Bacanora Lithium Plc (AIM: BCN), the London listed lithium exploration and development company, is pleased to provide its audited results for the six months ended 31 December 2018.

Highlights – for the half year ending 31 December 2018

Sonora Lithium Project, Mexico (‘Sonora’ or ‘the Sonora Lithium Project’)

• US$240 million secured as part of the Sonora Lithium Project financing package to construct an initial 17,500tpa lithium carbonate operation
  • US$150 million senior debt facility with RK Mine Finance, a leading provider of finance for resources companies
  • US$65 million conditional equity commitment from the State General Reserve Fund of Oman (“SGRF”)
  • US$25 million conditional equity commitment from Bacanora’s offtake partner, Hanwa Co., LTD (“Hanwa”)
• Ongoing discussions with industry and strategic financial parties with regards to completing Sonora’s finance package
• Engineering and design work with the EPC, kiln and crystalliser contractors for detailed design and cost to complete estimate has continued
• Unrestricted access to develop and operate the Sonora mine secured following acquisition of La Ventana and La Joya parcels of land in Sonora for US$2.9 million with the final consideration settled in August 2018
• The processing plant sites change of land use permission was approved and augments the Manifestación de Impacto Ambiental (MIA -Environmental impact assessment permissions) for the project and the MIA for permanent road construction previously approved in 2018. These developments enable the project to commence construction, immediately after the project financing package is completed

Zinnwald Lithium Project, Germany (‘Zinnwald’)

• Ongoing work towards a Feasibility Study (‘FS’) into a battery grade lithium product operation at Zinnwald on track for completion in Q2 2019
• NI 43-101 compliant upgraded measured and indicated resource of 124,974 tonnes of contained lithium for Zinnwald issued in September 2018. This is a 30% increase from the previous measured and indicated PERC resource estimate of 96,200 tonnes
• First production of lithium fluoride (‘LiF’) samples with over 99% purity from concentrates at Zinnwald – provides proof of concept that battery grade lithium products can be produced

Corporate

• Appointment of Citigroup Global Markets Limited (‘Citi’) to lead the equity financing of the Sonora Lithium Project alongside Canaccord Genuity (‘Canaccord’), both of whom also act as joint corporate brokers
• Lithium pricing came under significant pressure in the calendar year 2018 with concerns about a cooling Chinese market and new suppliers coming online. Lithium equities and lithium markets continued to soften throughout the second half of the calendar year 2018. Battery grade lithium carbonate spot prices, Cost Insurance and Freight (CIF) China, declined steadily, reaching around US$16,000 per tonne in June 2018 and subsequently steadying in the US$13,000 – 15,000 per tonne range by the end of December 2018. Contract prices have remained strong in Q4 2018, maintaining a premium to spot

Peter Secker, CEO, of Bacanora Lithium, commented: “The common thread linking Hanwa, the Japanese battery metals trader; SGRF, the sovereign wealth fund of the Sultanate of Oman; RK Mine Finance, the debt provider; Citigroup and Canaccord, the global investment banks, is that they have all joined with Bacanora to assist in securing the funding package for a 35,000tpa lithium carbonate operation at our Sonora project. 

“For a junior resource company to have such a blue-chip roster of backers is a measure of the quality of the project, the favourable long-term fundamentals for the lithium market and the proven track record of the Bacanora team in terms of developing and delivering high quality lithium projects.  The world needs lithium to power the electric vehicles we may one day all be driving and also to help store energy generated from renewable sources.  The Sonora Lithium Project hosts a large, open-pit, scalable resource, with a US$1.25billion project NPV and operating costs among the lowest in the industry and we believe that Sonora is ideally placed to become a major supplier of battery grade lithium for many years to come and in the process generate substantial returns for investors.  

“The second half of this year will not just see us look to finalise the funding package for Sonora, but also complete the Feasibility Study for Zinnwald, our second lithium project.  Over the course of the last six months, we have announced a resource upgrade and the successful production of battery-grade samples of lithium fluoride from Zinnwald concentrates.  In tandem with the Feasibility Study, we are evaluating the possibility of listing our German subsidiary later this year as part of our efforts to fund the development of a lithium fluoride operation at Zinnwald.  This is an exciting period for the Company, as we look to advance our portfolio of projects and in the process take a major step towards transforming Bacanora into a producer of high value lithium products.”

To view the full announcement with illustrative diagrams, please use the following link: http://www.rns-pdf.londonstockexchange.com/rns/8280P_1-2019-2-12.pdf.

For further information, please contact:

This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014. 

IMPORTANT NOTICE

The contents of this announcement have been prepared by and are the sole responsibility of Bacanora.

None of Citigroup Global Markets Limited, Canaccord Genuity Limited nor any of their respective subsidiary undertakings, affiliates or any of their respective partners, directors, officers, employees, advisers, agents or any other person accepts any responsibility or liability whatsoever for, or makes any representation or warranty, express or implied, as to the truth, accuracy, completeness or fairness of the information or opinions in this announcement (or whether any information has been omitted from the announcement) or any other information relating to Bacanora, or any of their subsidiaries or associated companies, whether written, oral or in a visual or electronic form, and howsoever transmitted or made available or for any loss howsoever arising from any use of this announcement or its contents or otherwise arising in connection with it. Each of Citigroup Global Markets and Canaccord Genuity (together, the “Banks”) is acting exclusively for Bacanora and no one else in connection with any matter referred to in this announcement and will not be responsible to anyone other than Bacanora for providing the protections afforded to their respective clients nor for providing advice in relation to any matter referred to in this announcement. Neither the Banks nor any of their respective subsidiaries, branches or affiliates owes or accepts any duty, liability or responsibility whatsoever (whether direct or indirect, whether in contract, in tort, under statute or otherwise) to any person who is not a client of the Banks in connection with this announcement, any statements contained herein or otherwise.

Chairman’s Statement

With battery grade lithium projects being advanced concurrently in Mexico and Germany, Bacanora is one of the few pure-play lithium development companies publicly quoted in London. Our objective is to advance the development of Sonora and Zinnwald and transform Bacanora into the pre-eminent pure-play lithium production company publicly quoted in London and, in the process, generate substantial value for all our shareholders. During the half year under review, I am pleased to report that considerable progress was made towards achieving our goal of becoming a major supplier of battery grade lithium products.

Our focus on lithium is strategic – based not just on our team’s track record of delivering lithium projects around the world, but also on what we believe to be a highly favourable long-term demand profile for what is a critical component of the battery technologies that are powering rapidly-growing sectors, such as electric vehicles and energy storage. With this in mind, we are focused on bringing our two projects into production at the earliest opportunity to capitalise on what, in our view, is a growth story in the resources sector that will run for many years.

You do not have to look far to see just how ubiquitous and important lithium has become to our everyday lives. You are possibly reading this on a smartphone or laptop which both contain lithium. A Tesla Model S with a 70kWh battery, uses 63kg of Lithium Carbonate Equivalent (‘LCE’)[1]. In 2018 Tesla constructed a 129mWh (129,000kWh) renewable energy storage battery, which we estimate would require a quantity of lithium measured in tonnes. Apply the above numbers to current market forecasts, particularly for these last two sectors, and the thinking and assumptions behind the expected strong growth in demand for lithium from ~265,000 tonnes in 2018 to the 1.15 million tonnes per annum level predicted by UBS by end of 2025 becomes clear.[2]

According to Bloomberg New Energy Finance’s report in November 2018, the global energy storage market is expected to grow to 942GW/2,857GWh by 2040, in the process attracting US$620 billion in investment.[3] JP Morgan forecasts that, by 2025, electric vehicles (EVs) and hybrid electric vehicles (HEVs) will account for approximately 30% of global auto sales compared to 1% as recently as 2016.[4] China is leading the way but is not alone globally in establishing ambitious targets for EV production. JP Morgan forecasts the compound annual growth rate (CAGR) of China’s new electric vehicle (NEV) market (EVs and PHEVs) could reach 46% by 2020, with 2.5 million units produced that year, well above the government’s target of 2 million. Energy storage and electric vehicles are entering the mainstream with household names such as Premier Inn and Arsenal Football Club switching to stored power, and traditional automakers such as Porsche, Mercedes Benz and VW committing to greater numbers of electric vehicles in their fleets.

For the projected lithium demand targets to have any chance of being met, significantly higher volumes of battery grade lithium than those currently being produced will be required, particularly when global lithium production is estimated to have been around only 265,000 tonnes in 2018. Not all projects currently in production produce high value battery grade lithium. Much of the new volume reaching the market, whether Chinese brine production from the Qinghai region or spodumene concentrates from Brazil and Australia, require significant high cost beneficiation to upgrade to battery grade quality, for which there continues to be significant demand. As we have successfully demonstrated, both our Sonora and Zinnwald projects are capable of producing battery grade lithium without additional beneficiation.

At Sonora, our pilot plant has been producing samples of battery grade lithium carbonate for the last four years. These have been extensively tested and analysed by third parties, including potential end users. This has resulted in us signing a 10 year offtake agreement with Hanwa Ltd, a leading Japanese-based technology metals trader, in 2017, and more recently in July 2018 formalising a conditional off-take option with SGRF, the sovereign wealth fund of the Sultanate of Oman for Stage 2 of the project. During the period, initial LiF samples in excess of 99% purity have been successfully produced from concentrates at Zinnwald. This was carried out as part of an ongoing Feasibility Study and provides proof of concept of our strategy to produce high value downstream lithium products for the European battery and automotive sectors. As with Sonora, samples from Zinnwald are being tested and evaluated by potential end users.

Sonora

Producing battery grade lithium products is only half the story. Being able to produce at low cost is critical. As the Feasibility Study published in January 2018 highlighted, at an estimated cost of approximately US$4,000 per tonne, a 35,000 tonnes per annum lithium carbonate operation at Sonora will be one of the lowest-cost producers in the industry, occupying a similar position on the cost curve to the brine deposits of South America. Unlike such brine deposits, which deploy a multi-year evaporation process, Sonora will be able to produce lithium carbonate in just 5-7 days. This matches the rate of hard rock producers, which are generally higher-cost deposits due to the need to incorporate drilling, blasting, crushing and grinding into their processes. Sonora is a soft rock deposit, which provides the benefits of both: the low costs of the brine producers and the short timelines of the hard rock producers. Sonora also benefits from a large, high grade and scalable deposit containing resources that can be measured in centuries rather than years, an NPV8 of US$1.25 billion and an IRR of 26.1%.

To date, over half of the funding required to build a stage 1 17,500 tonnes per annum lithium carbonate operation at Sonora has been conditionally agreed. During the period, we signed a US$150 million debt facility with RK Mine Finance, a finance company specialising in the resources sector. In addition, we secured conditional investments totalling US$90 million from SGRF and Hanwa. The Company seeks to complete the construction funding in H1 2019. To this end, Citi were appointed in November 2018 to lead the equity financing of the Sonora project alongside Canaccord. To have Citi and Canaccord on-board is testament to the quality of Sonora. Furthermore, a number of blue-chip institutions, both trade and financial, are currently carrying out due diligence on Sonora with a view to potentially making strategic investments in the project.  We are encouraged by the level of engagement we are seeing, and we look forward to updating the market as soon as it is appropriate to do so.

In tandem with our ongoing work to finalise the finance package for the project, we have been pushing ahead with Front End Engineering Design (‘FEED’) work, which is nearing completion. Our aim is to be in a position to commence the construction phase at Sonora at the earliest opportunity and the results of our FEED work will inform the final Engineering, Procurement and Construction (‘EPC’) terms and quotes ahead of finalising contracts.

Zinnwald

The FS for Zinnwald remains on track to be completed in Q2 2019.  Discussions are ongoing with potential strategic partners, to potentially list Deutsche Lithium GmbH, our 50% owned investment that holds Zinnwald, on at least one public market in 2019. This is being considered, to assist in the funding of the construction of an operation capable of becoming a supplier to the fast-growing European battery and automotive sectors. 

During the half-year period under review, a resource upgrade for Zinnwald to 124,974 tonnes of contained Li (NI 43 101, Measured + Indicated) was completed. We are confident we can build on this further in the future as the Company also holds the nearby Falkenheim exploration licences which contain an additional 40,000 tonnes LCE. We believe these two assets represent a compelling investment proposition.

Outlook

Based on sound market fundamentals, long-term forecasts for lithium demand are highly positive. Short term shocks, however, can be expected as the lithium market matures. In line with this, 2018 saw challenging market conditions and bearish sentiment driven by twin concerns of cooling demand in China and the ramping up of output by spodumene producers in Australia (Altura, Alliance AMG, Galaxy, Mineral Resources, Pilbara, Talison), both of which exerted pressure on the lithium price. In H1 2018, the average price of battery grade lithium carbonate on the spot market in China peaked at US$24,750 per tonne. Since then, this declined steadily to around US$13,000 -15,000 per tonne spot prices CIF China, Japan & Korea.[5] Consequently, share prices in lithium stocks have been volatile over the past 12 months and there have been significant falls in equity values as lithium spot prices in China have declined and new lower value lithium concentrate production from Australia has increased.

As far as Bacanora is concerned, the combination of our high quality projects, with end markets that are underpinned by rapidly growing sectors, such as electric vehicles and renewable energy, and qualified personnel at all levels of the Company, reinforces the Board’s confidence that we remain on track to become a major supplier of high value battery grade lithium products. We are working hard to achieve this. The half-year period under review has seen us advance FEED design work at Sonora, secure conditional US$240 million financing towards the cost of constructing an initial 17,500 tonnes per annum lithium carbonate operation at Sonora and progress the FS at Zinnwald, including a resource upgrade.  

For a junior resources company to be able to successfully run multiple work streams concurrently is testament to the quality and depth of Bacanora’s management and operational teams on the ground. I would like to take this opportunity to thank them all for their hard work and continued support during the period. I would also like to thank Ray Hodgkinson, who retired from the Board at the AGM held on 13 December 2018, for his contribution to the development of the Company.

I look forward to reporting further progress in the second half of the financial year and beyond.

Mark Hohnen, Chairman

12 February 2019

Original Article: https://polaris.brighterir.com/public/bacanora_lithium/news/rns_widget/story/w6l18kw