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Bacanora Lithium Ltd: THE INVESTMENT CASE

Bacanora Minerals joins the big leagues with Sonora feasibility study

Feasibility study estimates Sonora is worth over one billion dollars on a NPV basis
electric cars charging
INVESTMENT OVERVIEW: BCN The Big Picture
Electric vehicles are driving the demand for lithium and other metals and minerals

’s () Sonora project in Mexico can become one of the world’s foremost lithium deposits, said chief executive Peter Secker after a definitive feasibility study valued it at more than one billion dollars.

The study confirmed the favourable operating costs for a 35,000 tonnes per annum battery grade lithium carbonate operation, he said.

Net Present Value, aggregated net cash flows, is US$1.25bn at an 8% discount rate over an estimated nineteen years of operation, though potentially Sonora has enough metal to run for over 200 years.

Sonora is to be developed in two stages with the first phase to cost US$420mln and produce 17,500 tonnes of lithium carbonate per year.

The second phase will kick in after four years, cost US$380mln and double production to 35,000tpa.

Bacanora will process the lithium oxide ore itself to produce a carbonate of sufficient quality for use in electric batteries for vehicles and storage.

Operating costs are estimated at US$3,190 per tonne compared to a current spot for price for lithium carbonate of between US$12-20,000.

The DFS, however, used a price of US$11,000 per tonne, which generates an internal rate of return of 26% and average annual earnings of US$229mln.

The cost projection puts Sonora below new lithium brine operations being established in Argentina.

Sonora has a resource of five million tonnes, comprising 1.9Mt of measured resources and 3.1Mt indicated of lithium carbonate equivalent with a further 3.7Mt in the inferred category.

By-product potential as well

There is also potential to sell up to 30,000tpa of potassium sulphate to the Mexican fertiliser industry as a by-product.

The numbers speak for themselves added Secker, who expects the pace of development to quicken now with commissioning of the mine and plant scheduled for 2019.

() owns around a 9% stake in Bacanora and 30% of the Mexalit and Megalit joint venture companies.

Two shots on very big goal

Bacanora has positioned itself for the expected surge in demand in lithium with assets in two of the current hot spots.

As well as Sonora, the dual-listed group recently took a 50% stake in the Zinnwald lithium project in Germany with the option to take full ownership within two years.

German lithium demand growing rapidly

Zinnwald, in southern Saxony, is currently owned by SolarWorld, the largest solar panel producer in Europe.

The deposit has historically been a producer of lithium carbonate in a belt that also contains tungsten and tin, but it’s the location that has seemingly attracted Bacanora.

German demand for lithium is growing rapidly as development of electric cars and renewable energy storage builds momentum.

The consideration is €5mln plus a further €5mln contribution towards the cost of completing a feasibility study, which will take 18-24 months.

Bacanora also has a two year option to take full control for a further €30mln.

Zinnwald resource

Zinnwald has a European standard M&I Resource of 511,000t compared with 5Mt at

Speaking of off-takers …

Bacanora recently signed an off-take deal with Hanwa Co., a leading Japan-based global trading company and one of the larger traders of battery chemicals in the Asian region.

Last year, Hanwa reported net sales of more than ¥1,500bn which gives a feel for the size of the company.

Under the terms of the agreement, Hanwa will take a 10% equity investment in Bacanora which will raise just over £10mln via the placement of just over 12mln shares at 82.5p.

Hanwa will also sign an off-take agreement for up to 100% of the battery grade lithium carbonate (Li₂CO₃) produced at Sonora.

Hanwa will pay market prices for between 70% and 100% of the lithium carbonate produced during stage one and has the option to increase the off-take tonnage by up to 100% at Stage 2 production.

Market moving towards firms like Bacanora

The market appears to be moving in the direction of companies such as Bacanora that have projects in development with a significant increase in the price of the mineral.

Demand has been driven by the electric car market with lithium, a central element to batteries used in the vehicles rolling off the Tesla, Toyota and Nissan production lines.

Asia and electric cars will continue to drive the market for lithium, but the potential for storage for renewable energy is what caught its eye in Germany.

Sonora is scheduled to start production in 2019, by which time an investment will have been made at Zinnweld giving it a potential second revenue stream.

--updates for technical report in January --

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