Bacanora Minerals (BCN LN) 73.5 pence, Mkt Cap £71.5m – Sonora Lithium project PFS for 35,000tpa LCO
- Bacanora Minerals have released details of the Pre Feasibility Study ‘PFS’ on their Sonora Lithium Carbonate ‘LCE’ project in Mexico.
- We summarise the key elements of the PFS below:
- The good part is that operating costs are forecast to be relatively low at around $2,700/t of LCE, this falls to $2,100/t over the life of the project
- These costs fit well with Bacanora’s peers and indicates that only SQM and Rockwood which operate brine extraction in Chile are lower cost producers
- The plan is to continue to pilot the process plant to provide Lithium Carbonate samples for Asian offtakers in preparation for full financing in 2017/18.
- Grades are higher in the early years which help to accelerate the project payback .
- Pre Feasibility Study details:
- Phase 1 17,500tpa years 1-2
- Phase 2 35,000tpa years 3-20 and beyond
- Potential for further expansion to 50,000tpa – not in the PFS
- Capex: $240m – stage 1
- Capex: $177m – stage 2
- Throughput 1.4mtpa – Stage 1
- Throughput 2.7mtpa – Stage 2
- Strip ratio 3.1:1.
- Ore mined 52mt from 20 year open pit (84% of this ore is attributable to Bacanora).
- Grade 3,500ppm.
- Potash by-product production 50,000tpa ‘K2SO4‘ – potash ore grade 1.5% k
- Potash prices $600-700/t
- Operating costs: $2,698/t – Average life of mine
- Operating costs: $2,100/t – Average net of by product credits
- Process residence time – 3 days, possibly 5 days in practice
- EBITDA $134mpa average
- IRR 29% pre-tax, 25% post-tax
- Payback 4.8 years.
- NPV $776m – pre-tax, NPV $542m – post-tax
- Lithium Carbonate ‘LCO’ price assumption $6,000/t. SignumBox (Chile) estimate $5,500-6,000/t as a forecast for LCE prices.
- Indicated resource of 5.0mt LCE equivalent + inferred resource of 3.9mt LCE .
- Full Feasibility Study completion Q1 2017 with detailed design and site preparation in Q2 2017.
- Q2 2017 site preparation works.
- Q4 2018 plant commissioning.
- Capex: capital costs are split between mining and processing with the bulk of capital in the back end processing plant. Stage 1 has $19m for mining equipment for the open pit and another $3.7m for mine infrastructure. The Simple beneficiation plant, eg crushing and grinding is $20.5m followed by $90.5m for the fill LCE processing plant. On-site, off-site and other costs add another $78.3m to give Stage 1 capex of $240m. This costs $13,700 per annual tonne of LCE production. Stage 2 requires proportionately less in terms of capital at $177.1m costing $10,120 per annual tonne of LCE.
- Finance: Management envisage combining debt, equity and offtake financing for the Stage 1 capital. Potentially 40% project finance, 40% equity (development agency funds), 20% offtake finance.
- Lithium carbonate prices are running at around $5,800-6,200/t in the contract market. Some erroneous prices have been reported for some small spot transactions in China which do not represent the prices received by the larger producers or for the bulk of lithium carbonate traded. The spot market is seen trading in the $7,000-9,000/t range.
- While we believe lithium prices could continue to appreciate investors should be wary of ambitious lithium price claims. Lithium battery makers are keen to expand supply but are also keen to lower battery prices to better compete with NiCd and lead-acid batteries and expand the market for lithium battery products.
- Lithium battery technology is making good progress towards better power density, faster recharge times and better temperature resistance. Unfortunately the FAA have just banned lithium batteries from checked in luggage though this is unlikely to hold the market back appreciably.
- Lithium processing costs: Bacanora sits well against its peers. Brine producer costs are around $2,000-3,000/t while hard rock (Spodumene) are seen to cost around $3,000-5,000/t of production. Lithium Clay production is estimated in general to cost around $2,500-3,300/t.
- DFS: Bacanora will continue its work to complete a full feasibility study by Q1 2017 in preparation for Bank project financing in 2017. We are confident that the Sonora lithium project should be relatively straight forward to finance and should attract offers of funding from multiple banks, development agencies, offtake groups and other interested parties.
- Strategic potential: Bacanora holds title to one of the world’s larger lithium resources. It is the largest known lithium clay resource and its location in Mexico gives the project strategic importance, eg its not in Argentina or Chile. We expect the new large lithium consumers to want to have more control on their lithium supply going forward and we expect to see names like Tesla, Samsung, Toyota taking an interest in the offtake.
- Acquisition potential: There is also significant potential for a trading house to acquire the whole project so they can better control the market for LCE. We suspect there will be significant additional opportunity for profit in the upstream processing of LCE into lithium hydroxide and other lithium compounds but that this opportunity will only be available to traders / processors who have certain access to LCE supply.
- Longevity and consistency: The scale and consistency of Bacanora’s lithium resource makes it attractive to offtakers as it should not be subject to some of the potential production risks presented by other types of lithium extraction.
- Cash: Bacanora have around C$20m in the bank. We believe this is sufficient to enable the company to prepare LCE samples for offtakers using the pilot plant and for the completion of much if not all of the full feasibility study.
Conclusion: Bacanora are making good progress towards the financing and full development of the Sonora lithium project in Mexico.
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