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VSA Capital Market Movers – Bacanora Lithium


Bacanora Lithium#: Financing Update

Full Funding Success

Bacanora Lithium (LON:BNC) has fulfilled its funding requirements for the Sonora project in Mexico and is on its way to being a major lithium producer. With equity raises totalling US$96m in the form of a placing after which BCN’s strategic partner opted to exercise its pre-emptive rights and then increase its stake to 28.8%. The support from investors and Ganfeng Lithium, one of the world’s top lithium producers, is a major validation of the project and confirms our long-held view that Sonora would be built.

Total capex of US$407m plus working capital of US$37m to fund through construction implies a total attributable to BCN of US$222m. With a debt facility of US$150m from Red Kite, the placing proceeds and the earlier cash of US$28m from Ganfeng’s option exercise, BCN construction can now begin in earnest.

Development Timeline

The focus is now on meeting the target of first production in 2023. The initial works start with the construction process and the first activity includes preparing the ground and removal of vegetation in the plateau area to the south of the ore body where the processing plant is to be built. BCN has hired additional local staff, including ecologists and a biologist to oversee this work as it is performed in line with the agreed environmental approvals. Work will also commence on upgrading the main access road to site to allow access for heavy machinery needed for the bulk earthworks later in the year. In Q2 2021, work will commence on site accommodation and ancillary facilities. Ganfeng will deliver final engineering packages to BCN in Q2 2021, while long lead items are being arranged for delivery in 2022.

Recommendation and Target Price

Following a strong rally starting in Q3 2020, lithium equities, in particular non-spodumene developers have experienced profit taking. Meanwhile, in China, lithium carbonate prices are above US$10,000/t, double the lows of 2020, yet profit taking has been excessive. At 0.4x the attributable NPV, BCN offers substantial value, fully funded with commissioning risk minimised by Ganfeng’s expert oversight, we see the stock as an attractive exposure to a strengthening lithium market. The increase in attention on the sector will likely improve transparency on pricing and consequently correlation between equities and underlying prices.

We reiterate our Buy recommendation although upgrade our target price to 120p/sh.


Oliver O’Donnell, CFA, Natural Resources Analyst | T: +44 (0)20 3617 5180 | E: [email protected]

VSA Capital Limited, New Liverpool House, 15-17 Eldon Street, London EC2M 7LD |

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