LONDON (Alliance News) - Bacanora Minerals Ltd on Thursday unveiled the results of the pre-feasibility study for the Sonora lithium project in northern Mexico, which the company will construct in two stages with initial production set to begin before the end of 2018.
Bacanora has been progressing the study over the last nine months, and will now focus on completing the definitive feasibility study over the next year, whilst sourcing offtake partners from China, South Korea and Japan as it looks to enter its lithium into the global market just as demand is anticipated to take off.
The US Geological Survey has said lithium supply has become a "top priority" for Asian technology firms, with the commodity a key ingredient for making smartphone batteries, with substantial growth also expected to be driven by the electric car market.
Bacanora plans to build its Sonora lithium project, alongside its project partner and substantial shareholder Rare Earth Minerals PLC, in two phases, with the second phase being funded by internal cashflow generated from the first.
The first one or two years will see production of around 17,500 tonnes of battery-grade lithium carbonate, before the second phase pushes production up to 35,000 tonnes a year. Ultimately, production could reach up to 50,000 tonnes a year in the longer term, Bacanora Chief Executive Peter Secker told Alliance News.
The first phase will cost USD240.0 million in capital expenditure, with construction estimated to last around 18 months before commissioning can begin. Secker said he believes the capital expenditure is "very fund-able" for the company's size, highlighting the price of lithium carbonate has been far more resilient than other commodities such as copper.
The payback period for the project is five years, yields a pretax internal rate of return of 29%, gives the project a net present value of around USD776.0 million, and will generate around USD127.0 million in earnings before interest, tax, depreciation and amortisation each year during the first phase.
The second phase of construction, to push production up to 35,000 tonnes a year, will cost an extra USD177.0 million in capital expenditure, but that will be funded from internal cashflow.
Secker told Alliance News that the main reason for breaking the project into two phases, however, was to meet market demand, claiming it would put too much supply into the market running at 35,000 tonnes a year in 2019.
According to SignumBOX, a Chilean research company reporting on natural resources, total global production of lithium carbonate equivalent was around 186,000 tonnes in 2013, with around 85% of that production coming from only four companies and with global demand expected to rise to 280,000 tonnes by 2020.
That demand could grow to 410,000 tonnes per year by 2025, according to those estimates.
The Sonora project also appears to boast very favourable costs, with an average life-of-mine operating cost of around USD2,700 per tonne, considerably lower than the majority of its peers and more than enough to provide a healthy margin with prices running at around USD6,200 per tonne. Bacanora has modelled its projections at a price of USD6,000 per tonne.
Importantly, Bacanora also believes it can produce up to 50,000 tonnes of potassium sulphate per year as a by-product. The commodity is used within the fertiliser industry, with Bacanora targeting sales into the domestic market in Mexico and in the south of the US.
If Bacanora produces that amount of potassium sulphate, its average operating cost drops to only USD2,100 per tonne.
Bacanora plans to use its pilot plant at Hermsillo to produce samples of its lithium carbonate up until the end of May before sending them to potential offtake partners in those three Asian countries.
Secker said the company is aiming to secure sales for around 75% of its initial production, through a minimum of two offtake agreements. Secker added three offtake deals would be welcomed, but that would be his limit.
Bacanora entered into a consultancy deal last week focused on identifying potential purchasers of its lithium products. Although Asia is the main target, Bacanora has previously said it would seek customers in North America and in Europe.
That consultancy agreement was secured by Mark Hohnen, who was appointed to the board in late November, just before the placing was conducted.
Alongside the chase for offtake deals and the completion of the definitive feasibility study, which is fully funded through proceeds of the company's recently completed placing, Bacanora said further infill reserve drilling will be undertaken in the second quarter of this year, followed by the samples being produced at the pilot plant.
By the end of this year, Bacanora hopes to have the offtake deals secured and to publish a reserve and resource update.
The latest update to the resource at Sonora was published back in November, showing a four-fold increase in the mineral resource at the project. The indicated mineral resource rose to 5.0 million tonnes of lithium, up from 1.14 tonnes previously.
That resource demonstrates the project could potentially run for well over a hundred years at the intended production rates, with the initial mine plan only laid out for the first 20 years.
Bacanora had a cash balance of around CAD20.0 million at the end of 2015, boosted by the CAD17.8 million raised from a share placing back in November. Secker said the cost of the definitive feasibility study is not yet known, but said he thinks it will be below half of that balance, stating the company is fully funded well into 2017.
By Joshua Warner; joshuawarner@alliancenews.com; @JoshAlliance
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