What it does

Bacanora Lithium Ltd (LON: BCN) is an AIM-listed company focused on developing the world’s next major lithium project in Mexico, with the metal a key component for batteries used in electric vehicles.

The company is rapidly commercialising the world-class Sonora project in Mexico which benefits from a large, scalable and high-grade resource indicated at over 5mln tonnes of battery grade (99.5%) lithium carbonate equivalent (LCE).

Chinese group Ganfeng invested at 25p per share for a 29.9% stake in Bacanora, but also took a 22.5% direct stake in Sonora that in November it increased to 50% through the exercise of an option at a cost of GBP21.9mln.

In Europe, Bacanora has sold its 50% stake in the Zinnwald lithium project to Erris Resources PLC (LON:ERIS)

Under the agreement, Bacanora received 90.6mln new shares in Erris, together with a net profit royalty. Following the transaction, Bacanora will own a 44.3% stake in Erris though it expects this to be diluted down by future share issues.

Zinnwald is located approximately 35km south-east of Dresden in the eastern part of Germany and is close to the country’s electric automotive industry and renewable energy battery groups.

How it’s doing

The first phase at Sonora will see the construction of a 17,500 tonnes per annum (tpa) Li2CO3 (lithium carbonate) operation.

Bacanora had already arranged finance of US$240mln – including a US$150mln senior debt facility with RK Mine Finance and a US$25mln equity commitment from offtake partner Hanwa.

In September, Bacanora said the Sonora project remains on schedule for initial site works to start in the first half of 2021, subject to the completion of financing.

What the boss says: Peter Secker, chief executive

“By 2030, EV demand will account for more than 75% of consumption, up from 30% in 2019.

“As a result, demand for lithium for electric vehicles would surge to 1.4 million tonnes by 2030, almost a five-fold increase from the current 300,000 tonnes of demand in 2019.”

Inflexion points

  • Ganfeng has taken up its option to acquire 50% of Sonora
  • Within six months, Ganfeng should now complete a review of the current EPC engineering design to cut the US$420mln capital cost of Sonora and accelerate construction
  • Based on the results Ganfeng would assist with finalising an EPC engineering contract for the mine and plant construction and help with commissioning

What the broker says; VSA

Ganfeng exercising its option significantly reduces the Sonora funding burden for Bacanora shareholders and therefore the potential impact of dilution.

That more than more offsets the reduction in Bacanora’s interest in the project, said VSA, noting that of the remaining US$210m capital cost, there is already a debt facility of US$150m in place.

Site works are due to commence in 2021 with production on track for 2023, which VSA adds should tie-in nicely with an expected uptick in global electric car demand and rising lithium prices.

VSA’s new target price is 118p

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