Bacanora Resources 'at a crucial stage' in lithium project development

Mexican lithium miner Bacanora Minerals said it was planning further exploratory drilling at its Sonora project in the coming months, while talks with potential off-take partners in Europe and Asia were underway.

Third-quarter results from the company showed C$20.4m (£10.7m) cash, to which the company has since added £7.7m in a placing.

Bacanora published a pre-feasibility study for the Sonora lithium project in northern Mexico that estimated a pre-tax internal rate of return (IRR) of 29% and an associated net present value of US$776m at an 8% discount rate, with a feasibility study underway.

Sonora is predicted to have strong potential to produce up to 35,000 tonnes of battery grade lithium carbonate, and up to 50,000 tonnes of potassium sulphate per year.

Bacanora, in which AIM peer Rare Earth Minerals owns 15.6%, is also continuing to upgrade its pilot plant in nearby Hermosillo from where it is producing lithium carbonate samples for distribution to potential partners in Asia from June onwards.

"Discussions are continuing with various Asian offtake partners, banks, debt providers and strategic investors," the company said, adding that it was focused on developing a debt, equity and offtake project financing strategy for the 17,500tpa first stage of the project.

The feasibility study, scheduled for the first quarter of the next calendar year, is scoping out potential for a two-stage mine and processing facility, which will soon require the company to carry out an infill reserve drilling program and appoint engineering and technical consultants to undertake the geological resource modeling, metallurgical testwork, mine designs and process engineering, as well as recruiting additional technical personnel with lithium development and operating expertise.

With a total resources exceed 8Mt of lithium carbonate equivalent, equity analysts at Macquarie observed that Sonora is one of the largest deposits in the world, with predicted production in the bottom quartile of the cost curve, and poised to move into a crucial stage of its development.

“Given the project’s large scale, expandability, close proximity to key markets in the US and Asia, and potentially low cost structure, we think the company is in a solid position to execute on [its] plans”.

The Aussie broker balanced its enthusiasm with some words of caution, however, included noting that the timing of Sonora’s initial production, expected by early calendar year 2019, "could be challenging" and that "considerable work remains to prove the economics of the project".

Shares in Bananora were up 2.5% to 99p by mid afternoon on Tuesday, around their highest level since flotation in July 2014.