This week’s Interview of the Week is with Peter Secker, CEO of Bacanora Lithium. We discussed Mexico’s investment appeal and its potential to become a top lithium producer; also, we reviewed Bacanora’s strategy for meeting the world’s growing demand for the metal.
Q: Why did Bacanora Lithium choose Mexico to start its next lithium project?
A: We first came to Mexico over 12 years ago, exploring for borates and other industrial minerals. One of the main indicators of borate is lithium so we sampled a number of outcrops for lithium as well as borates. The lithium project in Sonora was sampled as part of a regional exploration program about nine years ago and was found to be rich in lithium and so became our priority exploration project in 2009. Over the past seven years we have continued to sample, drill and evaluate and we now have one of the biggest lithium deposits in the world. Our experience of working in Mexico, especially in Sonora, has been extremely positive. The government has been supportive, as have the workforce and landowners. Infrastructure is good and there is a wealth of industrial support and skilled labor.
Q: What steps is the company taking to start production on the Sonora project?
A: We finished the bankable feasibility studies in December 2017 that outline the construction of the plant that will produce 17,500 t/y of lithium carbonate. It will cost US$420 million to build the plant over 18 months. Processing at the plant is quite standard but we are trying to accelerate the development to be the next producer and we plan to start production by 2020. We have been working on this project for almost 10 years and operating our pilot plant over the last four years. It has taken us a long time to get to where we are. Our pilot plant was created to demonstrate to our offtaker, Hanwa, and to our Japanese manufacturers that the quality of the material in Mexico is just as good or better than anything else in the world. Our goal is to continue producing high-quality material, at 99.5 percent quality, at low operating costs. The Sonora project has low operating costs, which at US$4,000/t makes us as competitive as the best mines in Chile. The company also differentiates itself by having an operating team in Hermosillo and an off-taker that is also an equity investor. It is one of the most advanced lithium projects in the world. The Sonora Lithium project has completed its Environmental Impact Assessment and received CONAGUA water permits. Our plant design is based on the best environmental standards.
Q: What financial model is the company using to finance the project?
A: We are a public company, listed in London, with a strong shareholder base that includes BlackRock, M&G and our offtake partner Hanwa, each with a 10 percent shareholding. We plan to finance the project with a combination of debt and equity. The equity will come from our shareholders and debt from project finance banks. Lithium is quickly becoming more and more popular thanks to the steady growth of Asian demand. Some 95 percent of the world’s lithium batteries are manufactured in Asia. We are the only lithium company listed on the London AIM market. Our shareholder base has always been very London-centric and this is where we see the biggest financial support. In the long term, we might consider joining the BMV but our focus is to start production first and grow our cashflow.
Q: What other projects does the company have in its pipeline?
A: We have another project in Germany that we picked up a year ago and are conducting a feasibility study. Our plan is to use our project in Mexico to serve the Asian market and our project in Germany to supply the German automotive industry in 2023 or 2024. Global lithium supply is about 250,000t/y and our goal is to produce 17,500t/y, which means Bacanora will cover 7 percent of world supply by 2020. We plan to maintain this production for a couple of years while we build our Germany project that will add 10,000 tons. Meanwhile, we will strive to double the capacity in Sonora to 35,000 tons by 2025. This would make us the world’s third-largest lithium producer.
Q: How will demand for lithium change in the long term?
A: Lithium is the fastest-growing battery commodity in the world and demand is increasing 17 percent annually. In terms of world supply, Chile is the largest producer of downstream lithium products, followed by Argentina. Australia is the largest producer of lithium concentrates that are sent to China for downstream processing. Trends in demand will depend on how the market continues to react to electric vehicles. China is being particularly aggressive and has sold 1 million electric vehicles. It plans to sell 2 million per year by 2020 and 7 million per year by 2025. In parallel, German companies such as BMW and Volkswagen will be 25 percent electric by 2025 as well. There is a great deal of clarity regarding demand up to 2025. We think that lithium demand will continue to grow 15-20 percent up to 2025 and grow 10 percent thereafter. Post 2025, renewable energies such as solar and wind power will start to play a larger role in demand as their presence in the market continues to grow. The world will need large, lithium-based grid storage batteries.