Member Info for observer842

We own 30% of it. BCN own the other 70%. But I'm guessing you have another answer in mind. :-)

Looks like it happened in 2018 and we (I at least!) missed it.

2017 accounts:
===[
The remaining three concessions, Buenavista, Megalit and San Gabriel, cover 89,235 hectares, and are
subject to a separate agreement between the Company and Cadence. As at June 30, 2017, Buenavista
and San Gabriel concessions are owned by Megalit, while the Megalit concession was in the process of
being transferred to Megalit. The Megalit concessions is currently owned by MSB. Megalit is owned 70%
by Bacanora and 30% by Cadence.
]===

2018 accounts:
===[
The remaining three concessions, Buenavista, Megalit and San Gabriel, were outside of the scope of the Sonora
Project Feasibility Study. They cover 89,235 hectares and are subject to a separate agreement between the
Company and Cadence. As at 30 June 2018, Buenavista, Megalit and San Gabriel concessions were owned by
Megalit. Megalit is owned 70% by the Group and 30% by Cadence.
]===

2019 accounts:
===[
Three concessions, in Sonora Mexico, Buenavista, Megalit and San Gabriel, fall outside of the scope of the Sonora
Lithium Project Feasibility Study. They cover 89,235 hectares and are subject to a separate agreement between
the Company and Cadence. As at 31 December 2019, Buenavista, Megalit and San Gabriel concessions were owned
by Megalit. Megalit is owned 70% by the Group and 30% by Cadence.
]===

Presumably they meant 30 June 2019...

Good spot!

"Personally I think basing the cost to take Ganfeng's percentage holding of SLL to 50% on the market cap of BCN rather than the share price of BCN makes more sense." But I suppose Ganfeng could have insisted it were based on the share price rather than the market cap as a hedge/disincentive against BCN diluting their 30% holding in BCN?

I think I see what you are saying @tomcat, and it had crossed my mind, but the wording is:

"The valuation of any additional investment by Ganfeng would be based on the share price of Bacanora Lithium Plc at the time of the additional purchase."

and not:

"The valuation of any additional investment by Ganfeng would be based on the market capitalisation of Bacanora Lithium Plc at the time of the additional purchase."

which it should have said for what you are suggesting to be the case.

I really don't know why some companies have a hard time at being clear... Personally I think basing the cost to take Ganfeng's percentage holding of SLL to 50% on the market cap of BCN rather than the share price of BCN makes more sense. But what do I know? :-)

Ob.

I wonder how the market would react if Ganfeng started to sell their 29.99% in an attempt to tank the share price so they can buy to 50% of SLL on the cheap? I suspect it might have the opposite effect to what they desired, and I suspect they know this, so they probably won't try. Which means if they do start to sell, perhaps it indicates they aren't planning on increasing from 22.5% to 50%? Oh! Paper, scissors, stone anybody?

I'm not sure what you are questioning @tomcat, if indeed you are questioning anything. For clarification, my current understanding is that Ganfeng paid £7,563,649 for 22.5% of Sonora Lithium Limited (SLL). Should they wish to increase this to say 45% within 24 months and if the share price happened to be 25p at the time (likely volume weighted average price over 20 days), then they would have to pay another £7,563,649 for the privilege.

By way of clarification by example: if the (possibly 20 day VWAP) share price was a pound, and Ganfeng wished to exercise their full right to 50% then I believe they would be required to pay:

£7,563,649 * (100p / 25p) * (27.5% / 22.5%) = £37m

and now be liable to half of the cost of the project, rather than the current 22.5%.

Is this how you see it? Admittedly I'm not fully convinced by this understanding as it means it's in Ganfeng's interest that the value of the project appears in the market cap but not the share price - favouring equity dilution to grow the market cap/fund the project. Although I suppose since Ganfeng own 29.99% of BCN this strategy won't be great for them. Perhaps if we run through the numbers they would show that with these percentages it doesn't matter too much? Apologies if this sounds complicated! How about an example?

Ganfeng have 57.6m shares. At 25p these are worth £14.4m and I believe it would cost them £9.25m to increase to 50%.

Since £14.4m > £9.25m then in principle, on paper at least, it is in Ganfeng's interests that the share price increases, even though it will mean they have to pay more to get their 50%. In practice it's probably suits them to tank the share price, buy to 50%, reverse the tank. And of course, even if they pay £x millions to increase to 50% they may believe the value of that extra percentage is worth 2-3 times or more the £x millions they paid for them. But then the same would be true of the believed value they place on their 29.99% - probably. Confused? I hope so!

Idle speculation. Perhaps I should have written this on the BCN board...

Ob.

I'd say these trades are from those buying on the back of the RNS at 11:04 believing it better than it was, then cutting their losses when they realised others weren't joining in. Also it's possible word has got around that we are due a decent RNS which could multibag this share, so some will be watching for RNS's like a hawk. One could land at any time from various angles...

Reading through the BCN annual report I'd forgotten about this: "acquire an initial 22.5% interest in the Sonora Lithium Limited, for a cash payment of £7,563,649, equivalent to a price of 25 pence per share, with an option to increase its interest in the Sonora Lithium Limited to up to 50% from 22.5%, within 24 months of the completion of the initial investment. The valuation of any additional investment by Ganfeng would be based on the share price of Bacanora Lithium Plc at the time of the additional purchase."

BCN's share price is currently around 32.5p therefore the Sonora KDNC valuation based on ownership of currently defined reserves, which @tomcat and I were discussing yesterday, becomes:

£7,563,649 * (839kt / 827.1kt) * (32.5p / 25p) = £10m

And if BCN's share price rose to over a pound our reserves would be worth just over £30m by this measure.

Whether it's a good measure to use I don't know. In my conservative valuation estimate I have Sonora pegged as being worth a few million based on that mined in the current DFS and BCN's market cap. But should the timescales and/or the mined volumes improve considerably then so should my estimate - assuming more of our JV is brought into play and/or sooner.

Ob

k :-)

Leave @Bannor's buttons alone @tomcat. They're mine! ;-)

I'm fully expecting our next placing will be above 8.125p, that's a premium to today's share price right? LoL. Now I am pressing buttons.

And let me clarify this some more :-) "So I'd say hold selling anything until all lights are looking green for Amapa and then play them off one another with the fall back of raising via equity/debt/CLN's."

I'm not talking about selling anything on the cheap & nasty. If no-one is prepared to pay a half decent price for us to be gone, then we should do as you say, arrange to fund this ourselves via whatever we believe is most cost effective/achievable. Ideally 100% debt at 0 interest rate. LoL

Perhaps you are right @Bannor. But there has to be a point where we decide to sell. If we were offered £50m today to be gone completely from Sonora I doubt we'd turn it down, even if we believed it might be worth 2, 3, perhaps even 10 times this to us in time. Time value of money and all that...

LoL @Bannor you should know by now you can only trust your own view at all times, not just this time :-)

Let me clarify this "So I'd say hold selling anything until all lights are looking green for Amapa and then play them off one another with the fall back of raising via equity/debt/CLN's."

I personally hope we don't sell any of the current assets until we are at the 27% and looking to go to 49% because all lights are green (project pretty much derisked) and we see better, faster returns through Amapa than elsewhere. If we don't we shouldn't sell.

Let me assure you @Bannor my post wasn't designed to press your buttons. If we believe we can turn say £7m from say the sale of EMH or Sonora or Yanigbana into say £70m faster and with less risk through other projects which we have control over then we should do so regardless of the history of the £7m. Whether we believe we can do that remains to be seen - I believe, presumably like you, that Sonora is worth much more than £7m to us, but on what timescales? 5 Years? 10? 20?

You know I was quite disappointed we let Greenland go after all that was said of it. I invested quite a bit of my time researching that. History happens.

Apologies if I wound you up. I'm trying to keep it real! There is only so many times I can take being wrong. LoL. :-)

Ob.

I wonder how WHI valued Sonora in their recent research note?

https://*********************/companies/uk/precious-metals/cadence-minerals/research/whireland/amap-transformational-and-a-potential-company-maker/1cd417f2-1bdc-4021-bdd3-c11db4c2be30

From my perspective our JV in Sonora is pretty worthless to us at the moment (low millions) and I can't see the market attributing any real value to it unless plans are brought forward for a 35kt, 50kt, 100kt mine - only then we might start to approach @Bannor's figures. i.e. hold until then if we can! Especially since Lithium demand could be about to ramp up considerably - potentially leading to a winner takes (mostly!) all scenario for this low cost scaleable project. :-)

We'll see. No doubt they'll want us gone by hook or crook before announcing their plans for expansion. Question is, would we be happy with circa £7m in the bank today - which might be deemed fair and is actually quite good based on their current plans and progress, or potentially much more at a later date which may never come? The answer should relate to how fast and reliable we could grow that £7m in comparison to letting Sonora ride.

If Amapa continues according to plan we might want to sell out of Sonora (or Yangibana or EMH) rather than raising the near term $3.5m to take us to 27% or the medium term, presumably larger, funding to take us up to 49%. So I'd say hold selling anything until all lights are looking green for Amapa and then play them off one another with the fall back of raising via equity/debt/CLN's.

Just idle speculation.

Ob.

I think it's very likely that "SLL also owns 70% of the El Sauz and Fleur concessions, which are held by Mexilit S.A. de C.V. ('Mexilit’)" means all of the El Sauz concessions held by Mexilit. But I take your point! ;-)

@tomcat. re dabs. I see what you are getting at. And it is complicated for sure! This reminder might be of interest to those who don't know what we are referring to:

"Bacanora Minerals Ltd 2014 AIM admission document."
https://www.bacanoralithium.com/pdfs/Companys-AIM-admission-document.pdf
===[
The agreement also provides the governing parameters of Mexilit, which include the
following provisions:
• Mexilit is to initially have three directors, all of whom shall be nominees of the
Company. On completion of the REM Agreement 1 Stage 3 Option, REM Mexico will
be entitled to nominate an additional director to the board of Mexilit;
• the board of Mexilit is responsible for the day to day management of Mexilit and the
REM JV1 Concessions including management of the exploration and development of
the REM JV1 Concessions;
• shareholder approval (from the holders of 2/3 of the issued shares) is required in certain
circumstances including on the issue or grant of rights in shares, borrowing, granting
security, sale or disposal of any of the REM JV1 Concessions;
• if Mexilit issues a cash call notice to its shareholders, each shareholder shall be obliged
to contribute its proportionate amount, failing which its interest may be diluted;
• shares cannot be transferred or charged except with the approval of the board;
• each party has a right of first refusal in respect of the others’ Mexilit shares; and
• drag-along and tag-along rights apply between the parties in respect of any proposed
sale of interests to a third party.
REM Agreement 1 is governed by the laws of the Province of Alberta.
]===

Presumably the agreement is still valid? Perhaps the two thirds voting clause might explain why we had to sell down our BCN shares to enable Ganfeng on board without the risk of us frustrating progress? I suspect technically the same BCN controlled company holds their 70% so first refusals and drag-along and tag-along rights didn't apply. But perhaps they did apply and we decided not to have the relative portion of our 30% dragged along for the peanuts that were on the table?

Anybodies guess really.

In term of my previous calculation - I take your point about the prices, but I'll stick to using the reserves in the updated version below:

We know they got 29.99% of BCN for £14,400,091 and 22.5% of SLL for £7,563,649.

22.5% of 3,676kt = 827.1kt

Therefore the valuation based on this is £7,563,649 * (839 / 827.1) = £7.7m which is now in the same ball park as your calculation. :-)

Ob.

t

For the reserves calculation I found it curious that 839kt / 1,681.8kt is almost exactly half (0.4989). i.e. that 22.5% gives Ganfeng claim over nearly exactly twice as much lithium reserves as we do. For the reserves they currently have claim over 1,681.8 / 4,515 = 37%. We have claim over 839 / 4,515 = 18%. If they bought us out they would have claim over 55% of the reserves. Food for though.