Bacanora Minerals Plc (LON:BCN) has reached another important de-risking milestone at its Sonora lithium project in Mexico with the securing of surface rights to the main mineral resource areas. The company has entered into a binding agreement to acquire the freehold on two parcels of land, providing it with unrestricted access to develop and operate the targeted 35,000tpa lithium carbonate operation for the contemplated initial open-pit mine life. Following hard on the heels of receipt of environment approval for the project from the Sonora State Government, this represents another significant step on the path to development. The major remaining hurdles to construction are completion of a positive feasibility study and project financing. The former is scheduled for completion by the end of this year, with final operating and capital costs estimates to be developed over the next few weeks. Assuming funding is secured shortly thereafter, Sonora could be one of the first new lithium operations of significant scale to come on stream in what remains an extremely tight market for battery-grade lithium carbonate.
Agreement to acquire Sonora surface rights: Bacanora has entered into binding agreements to acquire (for an undisclosed amount) freehold rights to two parcels of land covering mineral resources within the La Ventana, Fleur and El Sauz areas of the Sonora project, which itself consists of ten contiguous concessions covering 97,389 hectares of ground in northwest Mexico. This is a significant de-risking event, as owning the surface rights will provide the company with unrestricted access to construct and subsequently operate the planned open-pit mine and associated infrastructure.
Feasibility study nearing completion: Following receipt of environmental approvals last month, securing the surface rights is timely as Bacanora nears completion of a feasibility study of the potential for developing Sonora as an initial 17,500tpa lithium carbonate operation (with scope for a subsequent expansion to 35,000tpa). Bacanora reports today that it has now finalised process flow sheets for the lithium carbonate plant and has received all vendor quotes for the supply of equipment and chemical reagents. This will enable it to develop final operating and capital cost estimates over the next few weeks, crucial elements to determining the overall project economics. Completion of the feasibility study by end 2017 will be the catalyst for arranging construction funding, which we estimate could be over $300m including working capital requirements. Bacanora’s offtake partner Hanwa is facilitating discussions in Japan with potential long-term debt providers, and if finance can be secured in short order post feasibility study completion, we believe first production could be achieved in 2019.
Investment view: Bacanora Minerals Plc shares are trading at c0.6x our NAV estimate, which is calculated at a long-term lithium carbonate price of $8,000/t (an assumption that looks increasingly conservative given contract prices have continued to rise on market tightness, currently ranging $10,000-15,000/t). We would expect Bacanora’s shares to upwardly re-rate towards our NAV estimate over the next two years as Sonora is further de-risked through completion of the feasibility study, project funding and construction.