Bacanora Lithium plc – Proposed Strategic Investment by Gangfeng Lithium
Monday, May 20th, 2019
- Proposed cornerstone strategic investment by top tier global lithium producer Ganfeng Lithium Co., Ltd. (“Ganfeng” or “GFL”) at both the corporate and Sonora Lithium Project level
- Includes subscription for a 29.99% interest in Bacanora, in addition to an initial 22.5% direct interest in the Sonora Lithium Project with an option to increase up to 50% of the Project
- Additional long-term offtake for both Stage 1 and Stage 2 lithium production
- GFL would assist Bacanora in the finalisation of the EPC engineering design and the subsequent construction and commissioning of Sonora Lithium Project
- Strategy would be in place to ensure project timetable of first production in 2021
Bacanora Lithium plc (AIM: BCN), the London traded lithium company, is pleased to announce the signing of a non-binding Heads of Terms for a strategic investment in both Bacanora and its flagship Sonora Lithium Project (“Sonora” or “Sonora Project”) in Mexico (“the Strategic Investment”) by Ganfeng, the world’s largest lithium metals producer in terms of production capacity and the world’s third largest lithium compounds producer. Completion of the Strategic Investment would form a major part of the Company’s finance package for the construction of an initial 17,500 tonnes per annum (“tpa”) lithium carbonate (“Li2CO3”) operation at the large scale, high grade Sonora Project. The Company will be hosting a shareholder conference call on Tuesday 21 May 2019 at 11am (GMT) to discuss the proposed Strategic Investment. Details of the call can be found below.
As part of the Strategic Investment, GFL would subscribe for a 29.99% equity interest in Bacanora for a cash consideration of £14,400,091, being 57,600,364 new ordinary shares in the Company (the “Private Placement”), at a price of 25 pence per share, representing the volume weighted average price (“VWAP”) on AIM of the Company’s shares over the previous 20 trading days at the time of negotiation. Subject to the completion of the Private Placement, GFL would have the right to nominate one director to the main board of Bacanora. GFL would also be granted pre-emption rights in relation to new share issues proportionate to its interest in Bacanora.
In addition, as part of the Strategic Investment GFL would be granted the right to acquire an initial 22.5% interest in a subsidiary of Bacanora which holds the Sonora Project (“Project Level Company”), for a cash payment of £7,563,649, equivalent to a price of 25 pence per share on the same basis as the Private Placement (the “Project Level Investment”). Subject to the completion of the Project Level Investment, GFL would have the right to nominate one director to the board of the Project Level Company. GFL would also be granted an option to increase its interest in the Project Level Company to up to 50% from 22.5%, within 24 months of the completion of the Project Level Investment. The valuation of any additional investment in the Project Level Company by GFL would be based on the share price of Bacanora at the time of the additional purchase.
The £14,400,091 capital raised via the Private Placement and the £7,563,649 via the Project Level Investment would be used for the continued development and commercialisation of the Sonora Project. Under the proposed terms of the Strategic Investment, GFL would play an active role in this process. Within 6 months of the Strategic Investment, GFL would complete a review of the current EPC engineering design focusing on reducing the capital cost of the Sonora Project from the current figure of approximately US$420 million and accelerating the construction timetable from that envisioned in the Feasibility Study. Based on the results of this review, GFL would assist with finalising an EPC engineering contract for the mine and plant construction and would work with Bacanora during the construction, commissioning and early operations phases of the Sonora Project. GFL would also provide a plant and process commissioning team to assist Bacanora in commissioning the Sonora Project.
Conditional on the completion of the Strategic Investment, GFL will be granted exclusive offtake rights to purchase 50% of all lithium products produced at Sonora for the life of the mine during Stage 1 planned production of Li2CO3 (“Offtake Agreement”). GFL would also have the option to increase its off-take to 75% of all lithium products during Stage 2 of production. GFL would pay market-based price for every tonne of Li2CO3 sold under the Offtake Agreement.
The Strategic Investment is conditional on, amongst other matters, completion of due diligence, definitive documentation and regulatory approvals. Further announcements will be made in due course.
The Strategic Investment follows the completion of a Feasibility Study which confirmed the attractive economics and low operating costs of a 35,000 tpa battery grade (+99.5%) Li2CO3 operation at Sonora: US$1.253 billion pre-tax project Net Present Value (“NPV”), 26.2% Internal Rate of Return (“IRR”), and Life of Mine (“LOM”) operating costs of c.US$4,000/t of Li2CO3 (see announcement dated 13 December 2017).
Peter Secker, CEO, of Bacanora Lithium, commented: “The proposed Strategic Investment from Ganfeng, a top three lithium producer, will be a major milestone in the development of the Sonora Project. Not only will it provide industry validation of Sonora’s clear potential to become a key supplier of battery grade lithium but, subject to Ganfeng exercising its option to increase its interest in the Sonora Project to 50%, our share of the capital costs required to construct an initial 17,500 tpa Li2CO3 operation at Sonora would be halved. With a senior debt facility with leading resource finance provider RK Mine Finance secured and the proposed strategic investment from Ganfeng, we have made significant progress towards the completion of the construction funding of the Sonora Project.
“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. In return, Ganfeng gains exposure to a large and scalable lithium project which, with estimated LOM operating costs of c.US$4,000/t of Li2CO3, has the potential to become one of the lowest cost suppliers of battery grade lithium to fast-growing industries, such as electric vehicles and energy storage, for many years to come. Our priority is to work with Ganfeng to proceed with and complete the Strategic Investment as well as finalise the EPC engineering design contract and, where possible, secure material capital cost savings. We now have a clear line of sight towards commencing construction at the US$1.25 billion Sonora Project and I look forward to providing further updates on our progress.”
Mr Wang Xiaoshen, the Deputy Chairman of GFL, commented: “Our proposed investment in Bacanora Lithium and the Sonora Lithium Project would form a cornerstone in Ganfeng’s growth strategy to become the world’s largest lithium producer. Specifically, the Sonora deposit is large and scalable, with low operating costs. We look forward to working closely with the Bacanora team to realise Sonora’s potential and bring into production the world’s first lithium clay project.”
Both Ganfeng and Bacanora intend to complete their final due diligence and documentation by 28 June 2019 and, subject to successful completion, thereafter sign binding agreements for the transaction. Further announcements will be made in due course.http://www.bacanoralithium.com/