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Off-take deal a ‘vote of confidence’ for Bacanora, says City broker

Bacanora signed an off-take deal with a major Japanese trading house on Monday which will ‘significantly de-risk’ its Sonora project

lithium batteries
Lithium is a hot topic in the mining industry at the moment

City broker Liberum has reacted favourably to yesterday’s news that Bacanora Minerals Ltd (LON:BCN) has signed an off-take deal with one of the largest traders of battery chemicals in Asia.

Under the terms of the agreement, Hanwa Co will take a 10% stake equity investment in Bacanora, which will raise around £10.2mln through the placement of 12mln shares at 82.5p.

Hanwa will also sign an off-take agreement for up to 100% of the battery grade lithium carbonate (Li₂CO₃) produced at Bacanora’s Sonora lithium project in Mexico.

Unlike most of the aspiring junior lithium producers, Bacanora will mine soft clay ore at Sonora which is cheaper to get out of the ground but has a reputation for being difficult to process.

“Yesterday's announcement is a vote of confidence in Bacanora's production process, with Hanwa executives having analysed numerous bulk samples from the Sonora pilot plant before agreeing the offtake,” wrote Liberum analyst Richard Knights in a note to clients.

Although there are many lithium juniors cropping up all the time at the moment, tangible supply of the silver-white metal is limited, which should stand the company in good stead.

“Bacanora is the only new source of lithium carbonate supply outside of existing producers which has delivered offtake and is theoretically within six months of being financed,” said Knights.

“With off-take in place the company is now in a strong position to deliver debt finance for c.50% of stage 1 capex (c.US$120m), once the bankable feasibility study is complete in Q3'17.”

The analyst has the stock as a ‘buy’ and upped his target price to £1.30 (from £1.20) owing to lower dilution.

Shares in Bacanora were slightly higher at 91.75p at midday on Tuesday.

Quick facts: Bacanora Lithium Ltd

Price: 29 GBX

AIM:BCN
Market: AIM
Market Cap: £64.91 m
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