday highs of 57p/sh. to 32.5p/sh. at yesterday’s close and as well as global market volatility we believe that the announcement that its Hong Kong shareholders had narrowly failed to approve the issue of 50m H shares in combination with RMB2.15bn in A share convertible bonds indicated to investors that Ganfeng’s overseas spending may be called into question.

However, today’s announcement and statement by Ganfeng’s Deputy Chairman confirms that it is not the case given the ongoing process to gain Government approval for the investment. Furthermore, Ganfeng has a strong balance sheet, in our view, ending 2018 with a cash position of RMB3,215bn (US$459m) and debt of RMB2,741bn (US$391m) and therefore would have alternatives to diluting shareholders of the H shares. Secondly, Ganfeng completed its US$160m investment in Lithium Americas (CVE:LAC) yesterday confirming that the company remains firmly committed to its overseas spending programme which is underpinned by the robust outlook for the lithium market. We therefore view the pullback in the shares in the last few weeks as an attractive buying opportunity given that the investment process remains on track.

We reiterate our Buy recommendation and 114p target price.

Oliver O'Donnell, CFA, Natural Resources & China | T: +44 (0)20 3617 5180 | E: oodonnell@vsacapital.com
Paul Renken, Geologist | T: +44 (0)20 3005 5011 | E: prenken@vsacapital.com

VSA Capital Research | T: +44 (0)20 3005 5000 | E: research@vsacapital.com

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