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In taking up its Aim listing Friday, Bacanora is ready to take on majors

Sonora Core

Photo by Bacanora Minerals

Magdalena Borite Project

Photo by Bacanora Minerals

22nd July 2014

By: Henry Lazenby

Creamer Media Deputy Editor: North America

  

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TORONTO (miningweekly.com) – Mexico-focused project-developing junior Bacanora Minerals will on Friday take up its new listing on London’s Aim, creating a more direct line to the bulk of the company’s investors.

Speaking to Mining Weekly Online on Tuesday, the TSX-V-listed firm’s cofounder and chairperson Colin Orr-Ewing, whose background includes 35 years' experience in the natural resources sector as an investment manager at Shell Pension Fund and chairing a number of oil and gas and mining companies, said while Canadian investors’ appetite for small- to medium-scale juniors was lackluster, the company had found significant investor interest in the UK.

“The amount of Bacanora shares held by Canadian investors is minimal. Out of about 65-million shares outstanding, Canadian shareholders own about 1.25-million, with the rest mostly being held by UK-based investors,” Orr-Ewing explained.

He drew a parallel between one of the company’s joint venture partners, David Lenigas's Aim-listed Rare Earth Minerals (REM), which had a 30% stake in the Sonora lithium project, as well as a number of the concessions within the Sonora project, with an option to increase this holding to 50%, as a fitting example.

While the minority partner’s Aim-listed stock was trading at £1.915 (C$3.51) a share, giving it a market capitalisation of about £95-million, Bacanora had not been rewarded in Canada, with its TSX-V-listed stock trading at about C$1.20 (£0.66) apiece, giving it a market capitalisation of about £41-million.

Orr-Ewing also noted that during the company’s recent UK investor road show, during which it aimed to raise about £1.5-million to generate a modest amount of liquidity ahead of assuming its Aim listing, investors were so eager to get on board that the equity offering had now been lifted to £4.75-million in common shares priced at £0.33 apiece. This was equal to about C$8.7-million.

An important element driving investor interest, Orr-Ewing said, was the comparative “sexiness” of lithium at the moment. Demand for lithium-ion batteries was expected to surge in the coming decade as they were increasingly used in battery-electric and plug-in hybrid cars.

Among the developments driving a robust outlook for lithium were US automotive giant Tesla’s plans to build a new $5-billion lithium-ion battery ‘gigafactory’ that could potentially significantly impact global lithium demand by 2020.

Bacanora’s Aim listing is further accentuated by being the only new mining issuer to start trading on the platform in recent months.

TAKING ON THE MAJORS

Orr-Ewing who owns 12.5% of the company, said Bacanora was running up against stiff competition to enter two tightly held markets. The firm’s main assets comprise the Magdalena borate project and the Sonora lithium project, both located near Hermosillo, in northern Mexico.

“Despite there being many explorers in both the lithium and borate markets, there are very few producers. People are always nervous when taking on the majors; however, I believe there is always a place for the small guy. The key is to demonstrate your margins,” he said.

Two producers dominate the borate market – diversified miner Rio Tinto (through a subsidiary Borax) and Eti Maden, a Turkish State-owned business, which alone accounts for about 47% of the market share.

Borates are one of the lesser-known commodities and are mainly used in insulating fibreglass, glass manufacturing, solar panels, ceramics and glazes, with world consumption estimated to reach about two-million tonnes this year, up from 1.5-million tonnes in 2010, according to the US Geological Survey (USGS).

Large producers, including SQM, Rockwood, FMC Corp and Talison Lithium, dominate the lithium market today and global production in 2013 reached 186 000 t. The USGS had estimated global reserves of lithium carbonate equivalent (LCE) at about 68.1-million tonnes.

The Magdalena borate project, which has 1.17-million tonnes of borate resource, is already in pilot production. Bacanora intends to expand the current pilot plant to a full-scale 50 000 t/y commercial plant.

The listing on Aim would allow Bacanora to raise additional funds to build its commercial plant once all of the prefeasibility studies had been completed this year.

A preliminary economic assessment (PEA) had given the project a net present value (NPV) at an 8% discount rate of C$113-million, based on a commodity price of $500/t for colemanite concentrate.

Meanwhile, the Sonora lithium project is one of the biggest known lithium deposits in the world, holding about 3.28-million tonnes of LCE. The main use for this type of lithium is for lithium-ion batteries and the Sonora assets are battery grade (99.5%+).

A PEA had placed a NPV with an 8% discount rate of C$848-million on the 100%-owned La Ventana concession of the project. Bacanora had also developed a process for recovering lithium from the clays and converting it into battery-grade lithium carbonate.

Orr-Ewing noted that Bacanora was positioned for a significant market advantage over the current lithium-market dominators, pointing to its proximity to the US as being a critical advantage for customers looking to lock-in additional supply security. The other geographic advantage was that a significant portion of the world’s lithium reserves were locked in desert-like areas of the Andes in South America, where lithium is extracted through evaporation.

“Factor in that it takes about 100 l of water to make 1 l of lithium concentrate and that steady water supplies are not always guaranteed, then one could ponder the security of South American lithium supplies in the future,” he said.

He reckoned Bacanora could produce lithium at a cost of between $600/t and $900/t, compared with significantly higher production costs of the hard-rock lithium producers.

Bacanora is currently making progress with a feasibility study on the Sonora project, which is also expected before year end.

Martin Fernando Vidal Torres is the company’s president and Shane Shircliff is the CEO.

The word Bacanora refers to a Mexican agave liquor traditionally distilled in the hills of Sonora.

The company’s TSX-V-listed stock on Tuesday rose nearly 10% to C$1.20 apiece. The stock had nearly tripled in value since the start of the year, having added 62% in value during July alone.

Edited by Tracy Hancock
Creamer Media Contributing Editor

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