Aim-listed Bacanora Lithium has signed a non-binding heads of terms with China lithium producer Ganfeng for a strategic investment in both the company and its flagship Sonora lithium project, in Mexico.
Completion of the strategic investment would form a major part of Bacanora’s finance package for the construction of an initial 17 500 t/y lithium carbonate (Li2CO3) operation at Sonora, the company announced on Monday.
As part of the strategic investment, Ganfeng would subscribe for a 29.99% equity interest in Bacanora for a cash consideration of £14.4-million, being 57.6-million new ordinary shares in the company, at a price of 25p a share.
Subject to the completion of the private placement, Ganfeng would have the right to nominate one director to the main board of Bacanora and would also be granted pre-emption rights in relation to new share issues proportionate to its interest in Bacanora.
Bacanora CEO Peter Secker said the proposed strategic investment from Ganfeng would be a major milestone in the development of the Sonora project and would not only provide industry validation of Sonora's potential to be a key supplier of battery grade lithium but, subject to Ganfeng exercising its option to increase its interest to 50%, it would also halve the capital cost required to build the initial operation.
"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 life-of-mine operating costs of about $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,” he explained.
Ganfeng deputy chairperson Wang Xiaoshen, meanwhile, said in a statement that the proposed investment in Bacanora would “form a cornerstone in Ganfeng’s growth strategy to become the world’s largest lithium producer”.
In addition, as part of the strategic investment, Ganfeng would be granted the right to acquire an initial 22.5% interest in a subsidiary of Bacanora for a cash payment of £7.5-million, equivalent to a price of 25p a share on the same basis as the private placement.
Subject to the completion of the project level investment, Ganfeng would have the right to nominate one director to the board of the project level company and would also be granted an option to increase its interest in that 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 Ganfeng would be based on the share price of Bacanora at the time of the additional purchase.
Moving forward, under the proposed terms of the strategic investment, Ganfeng would complete a review of the current engineering, procurement and construction (EPC) design focusing on reducing the capital cost of the Sonora project from the current figure of about $420-million and accelerating the construction timetable from that envisioned in the feasibility study.
Based on the results of this review, Ganfeng would assist with finalising an EPC contract for the mine and plant construction and would work with Bacanora during the construction, commissioning and early operations phases of the Sonora project, Bacanora said in its statement, adding that Ganfeng would also provide a plant and process commissioning team to assist it in commissioning the Sonora project.
Conditional on the completion of the strategic investment, Ganfeng would 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.
Ganfeng would also have the option to increase its offtake to 75% of all lithium products during Stage 2 of production and would pay market-based price for every tonne of Li2CO3 sold under the offtake agreement.