Ganfeng’s strategic investment will boost Bacanora’s finance package for the development of its Sonora lithium clay project in Mexico.
Chinese top lithium producer Ganfeng Lithium (OTC Pink:GNENF,SZSE:002460) has signed another deal in the space, this time announcing it’s looking to acquire a 30 percent stake in London-listed Bacanora Lithium (LSE:BCN).
Ganfeng’s GBP 14.4 million strategic investment will boost Bacanora’s finance package for the development of its Sonora lithium clay project in Mexico, which is forecast to produce an initial 17,500 tonnes per year of lithium carbonate.
Peter Secker, CEO, of Bacanora Lithium, said the deal will not only provide industry validation of Sonora’s clear potential to become a key supplier of battery-grade lithium, but could also potentially halve Bacanora’s share of the capital costs required for Sonora’s construction — estimated at US$420 million.
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.
“It is not just Sonora’s finance package that would be substantially de-risked, we would also gain access to Ganfeng’s proven expertise in developing lithium projects, thereby significantly de-risking the construction phase at Sonora,” Secker said.
Under the terms of the agreement, Ganfeng will be granted exclusive offtake rights to purchase 50 percent of all lithium products produced at the project for the life of the mine during Stage 1.
Additionally, the Chinese producer will have the option to increase its offtake to 75 percent during Stage 2, when the operation grows its output to 35,000 tonnes per year. Ganfeng would pay market-based prices for every tonne of lithium carbonate sold under the offtake deal.
“[The] Sonora deposit is large and scalable, with low operating costs. We look forward to working closely with the Bacanora team to realize Sonora’s potential and bring into production the world’s first lithium clay project,” said Wang Xiaoshen, deputy chairman of Ganfeng.
The Chinese producer has been increasing its dominance in the lithium space this year. In April, the company announced a US$160 million investment in Lithium Americas’ (NYSE:LAC,TSX:LAC) Cauchari Olaroz project in Argentina, increasing its stake from 37.5 percent to 50 percent.
With interests in six lithium resources in Australia, Argentina, China and Ireland, and its primary source of lithium raw materials at Mount Marion in Western Australia, Ganfeng Lithium has also signed lithium supply agreements with carmakers and battery manufacturers around the world.
In 2019, the company made news 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 (KRX:051910).
Ganfeng and Bacanora expect to finish their final due diligence and documentation by June 28, 2019, and will sign a binding agreement for the transaction after that.
On Tuesday (May 21), shares of Bacanora lost most of the gains made after the news, trading down 13.6 percent at GBX 26.50. Meanwhile, Ganfeng was up almost 2 percent in Shanghai at CNY 24.44.
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Securities Disclosure: I, Priscila Barrera, currently hold no direct investment interest in any company mentioned in this article.