Bacanora Lithium making progress towards Sonora funding

Lithium exploration and development company Bacanora Lithium reported “significant progress” in securing a funding package for its flagship Sonora Lithium Project in Mexico, in its final results on Monday.

The AIM-traded firm, which is pre-revenue, said that for the six month period ended 31 December it made a loss before tax of $4.95m, compared to the loss of $11.05m it made in the 12 month period ended 30 June 2019.

It noted that in October, it concluded an investment and offtake agreement with Ganfeng Lithium - the world's largest lithium metals producer in terms of production capacity, and the world's third largest lithium compounds producer.

Having obtained the government approvals, Bacanora said that Ganfeng acquired 29.99% of itself and 22.5% of Sonora Lithium (SLL) - the holding company for the Sonora Lithium Project - for £14.4m and £7.56m, respectively.

Ganfeng retained pre-emption rights to maintain its shareholding of Bacanora.

Wang Xiaoshen, the deputy chairman of Ganfeng, was appointed to the board of Bacanora, and a long-term offtake agreement was signed with Ganfeng for 50% of stage 1 production at Sonora and up to 75% of stage 2 production, both at a market-based price per tonne.

Ganfeng initiated a review of the engineering design and capital costs of stage 1, with a view to optimising capital costs and the timetable to construction.

In November, Bacanora raised £7.73m via a placing of ordinary shares with its longest-standing institutional shareholder, M&G, increasing M&G's strategic holding in Bacanora to 19.9%.

The company retained its $150m conditional senior debt facility with RK Mine Finance, signed in July 2018, to finance the development of Sonora, with $125m remaining undrawn.

At Sonora, the company said work during the period was focussed on ensuring project construction could commence after the financing package was completed.

It said work to complete the front-end engineering design had continued throughout the period, with Ganfeng undertaking a review of the hydrometallurgical engineering.

The company’s brokers, Citigroup Global Markets and Canaccord Genuity, continued to progress work to secure full development capital for stage 1 construction.

At the Zinnwald Lithium Project in Germany, Bacanora noted that it had completed a deal securing the future of the joint venture agreement.

On 14 February, it and the administrators of SolarWorld agreed to cancel Bacanora's option to purchase the remaining 50% shareholding of Deutsche Lithium (DL) it did not currently hold.

The agreement also cancelled Solarworld's option to buy back Bacanora's existing stake, which was contingent on Bacanora not exercising its option.

Bacanora retained its right of first refusal to purchase the remaining 50% currently held by Solarworld, and under the agreement, Bacanora would provide €1.35m funding to DL over the next two years.

“During the period under review, Bacanora continued to make strong progress towards our goal of becoming a leading supplier of high-value lithium products to fast-growing industries,” said chief executive officer Peter Secker.

“As previously announced, the company was delighted to conclude an investment and offtake agreement with the world's largest lithium metals producer, Ganfeng Lithium, for our Sonora Lithium Project located in Mexico and we welcome Wang Xiaoshen, the deputy chairman of Ganfeng Lithium, to Bacanora's board of directors.

“This strategic partnership is a major achievement for Bacanora and a significant milestone towards securing the full funding package for Sonora in 2020.”

Secker said that as anticipated, Ganfeng had quickly demonstrated its commitment to Sonora and initiated a review on the stage one engineering and design capital costs, with a view to optimising the associated costs and the timetable to construction.

“This work is taking place in tandem with the front-end engineering design work instigated by the company which continued to advance throughout the period.

“In addition to Ganfeng's support, I was also pleased to announce further commitment from another one of our blue-chip shareholder's, M&G, who in November, increased its shareholding in Bacanora to 19.9% via a placing of ordinary shares.

“In total Bacanora has secured in excess of $37m in equity investment from Ganfeng and M&G during the period.”

Post period-end, Secker noted that Bacanora had successfully reached agreement with the administrators of SolarWorld to maintain its 50% ownership of the Zinnwald Lithium Project, which he described as a strategic asset located close to a “thriving market” for lithium and energy products in Germany, with a right of first refusal to purchase the remaining 50%.

“I look forward to updating the market this coming year as we look to enter the 24-month construction phase at Sonora, once the final finance structure, subject to market conditions and of course the recent outbreak of coronavirus, is concluded, in conjunction with our cornerstone investors and partners, Ganfeng, M&G, RK Mine Finance and Hanwa.

“We remain fully committed to our two high-quality lithium projects and look forward to all our shareholders and stakeholders reaping the rewards in the years to come as both projects in turn, generate significant returns.”

At 1534 GMT, shares in Bacanora Lithium were down 5.14% at 24.9p.