VSA Morning Miner, 23/03/20
Bacanora Lithium (LON:BCN)
Bacanora Lithium (LON:BCN) has announced an update in relation to the Sonora project following the impact of the coronavirus. Given that BCN’s strategic partner, Ganfeng Lithium is primarily based in China the review process of project engineering has been delayed. As we had anticipated this delay now means that the review work is likely to be completed in Q3 2020, roughly a three month impact, however, with Ganfeng in line with many other industrial groups in China now resuming work and restarting factories this gives greater clarity to our estimate.
Although in our estimates, which indicate production commencing mid-2022 we had built in up to six months of delays for unforeseen events on the development timetable we highlight that one of Ganfeng’s roles is to optimise the development schedule and we don’t rule out the possibility that some time could be regained that has been lost in the last quarter. Furthermore, with the support from Ganfeng, BCN has a strong cash position of US$47m and is well placed to continue advancing the Sonora project and BCN aims to commence construction before the end of calendar 2020. As a low cost, scalable project capable of delivering consistent high quality lithium products Sonora remains globally significant and we expect Ganfeng’s continued strong support.
Although the impact to date has primarily been due to the closures in China, we do note that Sonora State has confirmed its first positive case and measures including closures of schools and non-essential businesses have been taken. The pilot plant has so far been able to continue operating and will complete its current batch of samples for shipment to the USA and China.
BCN has appointed, GR Engineering Services, to assist with completion of the Front End Engineering Design (FEED). The group has experience of operating across a broad range of geographies and has offices in Hermosillo where the BCN pilot plant is located. GR ES will provide EPC services across the lithium processing facility helping to expedite the FEED process.
We reiterate our Buy recommendation and 114p target price.