Member Info for Strangerstill

The share price for Bacanora currently inhabits an alternate universe that is based on sentiment and not reality.

The LiCO3 market
Morgan Stanley spooked the market with a report that is frankly regarded by most in the industry as a load of bolingbrokes. The current wisdom is that it takes a price of $12,000 per tonne to justify the capital expenditure in a new hard rock lithium mine. The Morgan Stanley report has LiCO3 price at less than $10,000 per tonne for 6 years from 2020, if this were the case then there will be no investment in hard rock mines and that itself would cause a deficit in supply in the future. Already their report has caused a delay in investment which will have an impact in supply going forward. Morgan Stanley also used the most optimistic supply side figures and the most pessimistic demand side figures and included no demand from grid storage. Do not forget that the current market price for LiCO3 is between $15,500 and $17,500 per tonne, so taking an average of $16,500 per tonne this is still 50% higher than the $11,000 used in Bacanora’s feasibility study. The price of LiCO3 will undoubtedly drop but it is unlikely to fall below $12,000 per tonne for long periods without having a negative impact on the supply side. Demand is going to be the key driver for the next 10-20 years as the EV market grows exponentially.

Bacanora
Bacanora has strong institutional investors who appear to be holding shares in the company for the long term. The company has an offtake agreement for all the production of the first phase of the mine for the next ten years at ‘market price’. The NPV of the company is $1.2 billion at a LiCO3 price of $11,000 per tonne according to the feasibility study which is based on a 30 year LOM. The potential LOM is much greater than this as Bacanora’s reserves are vast. The projected NPV of Bacanora (without Zinnwald) is 25 times greater than the current market cap so even a hefty dilution will still give a share price that is multiples of the current share price. I think that it is highly unlikely that Bacanora will not raise the capital to build the mine although it may take longer than anticipated and we may need to have a clearer indication of where the market price for LiCO3 is heading in the medium term. If Bacanora fails to raise the capital funding then it may become a takeover target but I cannot see the institutional investors selling out cheaply.

IMO investors in Bacanora have become too frightened by the Morgan Stanley report and by the continued fall in Bacanora’s share price, the problem being that by selling they keep driving the price down in a vicious circle. Bacanora needs to do something to put a stop to the selling, communicating a comprehensive and rational strategy for the business would be useful even if it is to mothball the mine until there is more stability in the price of LiCO3, which I do not think will take long.

One of my favourites is Recioto della Valpolicella Amarone but it is a bit expensive. I have a couple of bottles in the cellar (actually the garage) set aside for future special occasions. Let’s hope that Ariana provides one.

There are mixed messages about whether the ground works have yet started.

In a report on Bacanora on 7 August Proactive Investors reported that 'Work has started on the ground works and long lead engineering items, which are scheduled to be completed by the end of the year'

http://www.proactiveinvestors.co.uk/companies/news/202358/bacanora-lithium-upbeat-on-sonora-project-as-it-works-on-financing-plans-202358.html

Also reported in the Mazatlan Post on 17 September 'In September, Bacanora Lithium will begin the construction of Sonora Lithium, a mining project located in the Sierra Madre Occidental, which will place the State of Sonora as one of the world’s leading producers of a vital element for the batteries of cell phones, laptops and automobiles.

https://themazatlanpost.com/2018/09/17/sonora-mexico-compete-for-world-lithium-suppliers/

Also Bacanora have drawn down some of the loan funding which suggests that they will use this money for preliminary groundworks however PS in his shareholder call gave the impression that ground works had not yet started but would start soon.

Researcher 1
I presume you are referring to Lilac solutions ion exchange process for brine solutions. There is no indication that this process will be cheaper than the conventional evaporation/concentration method. The one claim they make is that it is much quicker. The company website shows a diagram of brine and HCl going into the process and LiCl coming out which looks like it would be very cheap as there is only the cost of the HCl. Brine however contains a lot of elements such as Mg, B, Na, Ca, Cl, etc. and the exchange process must remove these elements into the exchange resin which then has to be flushed out and regenerated, resins also have a limit to the number of regenerations before they stop working effectively. I suspect that although the process will be quicker than evaporation it may not be cheaper.

Chile says to clamp down on water rights in lithium-rich Salar de Atacama

https://www.reuters.com/article/us-chile-lithium-water-exclusive/exclusive-chile-says-to-clamp-down-on-water-rights-in-lithium-rich-salar-de-atacama-idUSKCN1L827G

Another reason why the Morgan Stanley lithium market forecast is so off target. It is not going to be that easy ramping up the supply of lithium to meet the future demands of EVs and grid storage. Reports such as Morgan Stanley’s that have put off investors in lithium projects will only make it more likely that there will be a future under supply into the market.

If Ferrexpo sell all the extra 300kt of pellets stockpiled in H1 in H2 then that wold imply that sales would be 600 kt higher in H2 than H1. Ferrexpo achieved a price of about $128.6 per tonne in H1 2018 ($116.7 in H1 207) thus the extra revenue would be $76.16 million assuming that the pellet price remains stable.

The production in H2 should be 5,096kt/670*730 (one line out for 60 days in h1) which is about 5,550kt and assuming that the extra production is sold so that pellet stockpiles remain at normal historic sales then this is another 400kt of sales realising about another $51 million in revenue.

So potentially H2 could see a revenue increase over H1 of over $120 million and don’t forget that Ferrexpo forward contract their sales.

C1 costs should not move very much as fixed C1 costs would be spread over more production and the repairs and stripping costs should reduce per tonne of pellets produced.

As a lot of the non C1 ‘other’ costs will be fixed (or in the case of interest reducing) then there should be a considerable rise in EBITDA in H2.

As sales revenue could be up by around 19% then EBITDA would be expected to rise by at least 19%.

OK this is best case scenario but I feel fairly confident that H2 will see much better results than H1.

As to 2019 well it all depends on rising interest rates in the world and whether we are still being ‘tangoed’ by Trumps trade wars.

From Seeking Alpha

Lithium China spot prices continue to fall as global contract prices remain strong.

Lithium market - Goldman: Concerns about a wave of supply of the electric car battery material from new mines are unfounded. The selloff in companies tied to lithium is overdone.

Ken Brinsden of Pilbara Minerals says: “There is insatiable demand for lithium."

Lithium company news - Altura Mining delivers a strongStage 2 PFS, and Nemaska Lithium signs an off-take agreement with LG.

What will it take to firm up Bacanora shares?

I agree there is no point in going round and round, nothing we can do except wait and see how it all comes out in the wash. I wonder what the open offer will look like. As an investor with limited liquidity do I buy now or wait to see if the open offer is a better deal?

As an II holding say 10% of the current share capital I could sell 5% of my holdings, in small tranches, without hitting the reporting threshold, my sale is 0.5% of the issued share capital and will drive the price down by influencing the small investors. Every time there is a small rally I sell a few more deals until the market heads down again. The price comes off by 12p (which it has) and on average I lose a about 6p per share sold. If this causes the book to be down by the 12 p per share and I buy the same number of shares as I originally held, through the book building exercise, then I have saved 40 times as much as it cost me on the potential losses on the shares sold. The book price does not have to come off very much for this to be very profitable.

IIs do have to report the purchase or sales of shares but only if a reporting threshold is crossed (increments of 1% of total share capital). As only 1.2% of the shares in issue have been traded in the last 11 days (I agree that the majority will be PIs) an II would not have to sell many shares to keep the downward momentum going, they may be able to influence the mood of the PIs quite easily without crossing a reporting threshold.

My concern is that the IIs might have trickled share sales into the market to drive the price lower prior to the finalising of the book build in order to get the finalised book build price lower and thus get a larger proportion of the total shares issued after the fund raising exercise, potential for a large gain at little cost (except to the PIs).

The volume of sales is small but it has wiped a substantive amount off the share price since the start of the fund raising exercise, the fall has been 22% since 6 July (on trades of 1.2% of total shares issued in the period) Once the share price is driven down by IIs then PIs sell in panic and it only needs small sales to keep the rout going.

The reason that Secker is not included is that it is only the directors who are named at present as Bacanora Lithium is currently a shell company. Secker (CEO) and Janet Boyce (Chief Financial Officer) are not listed as they are senior management not directors. The senior management posts will be filled by the current senior management once Bacanora Lithium becomes an active company once the assets of Bacanora Minerals have been transferred into it.

We had a very enjoyable visit to the site on Thursday 22 February and our thanks go to Melisa the Marketing Manager for arranging the visit, and to Mercedes the Mine Planning Superintendent, Cristina the Radiological Protection Officer and Jorg the Geologist for giving us a detailed and interesting tour of the site and operations. We were shown a short but interesting presentation, giving an overview of the project, which was supplemented by printouts of the mine plan and geology of the area. Considerable care seems to have been taken to ensure that the mine uses as many internal resources as possible, and that materials are re-used where possible and appropriate to keep costs down. It was apparent that the Berkeley Energia has taken care to build good relationships with the local community, and currently all but one of the locally employed staff are Spanish. We were introduced to the geologist who spent about 45 minutes detailing the geology of the resource, showing us that the mineralisation generally occurred at the boundaries between the granite and tertiary rocks. He was very excited about the exploration potential, with over 2,200 samples collected across 46 km2 We were shown one of the drill core samples from zona 7, and examples of mineralisation along the sample which usually occurred as distinct veins. These occur along the natural fractures and breaks in the rock, meaning it is easily exposed with minimal crushing. It is because of this that the feed material requires minimal processing. This enables inexpensive heap leaching rather than tank leaching which keeps costs very low. After meeting the geologist, we had a brief tour of the site which is in the process of being cleared; preparation for the development is well underway. Berkeley Energia have now received over 110 favourable reports and permits for the development of the mine, including the Mining Licence, Environmental Licence and the Authorisation of Exceptional Land Use and progress is continuing in line with the schedule previously announced. They are currently concluding the detailed reviews to ensure that the best capital and operating costs are achieved and are filling the remaining key management positions � notably they have recently appointed Sergio Arenas as Plant Manager who has over a decade of international operating experience and they are thrilled to be welcoming him to the team. We were impressed by the enthusiasm and knowledge demonstrated by the team, they all had a clear grasp of the strategic direction of the company.

My son and I have asked to visit the site at Salamanca at the end of February and Berkeley Energia has kindly agreed to a visit to the site. We are looking forward to the visit and will give a brief report on the LSE board in early March following our visit.

No wonder Peter Secker was smiling when he was interviewed about the BFS by Proactive Investors the other day, he must have known then that this announcement would be a game changer. I presume that a new feasibility study will come out soon which will detail the increased in stage 1 production from 17,500tpa. If the current design is for each production line to deliver 17,500tpa (both stage 1 and stage 2) then it would be much easier to implement the two 17,500tpa production lines back to back as one stage and go for 35,000pta straight off than have to spend time redesigning the stage 1 plant to a higher throughput. A third stage 2 production line could then bring the production up to 52,500pta. If the stage 1 production line was redesigned for higher throughput then it would make sense to duplicate this production line as stage 2. Either way it looks like Bacnaora will ultimately end up larger than a 35,000pta project.

I do not think that Bacanora will be sold out cheaply as the directors hold a large number of shares so why sell now for a knock down price when by holding for another couple of years they will be able to sell at £3 to £5 per share (assuming that the debt funding is at least 50% so that there is not a massive amount of dilution). Also the institutional shareholders have held Bacanora for several years so why would they sell at this point for a low price when they have been patient up to now and know that by holding for another couple of years until Bacanora is in production they will make a substantial amount of money. The contract changes are not a significant factor in relation to a potential sale as the main intents are; to ensure that once in production the directors will achieve a greater bonus on sale and to bring the contractual arrangement into English rather than Canadian law.

With regard to Peter Secker’s interview with Proactive Investors two points are salient. They are looking for mixed funding; the share price will be heavily influenced by the mix of debt and equity. The higher the debt funding the better and the greater potential for a higher share price for any new share issue. Bacanora are already talking to banks and expect to finalise the funding late Q1 early Q2 at which point they will go into production. I have experience of raising funding in the social housing sector to build new houses with the security for the funding being existing housing stock. This is very secure debt for a funder and even with this the lead time for raising debt is about one year. Bacanora seems confident of raising the debt by early Q2 at the latest so four to five months from now. This makes me believe that they already have the draft heads of terms agreed and all that will need to be done is for the feasibility study to be gone over with a fine tooth comb (the banks solicitors to throw a few curved balls to justify their fee) and the final details agreed before the debt funding is signed off. The news I am waiting for is the mix of debt to equity funding.

jimb2 I have inferred that Bacanora will wish to offload the borate project from that fact that it is not going ahead with development of the project and now values the project at its potential sales value. It also appears to have no interest in the long term future of the borate project beyond the next financial year. For the year ended June 30, 2017 an impairment charge of $8,037,430 was recognized in respect of the Magdalena Borate property. As a result of the Company's decision not to invest any further capital in the project and the Company's focus on the Lithium projects an impairment test was performed. The recoverable amount is its estimated fair value less costs to sell and is determined to be $679,125. The Company plans to maintain the mining concessions in good standing for the next fiscal period.

Martin is Vice President, Exploration and General Manager Minera Sonora Borax S.A. de C.V., a fully-owned Mexican subsidiary of Bacanora and the operating vehicle for the development of the Company's borate project in Mexico. He started his career as geologist with the US Borax exploration team. I wonder if this move is due to Bacanora moving from its exploration phase to being a producer and I also looking to sell off its borate interests. Martin may very well end up being involved with any company that buys out the borate interest.