Sonora Lithium will put the country in the race for lithium, a vital element to make batteries for cell phones, computers, and electric cars. The company seeks investors.
In September, Bacanora Lithium will begin the construction of Sonora Lithium, a mining project located in the Sierra Madre Occidental, which will place the State of Sonora as one of the world’s leading producers of a vital element for the batteries of cell phones, laptops and automobiles. electric
The potential of the project is dictated by the lithium demand of Asian and American companies, such as Tesla; But, before production begins, the mining company will have to go out and look for capital.
Sonora Lithium, which will start operating in 2020, in the municipality of Bacadéhuachi, will require an investment of 420 million dollars (mdd) for the construction of its first stage. The amount is high, but the retribution will be too, since it is a business with operating margins estimated above 40%.
In recent years, the company has been given the task of concluding feasibility studies, building a pilot plant to produce lithium carbonate and obtaining permits and land.
One of the most important jobs has been the raising of capital. As of April, the company listed on the London AIM Stock Exchange had only 20 million dollars, but on July 16 it announced the entry of another 65 million dollars of investment from the General Reserve Fund of the State of Oman (SGRF). in English) and 25 million dollars from Hanwa (partner of Bacanora Lithium). To this must be added the line of 150 million dollars of debt secured by RK Mine Finance, one of the leading specialized mining lenders, and a 100 million dollar placement of the mining company.
At the moment, most of the capital comes from the United Kingdom. “But yes, we are looking for new investors from Mexico, North America and Asia,” says Peter Secker, CEO of Bacanora Lithium, a company founded approximately seven years ago as the holding company of Bacanora Minerals (Bacanora Canada), a Canadian company that explores and develops industrial mining projects, focused mainly on lithium.
“All I can say is that we’ve talked to a lot of people in Mexico. We will continue doing it “, adds Secker. The manager ensures that, when they achieve more liquidity, they will seek to consolidate new Mexican investors, which is why they have already met with people from the mining, raw materials, financial and energy sectors.
The big market
The construction of the mine will begin in an environment in which the demand for lithium is on the rise and the global market develops strongly. The ceo of Bacanora Lithium calculates that, at present, 95% of the consumption comes from Asia: China, Korea and Japan.
The manufacture of batteries absorbs 35% of the global production of the element; that of ceramic and glass, 32%; fats and lubricants, 9%; air conditioning, 5%; polymers, 4%; primary aluminum production, 1%; and other uses, 9%, according to the report “Lithium market profile”, prepared by the Ministry of Economy (SE), dated December 2017.
Originally, the exploitation of lithium went to the manufacture of portable electronics, such as batteries for cell phones or laptops; but, for about five years, demand has been boosted by electric car manufacturers, and it is believed that this will continue for the next decade.
As a result, the main lithium producers do everything possible to meet the growing demand, with an increase in production of around 13% between 2016 and 2017, which reached 43,000 metric tons, explains the report “Top Lithium Producers by Country “, prepared by Investing News.
“It is one of the fastest growing raw materials,” says Secker, who, unlike the report, says that demand grows at a rate of 17% per year. If this step continues, production would reach 78,876 metric tons by 2020.
Today, the leaders of the production are Albemarle, with revenues of 1,018.9 million dollars in 2017 in the lithium segment, followed by Sociedad Química y Minera de Chile (SQM), with 644.6 million dollars, and FMC Corp., with 347.4 million dollars, according to data from Fool.com.
Benefits of Mexican lithium
- Given the existing potential, it is important to undertake an exploration program to detect new deposits, because the market demands a large quantity of the product and that this demand is growing.
- It has closeness to the United States market.
- It has a natural outlet to the Pacific market through the existing port infrastructure.
- It has the possibility of establishing new forms of association (in the commercialization and transfer of technology).
- It is possible to complement national investments with external resources.
Source: “Lithium market profile” (Ministry of Economy, 2017).
The Sonora project would place Bacanora Lithium in the major leagues. “Probably [with the new mine] we are the fourth largest producer,” says Secker. This means an exponential leap for Mexico. It is enough to see that, at present, it does not have a single deposit of lithium in operation, explains the document of the SE, which also shows that, in 2015, there were no Mexican exports of the element, while imports were approximately 243 tons, which represent an amount of 1.6 million dollars. The origin of imports was Chile, with 87%; Slovenia, with 12%; and the United States, with 1%.
But the report adds that there are three deposits in exploration stage: in Baja California (Pan American Lithium), San Luis Potosi-Zacatecas and Sonora.
The project located in Sonoran lands is unique in the world because it is based on clay and to date there has been no commercial production of lithium clay due to its high cost. Now that the element prices are higher (up to $ 14,000 per ton), it seems that lithium in clay can compete with brine sources (saline deposits, such as the Atacama Desert in Chile) and hard rock.
“At the beginning, we were looking for different raw materials and we found this project [in Bacadéhuachi] five years ago or so,” says Secker. Since then they have worked in this complex and they also have another smaller one in Germany: Zinnwald Lithium.
After receiving the results of the feasibility study, Bacanora Lithium made the decision to advance production in Sonora, with the purpose of satisfying the expected continuous growth in demand.
According to the company’s feasibility study, Sonora Lithium has a value of 1,253 million dollars and is made up of 10 contiguous concession zones that cover almost 100,000 hectares.
Two of the concessions (La Ventana, La Ventana 1) belong 100% to MSB, a subsidiary of Bacanora Canada, while the El Sauz, El Sauz 1, El Sauz 2, Fleur and Fleur 1 concessions belong to its subsidiary Mexilit (70%) of Bacanora Canada and 30% of Cadence, investment and development firm of the mining sector). The San Gabriel and Buenavista concessions are owned by the Megalit subsidiary (70% of Bacanora Canada and 30% of Cadence), and the Megalit concession is owned by MSB.
Construction is scheduled to start in September of this year, last 18 months and work will be carried out by Ica Fluor. “[The company] has made a strong commitment that at least 70 or 80% of everything that the project implies will be local content; and this, for the state, is excellent news, “says Margarita Bejarano Celaya, general director of Sonora’s Mining Cluster.
Once the works are completed, Sonora Lithium will have a complete infrastructure, and the first production of lithium carbonate will occur in 2020. The plans, by the way, suffered a delay of six months. “We had to do more tests, more studies in mineralogy in the bodies, to make sure that [the mine] had the proper pressure conditions,” says Secker.
And precisely at this point is one of the main risks that Bacanora Lithium must face, because for a project of this type to be successful, it is vital that the management team has technical experience in the development and operation of a project. lithium project.
To this we must add that the material must comply with market requirements. “The battery industry can only accept very specific types of material,” says Andrew Miller, senior analyst at the Benchmark Mineral Intelligence consultancy. That is why it is necessary to ensure that there is a supply chain that allows producing with good quality.
To this we must add that there are three bastions that can never be neglected in any mining project: “Industrial safety, occupational and patrimonial health; sustainability; and, of course, the accompanying dialogue with the community “, adds Bejarano Celaya.
Sonora Lithium is planned to be an open-pit development using a combination of continuous miners (stone breaking machine) to exploit ore zones and a fleet of trucks and excavators to eliminate waste material. The mining operations will be increased with an auxiliary fleet of tractors, bulldozers and tankers.
In numbers, it is expected that the first production of lithium carbonate will be 17,500 tons per year for four years and that, subsequently, the company will double the capacity to reach 35,000 tons per year. The mine has a lithium carbonate reserve of approximately 300 years.
For this to happen, the company has invested 20 million Canadian dollars (287.3 million pesos) in the exploration and construction of a pilot plant to produce lithium carbonate in Hermosillo, which has already produced high quality lithium carbonate in continuous tests carried out during 24 months.
This is a key differentiator that plays in favor of the company, because the Japanese company Hanwa, one of the largest traders of industrial chemicals in the world of cobalt, nickel and lithium sulphate, signed a contract with Bacanora Lithium to absorb , for five years (with the option to renew for an equal period), the 17,500 annual tons that will be produced, in its first stage, by the complex located in Sonora. By the way, the Asian company owns 10% of the shares of Bacanora Lithium since May 2, 2017.
“No lithium project can obtain financing, unless there is a binding agreement for a buyer of the product,” says Chris Berry, an independent analyst and president of the consultancy House Mountain Partners. In addition, he explains that these agreements can last from a quarter to three or five years and that prices can fluctuate between a roof and a floor, so that both the producer and the buyer are protected.
In this way, all production will be sent to Japan, at a minimum amount estimated at $ 11,000 per tonne (currently between $ 13,000 and $ 14,000). “With the price of lithium at, or near, historical highs, extraction today is an exceptional business,” says Berry.
But it warns that the price of this element is opaque, because there is no centralized “exchange” where it is marketed, and that almost all the product is sold through long-term contractual agreements where the price and volume “are a secret very well kept “between the producer and the buyer.
The destination of the material will remain Asia, since the mine is located in Sonora, near the Pacific Ocean, which makes it easier to export to that continent, especially to places like China, Japan and Korea.
But the company also identified that there is demand elsewhere in the world. “As we grow up, we can start thinking about expanding to the United States and Germany,” says Secker. This is due to the increase of electric vehicles of the Volkswagen and BMW brands.
Miller, of Benchmark Mineral Intelligence, finds that one of the main benefits for a company that intends to build a lithium resource in North America is that this area does not have a large production: “So [whoever does it] has the potential to have a new growing market. ” And as an example, it puts the giga factory that Tesla built in Nevada, United States, to produce lithium-ion batteries.
Berry, an analyst at House Mountain Partners, supports this idea, but with his reservations: “I have the feeling that, if this project is successful, it could serve the North American market due to the proximity, although some of the recent commercial tensions [between Mexico and the United States] make it difficult to predict this scenario “.
So far, the company has not explored more areas in Sonora, because it is waiting to see the results of Sonora Lithium. “We will continue doing explorations in the Sonora area, but first we need to start production, before proceeding with this,” concludes Secker. ( With information of Zacarías Ramírez ).
Main producers of lithium
(In tons / Investing News, 2017)
- 18,700 / Australia
- 14,100 / Chile
- 5,500 / Argentina
- 3,000 / China
- 1,000 / Zimbabwe
- 400 / Portugal
- 200 / Brazil
- Unknown / United States
- 43,000 / Total