Bacanora Lithium (LON:BCN)
Bacanora Lithium (LON:BCN) has announced the receipt of final approval from the Chinese authorities with regard to the strategic investment and partnership with Ganfeng Lithium. The company has also announced that it has now received the £21.96mn in initial funding from Ganfeng which gives the lithium major a 29.99% interest in BCN along with a 22.5% interest at the project level. Whilst we viewed the initial announcement of the planned investment in June as a highly positive event and expected that the transaction would go through, today's announcement is a major milestone for the company nonetheless and represents a significant step towards derisking the final project and the construction financing.
Ganfeng's initial investment now makes it possible for the company to begin to more rapidly advance the Sonora project with current activities including final design work for the mine, concentrator and kiln sections of the processing plant. Furthermore, Ganfeng is demonstrating its benefit as a technical partner with assistance on the hydrometallurgical circuit and as a financial partner by reviewing the sourcing of processing equipment from suppliers in China. We also note the change to the Board with the appointment of Mr Wiang Xiaoshen, VP of Ganfeng and vice chairman of its board of directors to the board of BCN.
BCN shares have risen strongly this year, largely due to the agreement with Ganfeng, making the shares amongst the strongest performers in the sector YTD. This performance has been realised despite a backdrop of soft pricing, particularly for lower quality end use lithium products and upstream concentrate products. This has in turn resulted in concentrate projects being pushed out or scaled back such as Albemarle's Wodgina project reduced from 75ktpa to 50ktpa LiOH while Tianqi shelved plans for a 48ktpa LiOH plant. These projects have been impacted since a forecast shift in battery technology which would require more LiOH is not materialising as fast as expected and currently producing carbonate from concentrate is a high cost process. This therefore vindicates BCN's strategy which is to focus on producing high purity and high quality lithium carbonate suitable for top tier battery manufacturers at cash costs below US$4,000/t. Whilst we expect these additional projects to be required in turn over the longer term BCN is, in our view, better positioned for the current marketplace particularly with the support of Ganfeng. Project financing is now the final major hurdle before construction can commence and today's announcement is a significant step towards successful development of the Sonora project.
We reiterate our Buy recomendation and 114p target price.