Bacanora raises US$13.4M for Mexican lithium project

Just a few months after Bacanora Minerals (TSXV: BCN) and Rare Earth Minerals (LSE: REM) signed a deal with Tesla Motors (NASDAQ: TSLA) to supply the carmaker with lithium hydroxide from their Sonora lithium project in Mexico, the companies have raised US$13.4 million in a private placement. 

The proceeds will be used for a bankable feasibility study of the project — 180 km northeast of Hermosillo — and towards upgrading and running a pilot plant in Hermosillo to make bulk quantities of lithium products for long-term offtake parties. 

Bacanora says previous testwork of the lithium carbonate from the pilot plant has made high-quality lithium carbonate for initial offtake discussions. News of the financing sent Bacanora’s shares down 13¢, or 7.3%, to finish at $1.65. 

A prefeasibility study of the Sonora lithium project could get underway in the first half of 2016. Colin Orr-Ewing, Bacanora’s chairman, said in a press release that “to have successfully raised funds — during what continues to be a challenging environment for commodities in general — highlights the attractive dynamics of the lithium market, thanks to the metal’s key role in innovative and fast-growing industries such as mobile communications and electric cars.” 

The Sonora lithium project has 1,000 sq. km of ground in northeastern Sonora state, with an indicated resource of 1.1 million tonnes of lithium carbonate equivalent (LCE) in 95 million tonnes of clay averaging 2,200 parts per million (PPM) lithium. Inferred resources add 6.3 million tonnes of LCE averaging 2,300 ppm contained in 500 million tonnes of clay. 

Under the placement announced on Nov. 16, 11.5 million common shares were priced at 77 pence per share. Rare Earth Minerals, one of Bacanora’s largest existing shareholders, acquired 1.97 million shares to keep its 17% interest in the company. In addition to pre-existing shareholders, the placement also attracted the companies’ first major institutional shareholder.

Bacanora describes its Sonora project as “one of the largest” lithium resources in the world.” It is made up of Bacanora’s wholly owned La Ventana lithium concession; the El Sauz and Fleur concessions, which are held by Mexilit S.A. de C.V.; and the Megalit concession, which is held by Megalit S.A. de C.V. Bacanora owns 70% of Mexilit and Megalist, and REM owns 30%.

The partners are working to develop the mineral-rich, lithium-bearing clay deposit into a planned low-cost mining operation. The company estimated in August that the mine and processing facility would have an initial production capacity of 35,000 tonnes of lithium compounds, with scaling potential of up to 50,000 tonnes per year. 

The partners anticipate producing both lithium hydroxide and lithium carbonate from the mine. Lithium hydroxide is a key feedstock material in making certain lithium-ion battery cells. 

Under the conditional agreement with Tesla in August, the carmaker will buy the lithium hydroxide to feed the manufacturing of batteries at its Gigafactory in Nevada. The supply agreement has a five-year term starting from the date of Tesla’s first order, and Tesla can extend the deal for another five years. 

During the first five years, Tesla will buy agreed minimum tonnages, with estimated maximum deliveries determined after delivering production orders. 

Tesla will buy minimum quantities in accordance with a pricing formula below current market pricing, with actual prices and volumes that can only be finalized during development. The forecast tonnages and delivery dates will coincide with Tesla’s Gigafactory production.