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Bacanora Lithium PLC   -  BCN   

Proposed Strategic Investment by Ganfeng Lithium

Released 07:00 20-May-2019

RNS Number : 4797Z
Bacanora Lithium PLC
20 May 2019
 

Bacanora Lithium plc / Index: AIM / Epic: BCN / Sector: Natural Resources

20 May 2019

Bacanora Lithium plc ("Bacanora" or the "Company")

Proposed Strategic Investment by Ganfeng Lithium

 

Highlights

·    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.

 

Shareholder Call

Bacanora Lithium will be hosting a shareholder conference call on Tuesday 21 May 2019 at 11am (GMT).  The call will be hosted by CEO Peter Secker who will be discussing the proposed Strategic Investment by Ganfeng Lithium.

 

Conference Call Details

To participate in the conference call, please dial 0808 109 0701, or +44 (0) 20 3003 2701 if you are calling from outside of the UK and quote the pin 0166458# when prompted to do so.  Please note that all lines will be muted except for the host's line.  Additionally, to view the presentation which will be related to throughout the call, please use the link below and log in as a participant; the password is: Event1.

 

https://sbmf.webex.com/sbmf/onstage/g.php?MTID=ecc0bfbaa7934bc877786c4362d9df7cf

 

The function will only be made live once the call has commenced.  The Company plans to make available a recording of the call on its website shortly after.

 

About GFL

GFL is the world's third largest and China's largest lithium compounds producer and the world's largest lithium metals producer in terms of production capacity as of 31 December 2017, according to CRU International Limited.  GFL's operations are vertically integrated, encompassing all critical stages of the value chain, including upstream lithium extraction, midstream lithium compounds and metals processing as well as downstream lithium battery production and recycling.  GFL has one of the most comprehensive product offerings split into five major categories of more than 40 lithium compounds and metals products.

 

This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014.

 

**ENDS**

For further information, please contact:

Bacanora Lithium plc

Peter Secker, CEO

Janet Boyce, CFO

info@bacanoralithium.com

Cairn Financial Advisers LLP, Nomad

 

Sandy Jamieson / Liam Murray

 

+44 (0) 20 7213 0880

Citigroup Global Markets, Broker

Tom Reid / Patrick Evans / Matthew Kenney

+44 (0) 20 7986 4000

Canaccord Genuity, Broker

 

James Asensio

 

+44 (0) 20 7523 8000

St Brides Partners, Financial PR Adviser

Frank Buhagiar / Gaby Jenner

+44 (0) 20 7236 1177

 

ABOUT BACANORA LITHIUM:

 

Bacanora owns ten mining concession areas covering approximately 100 thousand hectares in the northeast of Sonora State in Mexico. Seven of these ten mining concessions (the 'Sonora Lithium Project'1) were included in the Feasibility Study announced 12 December 2017.  The Company, through drilling and exploration work to date, has established a Measured plus Indicated Mineral Resource estimate of over 5 Mt (comprising 1.9Mt of Measured Resources and 3.1Mt of Indicated Resources) of LCE2 and an additional Inferred Mineral Resource of 3.7 Mt of LCE.  The Company's Feasibility Study has established Proven Mineral Reserves (in accordance with NI 43-101) of 1.67 Mt and Probable Mineral Reserves of 2.85 Mt LCE and confirmed the economics associated with becoming a 35,000 tpa lithium carbonate and 30,000 tpa SOP producer in Mexico.  In addition to the Sonora Lithium Project, the Company also has a 50% interest in the Zinnwald Lithium Project and the Falkenhain Licence in southern Saxony, Germany.  Each of the Zinnwald Lithium Project and the Falkenhain Licence are located in a granite hosted Sn/W/Li belt that has been mined historically for tin, tungsten and lithium at different times over the past 300 years. The strategic location of the Zinnwald Lithium Project and the Falkenhain Licence provides close geographical proximity to the German automotive and downstream lithium chemical industries.

 

1.     The Sonora Lithium Project is comprised of the following lithium properties: La Ventana lithium concession, which is 100 percent owned by Bacanora and El Sauz and Fleur concessions, which are held by Mexilit S.A. de C.V. ('Mexilit') which is owned 70 percent by Bacanora and 30 percent by Cadence Minerals Plc.

2.     LCE = lithium carbonate (Li2CO3) equivalent; determined by multiplying Li value in percent by 5.323 to get an equivalent Li2CO3 value in per cent. Use of LCE is to provide data comparable with industry reports and assumes complete conversion of lithium in clays with no recovery or process losses.

 

Cautionary Statement Regarding Forward-Looking Information

 

Except for statements of historical fact, this news release contains certain "forward-looking information" within the meaning of applicable securities law. Forward-looking information is frequently characterized by words such as "plan", "expect", "project", "intend", "believe", "anticipate", "estimate" and other similar words, or statements that certain events or conditions "may" or "will" occur.  Although we believe that the expectations reflected in the forward-looking information are reasonable, there can be no assurance that such expectations will prove to be correct. We cannot guarantee future results, performance or achievements. Consequently, there is no representation that the actual results achieved will be the same, in whole or in part, as those set out in the forward-looking information.

 

Forward-looking information is based on the opinions and estimates of management at the date the statements are made, and are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those anticipated in the forward-looking information. Some of the risks and other factors that could cause the results to differ materially from those expressed in the forward-looking information include, but are not limited to: commodity price volatility; general economic conditions in Canada, the United States, Mexico and globally; industry conditions, governmental regulation, including environmental regulation; unanticipated operating events or performance; failure to obtain industry partner and other third party consents and approvals, if and when required; the availability of capital on acceptable terms; the need to obtain required approvals from regulatory authorities; stock market volatility; competition for, among other things, capital, skilled personnel and supplies; changes in tax laws; and the other risk factors disclosed under our profile on SEDAR at www.sedar.com. Readers are cautioned that this list of risk factors should not be construed as exhaustive.

 

The forward-looking information contained in this news release is expressly qualified by this cautionary statement. We undertake no duty to update any of the forward-looking information to conform such information to actual results or to changes in our expectations except as otherwise required by applicable securities legislation. Readers are cautioned not to place undue reliance on forward-looking information.

 

IMPORTANT NOTICE

The contents of this announcement have been prepared by and are the sole responsibility of Bacanora.

 

The contents of this announcement have been approved solely for the purposes of section 21(2)(b) of the Financial Services and Markets Act 2000 by Citigroup Global Markets Limited, whose registered office is at Citigroup Centre, Canada Square, Canary Wharf, London, E14 5LB. Citigroup Global Markets Limited, which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority in the United Kingdom, and Canaccord Genuity Limited, which is authorised and regulated by the Financial Conduct Authority, are each acting exclusively for Bacanora and no one else in connection with the Project, and will not regard any other person as their client in relation to the Project and will not be responsible to anyone other than Bacanora for providing the protections afforded to their respective clients, nor for providing advice in relation to the Project or the contents of this announcement or any transaction, arrangement or other matter referred to herein.

 

None of Citigroup Global Markets Limited, Canaccord Genuity Limited nor any of their respective subsidiary undertakings, affiliates or any of their respective partners, directors, officers, employees, advisers, agents or any other person accepts any responsibility or liability whatsoever for, or makes any representation or warranty, express or implied, as to the truth, accuracy, completeness or fairness of the information or opinions in this announcement (or whether any information has been omitted from the announcement) or any other information relating to Bacanora, or any of their subsidiaries or associated companies, whether written, oral or in a visual or electronic form, and howsoever transmitted or made available or for any loss howsoever arising from any use of this announcement or its contents or otherwise arising in connection with it. Each of Citigroup Global Markets and Canaccord Genuity, Broker (together, the "Banks") is acting exclusively for Bacanora and no one else in connection with any matter referred to in this announcement and will not be responsible to anyone other than Bacanora for providing the protections afforded to their respective clients nor for providing advice in relation to any matter referred to in this announcement. Neither the Banks nor any of their respective subsidiaries, branches or affiliates owes or accepts any duty, liability or responsibility whatsoever (whether direct or indirect, whether in contract, in tort, under statute or otherwise) to any person who is not a client of the Banks in connection with this announcement, any statements contained herein or otherwise.


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Proposed Strategic Investment by Ganfeng Lithium - RNS