Here’s the big picture. The market for lithium has grown between 8-12% over the last 15 to 20 years, underpinned by strong demand from computer and mobile phone makers, who use it in batteries.

The next phase of growth will be driven by the hybrid electric vehicles. The power unit of a Toyota plug-in Prius, for example, might require 7-10 kilograms of lithium, compared 3 grams for a mobile phone, or 30 grams for a laptop.

Next-generation electric cars such as the Tesla Model S, might require around 50 kilograms. So consumption of the lightest of the metallic elements on the periodic table is only going to increase from its 180,000 tonnes a year.

And, as the Paris conference on climate change gets into full swing, the renewable industry is going to require lithium by the truckload if solar and wind power are to succeed as replacements to fossil fuels.

Nature’s own bounty doesn’t arrive at the point of peak demand for electricity; it is best described as an intermittent source of electricity. So giant batteries will be required to store the energy provided by the elements for when it is needed.

Those batteries require what? Yes, lithium. Gold star, go straight to the top of the class.

It is estimated half a tonne is needed just to store a megwatt of electricity.

Against that backdrop, it should not come as a surprise that Bacanora Minerals (LON:BCN, CVE:BCN) is positively thriving.

The Sonora Project in Northern Mexico is host to an estimated 9mln tonnes of lithium carbonate, 5mln tonnes of which are in the higher confidence ‘indicated’ category.

If it comes into production as planned towards the end of 2018, it will be an internationally significant producer in a market dominated by a handful of players.

The big three lithium producers are SQM and Albemarle Corp-owned Rockwood, which are both based in Chile, and FMC in Argentina. After that there is Talison in Australia, which is 51% owned by the Chinese, voracious consumers of the metal.

There are a handful of other much smaller producers dotted around the world, but supply is polarised around a handful of firms in South America and one in Oz.

Supply is tight. ASX-listed Orocobre’s Salar de Olaroz lithium facility in Argentina is expected to go into production in weeks. After that nothing – although Bacanora reckons its project will be the next cab off the rank as it were.

It recently updated the resource estimate on Sonora after an extensive and largely successful exploration programme.

And it will publish a pre-feasibility in the first quarter of next year.

For the uninitiated, this document will give an overview of Sonora’s, potential including initial costings for building and operating a mine, along with the economics benefits of its.

It will be constructed in stages, with initial production expected to be 17,500 tonnes, rising to 35,000 tonnes, then potentially on to 50,000.

Analysts put the cost of the initial phase at anywhere between US$150-250mln, which would be funded from a mix of debt, offtake finance and a contribution from equity investors.

Bacanora has been forward thinking in running a pilot production plant at Hermosillo, the capital of Sonora State, which around 200km from the putative mine.

Running pilot production this way means the company already has a good idea as to the quality of the product it wants to sell.

The plan is to upgrade and expand the small-scale facility to produce material that potential buyers, known in the trade as offtakers, can take away for testing over a period of three to six months.

It is hoped a couple of them will sign up to buy the product on a long-term contracts and perhaps even contribute to the building of mine.

There is plenty of early interest. And in August Bacanora and its Sonora joint-venture partner, the David Lenigas-run Rare Earth Minerals (LON:REM), revealed a supply agreement had been finalised with Tesla, maker of the Model S and Model X electric cars.

Bacanora boss Peter Secker is tight-lipped on how that tie-up might develop, though it certainly provided a boost to the share price.

The company didn’t immediately capitalise on the rise in its valuation, but waited until early November to raise £8.8mln from investors.

This will provide it with more than enough cash to fund the pre-feasibility study, the expansion of the pilot plant and the comprehensive bankable study, which should be complete by end of next year.

Driving the business towards construction and the production is boss Secker.

Appointed in May, he has 30 years’ experience in the industry, a good chunk of which has been spent developing mines.

In doing so he has raised US$700mln from the debt and equity markets and most recently oversaw the construction of the Quebec Lithium Project, including the successful negotiation of an offtake deal with a Chinese buyer.

But Bacanora is not about one man.

“We are putting together a team in Sonora that has built lithium mines over the last 25 years that has operated mines and done offtake agreements,” Secker told Proactive Investors.

Bacanora, which has its primary quote in on the Toronto venture exchange, listed in the UK last July at 33p a share.

Today the stock is worth just over 80p – not a bad return for investors who were able to pick up equity in IPO share placing.

At current prices the business is worth around £78mln. But as Sonora is de-risked, with the completion of pre-feas and BFS, so that valuation should grow. The addition of offtake partners will provide third party validation of project.

So there is still plenty of headroom for the stock.

In fact given the lack of new lithium opportunities rolling off the mine development production line, potential buyers may come into acquire Sonora once it is up and running.

Talison was bought for 12 times underlying earnings. Using those metrics Sonora would be worth in excess of US$500mln (£332mln) based on output of just 7,500 tonnes a year and an EBITDA margin of US$2,500.

So it is fair to say the journey has only just begun for investors and the new management.

Original Article: http://www.proactiveinvestors.co.uk/companies/news/120234/bacanora-s-lithium-plans-look-perfectly-timed-120234.html