Mexican Mining

[Lone Clone]

Bacanora looks for offtake partners after PFS pleases

http://www.proactiveinvestors.com/companies/news/123243/bacanora-looks-for-offtake-partners-after-pfs-pleases-123243.html

06:08 03 Mar 2016

Bacanora Minerals Ltd (BCN.V)

-- adds broker comment, detail --

Bacanora Minerals (LON:BCN CVE:BCN) has started to search for offtake partners after a pre-feasibility study on its Sonora deposit indicated it can become a major lithium producer.

The PFS estimated a net present value of US$776mln (post-tax US$542mln) and an internal rate of return of 29% (post-tax 25%).

Peter Secker, chief executive, said the next key step is a full Feasibility Study (FS), which it has funded already and should be completed in a year’s time.

"In tandem with the FS, we will be seeking additional offtake partners for Sonora's lithium carbonate.

“With recent lithium price increases in the Asian market we believe that Sonora is a highly compelling project”.

The study used a price of US$6,000 per tonne for battery grade lithium carbonate, though Asia has seen prices higher than this recently.

Operating costs are forecast to be $2,100 per tonne after by-product credits, which indicates 65% operating margins and $135mln underlying earnings [EBITDA] per annum.

Lithium is one of the few hot sectors in mining at present due to growing interest in its use in the manufacture of smart phones and tablets, electric cars and smart grids.

The PFS numbers assumed an 8% discount rate on production of up to 35,000 tonnes a year of battery grade lithium carbonate.

Based on a deposit of 5mln tonnes of lithium, the mine life would be up to 20 years and make the Mexico-based site a major global lithium producer.

In addition, Sonora has the potential to produce up to 50,000 tonnes per year of potassium sulphate to sell as fertiliser.

A two stage development process is envisaged with production of 17.500 tonnes per year in the first two years, rising to 35,000 tonnes thereafter.

Upfront costs for stage one would be US$240mln, with US$177mln required for the second phase.

Stifel said the PFS confirms Sonora is a high quality asset in one of the most structurally attractive commodities in the sector.

On the back of that it should be the next major lithium project to enter into construction, said the broker, which has a ‘buy’ rating and 122p target price.

The feasibility study will involve running the pilot plant in Hermosillo on continuous mode for 90 days over March to May to produce samples for potential offtakers.

Shore Capital expects Bacanora to target the Chinese, Korean and Japanese markets, and will aim for at least two additional ‘cornerstone’ deals (75% of production) by the end of 2016.

Funding will be arranged on the back of these, said the broker.

Potentially this would involve 40% project finance, 40% equity and 20% offtake finance said SP Angel.