Ganfeng Partnership Approved

Bacanora Lithium (LON:BCN) has paved the way to successful project financing, construction and commissioning with the completion of the previously announced investment and offtake agreement with Ganfeng Lithium, the third largest lithium producer in the world. The initial investment of £22m for 29.9% of BCN and 22.5% of the project level company gives BCN a strategic partner with both technical expertise in developing deposits like Sonora and financial firepower to help get the project into production.

The Sonora fundamentals which attracted Ganfeng are unchanged and based on a WACC of 8.2% we derive an attributable NPV of US$914m for the two-phase project capable of producing 17.9ktpa and 36ktpa Li2CO3 respectively requiring upfront capex of US$420m. Cash costs of US$4,350/t (before by product credits) place the project at the lower end of the global cost curve implying strong margins and cash flow. We highlight, however, that Ganfeng are currently reviewing these assumptions to potentially optimise the capital cost.

Lithium Market Near Cyclical Low

The structural outlook for lithium remains strong with consensus demand for 2025 at 1mntpa LCE driven by rising battery production. However, recent cyclical weakness has impacted the market despite supply growth from brine projects being limited. The rise of spodumene concentrate production and additional conversion capacity has driven China CIF lithium carbonate prices down to around US$6,900/t, around a 50% discount to battery grade lithium carbonate. However, this high cost production route is now forcing upstream production cuts and the deferral of new capacity with announcements by Albemarle (ALB US), Tianqi, Mineral Resources (MIN AU), Alita Resources (AMS AU) and Galaxy Resources (GXY AU) suggesting that the current cyclical low is set to turn the market in the near future.

Recommendation and Target Price

With a clear runway to project financing and the start of construction owing to the successful completion of the agreement with Ganfeng we believe that the Sonora project has been significantly derisked with 80% of the project financing covered and execution risk reduced by the addition of an experienced partner. We therefore expect the shares to rerate as the project initially achieves full funding and then as it advances towards commissioning.

We reiterate our Buy recommendation and target price of 114p/sh.

This report has been re-released due to a publishing error