Bacanora Lithium Jumps on Strategic Deal with Ganfeng

Shares of Bacanora Lithium (LSE:BCN) climbed more than 20 percent on Monday (October 14) after the lithium developer closed a GBP 21.96 million strategic investment deal with Ganfeng Lithium (OTC Pink:GNENF,SZSE:002460).

The Chinese producer will become its largest shareholder, with a 29.99 percent stake in the London-based company and a 22.5 percent joint venture investment in the Sonora lithium clay project.

Ganfeng’s investment is set to boost Bacanora’s finance package for the development of the Mexico-based asset, which is forecast to produce an initial 17,500 tonnes per year of lithium carbonate.

Last year, Bacanora withdrew from a US$100 million share sale at the last minute due to weak investor demand. The company, which says Ganfeng’s investment puts it in a better position, now plans to launch a US$300 million capital raise early in 2020.

As part of the strategic agreement closed with Ganfeng, the top Chinese producer will be granted exclusive offtake rights to purchase 50 percent of all lithium products produced at Sonora for the life of the mine during Stage 1 of operation.

Additionally, Ganfeng will have the option to increase its offtake to 75 percent during Stage 2, when the operation will boost its output to 35,000 tonnes per year. Ganfeng will pay market-based prices for every tonne of lithium carbonate sold under the offtake deal.

Sonora has an estimated measured and indicated mineral resource of over 5 million tonnes of lithium carbonate equivalent and additional inferred resources of 3.7 million tonnes of lithium carbonate equivalent.

Looking ahead, Bacanora continues to progress final design work for the mine, concentrator and kiln sections of the processing plant, with construction set to start in the second quarter of 2020 and production starting in early 2022. A total of US$420 million is needed to start construction.

Ganfeng has also announced its intention to advance the development of the Sonora lithium clay project during the second half of 2019.

It’s been a busy year for the Chinese lithium giant, which despite the decline in lithium prices and negative investor sentiment toward the sector, has continued to expand its dominance in the space.

With interests in six lithium resources in Australia, Argentina, China and Ireland, and its primary source of lithium raw materials in Mount Marion in Western Australia, Ganfeng has also signed lithium supply agreements with carmakers and battery manufacturers around the world.

In early 2019, the company made news headlines when it inked a long-term lithium deal with German carmaker Volkswagen (OTC Pink:VLKAF,FWB:VOW). Ganfeng also has supply agreements in place with Tesla (NASDAQ:TSLA), carmaker BMW (OTC Pink:BMWYY,ETR:BMW) and Korean battery maker LG Chem (OTC Pink:LGCLF,KRX:051910).

In August, the Chinese producer closed a US$160 million investment in Lithium Americas’ (NYSE:LAC,TSX:LAC) Cauchari-Olaroz project in Argentina.

The deal, which was announced in April, will see the Asian top lithium producer increase its current 37.5 percent interest to 50 percent, forming a 50/50 joint venture with Vancouver-based Lithium Americas. Ganfeng purchased its stake in Lithium Americas from another top producer SQM (NYSE:SQM) last year.

Ganfeng is aiming to have a production capacity of 200,000 tonnes per year of lithium carbonate equivalent by 2025, although the company has said final capacity expansion will be based on changes in future market demand for lithium products.

On Monday, shares of Bacanora closed up 9.41 percent in London, trading at GBX 37.74. The company’s share price has increased 38 percent year-to-date. Meanwhile, shares of Ganfeng closed up 2.65 percent at 22.88 Chinese yuan.

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