Bacanora, Rare Earth Minerals sign landmark lithium supply deal with Tesla

VANCOUVER — Tesla Motors  (NASDAQ: TSLA) has signed a conditional agreement with joint-venture partners Bacanora Minerals (TSXV: BCN) and Rare Earth Minerals (LSE: REM) in a move to secure long-term resources from the juniors’ Sonora Lithium project, 180 km northeast of Hermosillo in northern Mexico’s Sonora state.

Once the mine enters production, Tesla would buy lithium hydroxide for the first five years below market prices to feed its Gigafactory in Nevada — a battery-producing plant scheduled to open in 2016, and electrify 500,000 of Tesla’s vehicles per year. The agreement is open to a five-year extension.

But first, the partners must advance the project into prefeasibility and raise the money to design and build the mine and processing facility — which was estimated at US$114 million, based on a preliminary economic assessment (PEA) in 2013.

In a company press release, Colin Orr-Ewing, non-executive chairman of Bacanora, said he anticipates the contract will accelerate Sonora’s development, and expects the project will “prove to be invaluable in an increasingly lithium-hungry world.”

The prefeasibility will take into account a new product mix that will service Tesla’s demands, and establish the maiden reserve for the lithium deposit.

Indicated resources at the property stand at 1.1 million tonnes of lithium carbonate equivalent (LCE) in 95 million tonnes averaging 2,200 parts per million (ppm) lithium and 6.3 million tonnes of LCE as inferred in 500 million tonnes averaging 2,300 ppm as inferred, using a 450 ppm lithium cut-off. 

In May, the partners reported partial results from a 5,000-metre drill program to upgrade the resource, but no timeline was given on when they’ll deliver the feasibility study.

Mineralization is hosted within two clay-rich horizons that have been traced across a 7 km strike length, and several hundreds of metres down-dip through a number of the property’s concessions. 

Bacanora is the majority owner of the concessions, many of which are under 30% joint venture with rare earth investor REM, which also owns 16.4% of Bacanora.

The partners expect to develop the deposit at a scaled capacity of 35,000 to 50,000 tonnes per year for a 20-year, open-pit mine life.

Based on the PEA — which used inferred resources 930,000 tonnes of LCE in 60 million tonnes averaging 3,000 ppm lithium from the Ventana concession — the economics returned a net present value of US$848 million at an 8% discount rate, assuming an average lithium carbonate price of $6,000 per tonne. The internal rate of return stood at 138%.

The report assumes 100% recovery of the lithium-bearing solutions from the clays in the form of lithium carbonate. The partners are also finishing metallurgical test work to supplement the studies. 

Bacanora shares rose 42% on the news to $1.84 at presstime and have traded within a 52-week range of 56¢ to $2. There are 85.2 million shares outstanding for a $156.7-million market cap.

REM shares rose 23% on the news to 1.12 pence, a new 52-week high. With 6.82 billion shares outstanding, the market cap is £73 million.