VSA Capital Market Movers – Bacanora Lithium

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VSA Morning Miner, 03/02/21

Bacanora Lithium (LON:BCN)

Bacanora Lithium (LON:BCN) has announced a successful US$65m fundraise which will take the company through to production in 2023 fulfilling its funding obligations as a 50/50 JV partner in full and in conjunction with the RK Facility of US$150m. The funding was raised at a price of 45p/sh. and included a component from retail investors of c.US$3mn.

We have been convinced since our site visit to Sonora in late 2018 that BCN would be successful in securing project funding despite the challenges the company faced at the time. Strong economics, with unit costs averaging close to US$4,000/t over the LoM which place the project at the bottom of the cost curve, a vast 8.8mnt LCE resource which will enable the company to scale production substantially beyond the initial 17.5ktpa Phase 1 capacity as lithium demand grows to over 2mntpa by 2030 and a pilot plant which has consistently demonstrated the ability to produce the highest quality lithium carbonate all underpinned our conviction view. Now comes the execution phase and we are confident that the management team with its extensive experience of lithium mining and processing combined with that of industry leader Ganfeng will be able to successfully bring Sonora into production in 2023.

We also note some additional detail surrounding the deal. Ganfeng has stated its intention to potentially exercise its pre-emptive right at the placing price and to increase its holding to 29.99% in line with its original holding in 2019. In relation to the existing RK facility of US$150m it is proposed that the maturity will be extended from July 2024 until 2027 and extend the cash interest payment dates from 31 October 2020 to 31 October 2023; these changes are subject to further approval from the lender and BCN.

The total construction funding of US$416m plus working capital of US$37m less current cash and that due from Ganfeng’s recent option exercise indicates required funding of US$407m of which BCN is committed to half. We had assumed in November that US$57m would be raised at 40p which means that our fully diluted valuation was a little more conservative than reality but broadly in line and we make only minor changes to our valuation.

We reiterate our Buy recommendation and upgrade our target price to 120p.

Oliver O’Donnell, CFA, Head of Research & Natural Resources Analyst | T: +44 (0)20 3617 5180 | E: [email protected]
Paul Renken, Senior Geologist | T: +44 (0)20 3005 5011 | E: [email protected]

VSA Capital Research | T: +44 (0)20 3005 5000 | E: [email protected]

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