Bacanora Minerals’ Share Price Jumps on Lithium Offtake Deal

Hanwa will make a 10-percent equity investment in Bacanora and will purchase up to 100 percent of the lithium carbonate produced at the company's Sonora project.

shaking hands

Bacanora Minerals’ (TSXV:BCN,LSE:BCN) share price took a leap upward on Monday (April 10) after the company announced that it has entered into a strategic partnership with Japan’s Hanwa (TSE:8078). 

Under the partnership, Hanwa, one of the larger traders of battery chemicals in Asia, will make a 10-percent equity investment in Bacanora. Hanwa has also agreed to purchase up to 100 percent of the lithium carbonate produced at Bacanora’s Mexico-based Sonora project.

Sonora is expected to produce 17,500 tonnes of lithium carbonate per year starting in 2019. After two years of producing at that level, output will rise to 35,000 tonnes of lithium carbonate annually. Hanwa has the option to purchase 70 to 100 percent of the mine’s output during its first stage of operation; during the second stage it will have the option to increase its offtake tonnage to up to 100 percent.

In a press release, Mark Hohnen, chairman of Bacanora, describes the deal as “transformational” and notes that it validates the company’s production process. He believes the transaction will significantly lower the risk profile for Sonora, and states that it is “an excellent platform with which to fund the future development of Sonora.”

Hohnen also says, “[w]e are delighted to have delivered on our stated objective to secure a partner within the buoyant Asian lithium carbonate market and look forward to continuing this theme in the coming months, as we work towards the completion of our Feasibility Study.”

Lithium demand is expected to grow significantly in the next few years, and at the end of 2016 some market watchers said they expected to see battery makers begin to start making lithium supply deals this year. Since Monday’s deal was announced, a number of lithium experts have suggested that those agreements are now starting to fall into place:

That said, Hanwa’s deal with Bacanora is a little unusual. The consensus among experts seems to be that growing demand for lithium will be met in large part by existing producers. In other words, while some new lithium mines will come online in the next few years, current producers are also likely to expand their output to help meet demand.

Albemarle (NYSE:ALB) is one major lithium miner that recently announced plans to increase its output. The company said in March that it intends to double lithium concentrate production at its Australia-based Greenbushes mine by 2019.

For Bacanora, the next step will be to complete a feasibility study for Sonora. The goal is for it to be done midway through the year, after which point Hanwa will help the company secure debt financing in Asia in order to allow development to begin.

By the end of the day, Bacanora’s share price was up 9.49 percent on the TSXV, trading at $1.50; on the LSE it was up 10.24 percent. Year-to-date the company’s share price has now gained 48.51 percent on the TSXV and 32.7 percent on the LSE.

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Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.

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