(The following article was published on the Alliance News Professional service on June 15. Alliance News Professional provides frequent executive interviews of London-listed companies. It is available via subscription. For more information, email us at info@alliancenews.com)
LONDON (Alliance News) – Bacanora Minerals Ltd wants to break into the lithium carbonate market, which is currently dominated by a few big players, to meet growing demand for battery-grade lithium which is set to almost double by 2020 as other major industries begin to introduce more products reliant on the chemical element, new Chief Executive Peter Secker told Alliance News.
Secker joined Bacanora in May with the aim of taking the company’s Sonora lithium and Magdalena borate projects in Mexico through design, construction and into production.
“I build mines, I’ve built six greenfield mines in the last 35 years. I enjoy exploration but I am not good at it,” said Secker. “I take projects through to the feasibility and design phase and then construction and the commissioning of operations – that is my strength.”
“If you look at what Bacanora have done, they have significant strength on the exploration side. They have discovered one of the biggest lithium deposits in the world,” he added.
Back in 2014, Bacanora was focused on the Magdalena borate project, where the company has now built a boric acid pilot plant to conduct metallurgical testwork whilst it develops Sonora.
“The company has really changed its focus since last year. Borates were seen as a leading project with lithium lagging. Where we have moved to now is lithium is by far the highest priority because of the larger growth aspects,” said Secker. “What we would like to do is get the lithium project as advanced as the borate project and then look at them side by side.”
Bacanora has identified several growing markets for lithium carbonate equivalent, which will result in global demand leaping to around 300,000 tonnes by 2020, according to Roskill, a commodity market and industry outlook reporter, from the 186,000 tonnes that were produced in 2013.
By 2025, global demand is expected to rise to over 400,000 tonnes of lithium carbonate equivalent, according to SignumBOX, a Chilean market intelligence company.
Currently, around 85% of global demand is provided by four large lithium producers, three of which are based in South America, specifically Chile and Argentina with the other being a Chinese firm. Those four companies are FMC Lithium, Rockwood, SQM and China-based Tianqi.
“The fastest growing segment by far is the battery segment, and of the battery segment the fastest growing segment is the automotive applications, so hybrids and plug-ins. We are focusing on the higher end, higher quality material that will go into battery applications,” Secker told Alliance News.
“Tesla is a good case point. Tesla’s current production is somewhere around 35 (electric) vehicles a year. Their stated objective is to get to 500,000 vehicles a year by 2020. If you look at the fastest growing volume segment, it’s China. China’s stated objective is to have 40 models of electric vehicles, predominantly hybrids, in place by 2016 and to have anything from 10% to 20% of all their vehicles at an electric format by 2020,” Secker said.
“The meta number in everybody’s horizon is 2020,” he added. “We need to be in production well before 2020 in order to take advantage of that growth.”
Bacanora has also highlighted the renewable energy storage market as an area of high growth, which involves storing energy that is generated by solar, wind or by other methods to be used when needed rather than when its generated. Tesla has introduced a residential focused storage facility which harnesses power, Powerwall, in the day to generate electricity at night and companies such as Camco Clean Energy PLC have developed a larger scale storage battery which aims to allow people or businesses to have access to energy in countries which lack energy infrastructure or a grid system.
“That is a significant area of growth that is just starting to happen at the moment,” said Secker. “The majority of demand is out of Asia. China, Korea and Japan produce the highest number of batteries. Tesla is a growing market, and then you have the European market. If you look at what BMW and Volkswagen are doing in the automotive sector, there is a growing market there,” said the CEO.
“We just need to produce a product that people want to buy ad then we will align ourselves down the track with a number of offtakers,” he added. “Because most of the demand is currently in Asia, we will look to Asia, but obviously we will also look to Europe and North America … we just have to match our growth to what the market can absorb.”
The Sonora project currently has an indicated resource of 1.1 million tonnes of lithium carbonate equivalent contained in 95 million tonnes of clay at a grade of 2,200 parts per million alongside an inferred resource of 6.3 million tonnes of lithium in 500 million tonnes of clay at a grade of 2,300 parts per million. The indicated resource will be extracted via an open pit whilst the inferred resource is developed and upgraded into indicated to replenish its production.
Bacanora also has a pilot plant at Sonora which is conducting metallurgical testwork to refine and optimise the boric acid production, and it enables the company to beneficate and upgrade the materials, and the grades produced.
“They have done the exploration very well,” said Secker. “The pilot plant work is invaluable. The amount of time and effort that has gone into building a pilot plant for an exploration stage company is almost unique.”
Bacanora is aiming at developing Sonora’s production in stages, targeting 35,000 tonnes of lithium per year by 2020 with the option of increasing capacity up to 50,000 tonnes a year.
“Even at maximum production of 50,000 tonnes per year, that’s 25 to 30 years going toward 300 years of production. I mean there is a lot of lithium in the ground so we just have to have the ability to expand and meet market demand as required,” Secker said.
“If you look at where we are focused at the moment, we have probably drilled 50% of the available leases. We could have the potential to increase that down the track. We don’t need to at the moment, we have a couple of hundred years there at the moment,” he added.
Bacanora is currently aiming to have completed a pre-feasibility study for Sonora by the first quarter of 2016, followed by a bankable feasibility study. In the meantime, the company will discuss funding for the project and hold discussions with potential offtake partners for the future.
“That whole financing package is toward the end of this year, early next year,” said Secker. “If you look at comparable operations around the world, whether it’s China or North America, a 20,000 tonnes a year lithium carbonate operation costs somewhere in the region of around USD200 million.”
Bacanora’s partner on the Sonora lithium project is Rare Earth Minerals PLC, which also holds a 16.4% stake in Bacanora at a corporate level. Bacanora owns all of the La Ventana lithium concession at Sonora, and owns 70% of the El Sauz and Fleur concessions and 70% of the Megalit concession. Rare Earth Minerals owns the other 30% of the El Sauz and Fleur concessions and the rest of the Megalit concession, which surrounds the other concessions.
“They got involved at the project level and liked it so much they thought there was more upside at the corporate company level,” said Secker. “I think the best thing we can say about them is that they are strong shareholders.”
Rare Earth holds two positions on Bacanora’s board, including “entrepreneurial soul” David Lenigas, who is involved in numerous mining and oil and gas companies on the AIM market and projects around the world.
Secker also said that M&A activity in the lithium sector is increasing, with the most recent activity being the USD6.0 billion merger between Albemarie and Rockwood in July 2014.
“You are starting to see some consolidation in the industry. Our focus is to build a project,” said Secker. “If someone wants to take us out, they take us out.”
“It’s time to transition from an exploration company into a development company and it’s important that we do that on a staged basis,” said Secker. “The strength is obviously the resource, the size of the resource, the scalability of the resource.”
Bacanora had a cash balance of USD11.6 million at the end of the first quarter of 2015, with the feasibility studies being the company’s only financial obligations.
Bacanora plans on providing an updated resource statement for Sonora in the second quarter of 2015 before conducting expansion and resource drilling in the third quarter whilst pilot plant studies continue at Magdalena from the third quarter of 2015 until the first quarter of 2016.
By Joshua Warner; joshuawarner@alliancenews.com; @JoshAlliance
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