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VSA CAPITAL MARKET MOVERS - Bacanora Lithium

Published: 06:57 01 Jul 2019 EDT

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VSA Morning Miner, 01/07/19

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Bacanora Lithium (LON:BCN)

Bacanora Lithium (BCN LN) announced late on Friday that it had signed an Investment Agreement and Offtake Agreement with Ganfeng Lithium in line with the terms previously announced. The agreement remains subject to final government approval in China, however, we believe that given Ganfeng’s previous track record in executing overseas transactions that there is only limited risk that this would now not be approved. Timing for completion is guided to the end of July 2019 and will mark a major step forward for BCN in terms of derisking the project financing.

As we have stated previously Ganfeng’s expertise in lithium processing and production as well as position as an industry leader provides significant advantages for BCN. We believe that Ganfeng’s contribution to EPC finalisation as well as access to Chinese equipment manufacturers could result in reduced capex for the Sonora project, from an initial US$420m, whilst the input of a dedicated team into the project and plant commissioning process further decreases the execution risk of ramp up beyond the already substantial benefit of the pilot plant.

The terms of the initial agreement are that Ganfeng will take a 29.99% stake  for £14.4m (US$18.2m) in BCN alongside a project level investment of 22.5% for £7.6m (US$9.6m). Ganfeng will have the right to appoint one director to each of BCN and the project level company with the option to increase its project level interest to 50% within 24 months based on market pricing. Ganfeng will also have offtake rights to 50% of stage one lithium production and up to 75% of stage two lithium production. Capacity for stage one and two is 17.5ktpa and 35ktpa of lithium carbonate respectively.

Ganfeng has indicated that it intends to cornerstone the project financing after this initial agreement and we believe that the combination of technical and financial support should give investors significant comfort over project financing and commissioning. The shares have now close to doubled since our initiation and we believe that Ganfeng have been attracted to the Sonora project’s key fundamentals of low operating costs and the genuine capability to produce battery grade lithium rapidly and consistently.

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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