Bunker Hill Mining

Bacanora Minerals: Feasibility Study Estimates Net Present Value of US$1.25 Billion and Internal Rate of Return of 26% for the Sonora Lithium Project

Calgary, Alberta (FSCwire) - BACANORA MINERALS LTD. ("Bacanora" or the "Company") (TSX-V: BCN and AIM: BCN), the Canadian and London listed lithium company, is pleased to announce that the results of the Feasibility Study ("FS") for the Sonora Lithium Project[1] in Mexico ("Sonora" or "the Project") confirm the positive economics and favourable operating costs of a 35,000 tonnes per annum ("tpa") battery grade Li2CO3 operation.  The FS estimates a pre-tax project Net Present Value ("NPV") of US$1.253 billion at an 8% discount rate and an Internal Rate of Return ("IRR") of 26.1%, and Life of Mine ("LOM") operating costs of US$3,910/t of lithium carbonate ("Li2CO3").

Highlights

Strong economic potential of two stage open-pit operation at Sonora: Stage 1 - 17,500 tpa for 4 years; Stage 2 - 35,000 tpa

  • Estimated Project pre-tax IRR of 26.1%; NPV of US$1.253 billion (at 8% discount rate) with a simple Stage 1 project payback of four years. Revenues are based on a flat US$11,000/t for battery grade Li2CO3 over LOM, significantly below the current Li2CO3 price range of US$12,000 – 20,000/t [2] [3]
  • Low estimated LOM operating costs of US$3,910/t of Li2CO3 - lower than the new lithium brine operations being reported in Argentina3
  • Average LOM annual earnings before interest, taxes, depreciation and amortisation ("EBITDA") estimated at US$229 million per annum

Sonora: a large lithium deposit

  • Measured plus Indicated Mineral Resource estimate of over 5 million tonnes ("Mt") (comprising 1.9 Mt of Measured Resources and 3.1Mt of Indicated Resources) of lithium carbonate equivalent ("LCE")[4] and an additional Inferred Mineral Resource of 3.7 Mt of LCE
  • Low stripping ratio: open-pit mine design indicates a total of 37.1 Mt of ore to be mined over the planned 19-year mine life with an average stripping ratio of approximately 3.4:1 over LOM

Conventional flow sheet: uses established sulphate route processing technology

  • Integrated plant designed to initially process 1.1Mt of ore per year during Stage 1, subsequently increasing to 2.2 Mt per year for Stage 2
  • Stage 1 capital cost estimate of US$420 million includes – mining, processing plant, infrastructure, construction of Tailings Management Facility ("TMF"), general administration costs as well as the requisite contingencies
  • Potential to sell up to 30,000 tpa of potassium sulphate ("SOP", "K2SO4") for sale to the Mexican fertiliser industry

Next Steps: advance Sonora towards production to satisfy expected continuing growth in demand for lithium driven by growing sectors such as electric vehicles and energy storage

Subject to Board approvals and other key milestone events, project detailed design is expected to commence in late Q1, 2018.

Peter Secker, CEO of Bacanora, commented, "The FS confirms the Company's long held view that Sonora has the potential to become a significant supplier of battery grade lithium to growing industries, such as electric vehicles and energy storage, and at the same time to generate positive value for shareholders.  The numbers speak for themselves: a US$1.25 billion Pre-Tax NPV, a 26% IRR and, at a US$3,910/t operating cost, a favourable position on the global industry cost curve, which puts Sonora on a par with the lower cost brine operations."

"Thanks to the work we carried out in parallel with the FS, notably the securing of a long term off-take agreement and strategic partnership with leading Japanese trading house Hanwa, the issuance of an environmental permit, and the acquisition of surface rights, we are in a position to commence the development phase of Sonora.  Our objective is to transform Bacanora into the next significant producer of lithium carbonate and in Sonora we have the asset that we expect to enable us to do so.  Bacanora is entering a new and exciting stage in its development and I look forward to providing further updates on our progress in due course."

Key Elements of the Feasibility Study

Project Introduction

The Sonora Lithium Project is located in northern Sonora State, Mexico, approximately three hours drive north east of the state capital of Hermosillo, a city of over one million people.  Access to the site is by road from either Hermosillo or the US border town of Agua Prieta.  The Project has access to significant support infrastructure including paved roads, process water and local labour.

The FS demonstrates the attractive economics of Sonora and key findings are shown in table below:

Table 1:

  Feasibility Study Key Indicators

Value

  Pre-tax Net Present Value ($ 000)

1,253,027

  Pre-tax IRR (%)

26.1%

  Simple Payback Stage 1 (years)

4

  Initial Construction Capital Cost Stage 1 ($ 000)

419,616

  Construction Capital Cost Stage 2 ($ 000)

380,262

  Av. LOM operating costs ($/t Li2CO3)

3,910

  Av. operating costs ($/t Li2CO3 net of K2SO4 credits)

3,418

  Post-tax NPV (at 8% discount) ($ 000)

802,464

  Post-tax IRR (%)

21.2%

  Av. annual EBITDA with co-products ($ 000)

229,362

  Annual Li2CO3 production capacity Stage 1

17,500 t

  Annual Li2CO3 production capacity Stage 2

35,000 t

  Annual K2SO4 production capacity Stage 2

30,000 t

(* All costs are in US dollars)

The Sonora lithium property hosts a large lithium deposit. The polylithionite mineralisation is hosted within shallow dipping sequences, outcropping on surface.  As part of the FS, a Mineral Resource estimate was prepared by SRK Consulting (UK) Limited ("SRK") in accordance with National Instrument 43-101 – Standards of Disclosure for Mineral Projects ("NI 43-101"). The following tables present the summary of current lithium resources for the Project, these Mineral Resources are inclusive of Mineral Reserves.

Table 2: Measured and Indicated Mineral Resources

Category

Cut–off
(Li ppm)

Tonnes (000t)

Li (ppm)

K (%)

LCE (000t)

LCE attributable to
Bacanora (000t)

Measured

1,000

103,000

3,480

1.5

1,910

1,776

Indicated

1,000

188,000

3,120

1.3

3,130

2,345

Total

1,000

291,000

3,250

1.4

5,038

4,119

Table 3: Inferred Mineral Resources

Category

Cut–off
 (Li ppm)

Tonnes (000t)

Li (ppm)

K (%)

LCE (000t)

LCE attributable to
Bacanora (000t)

Inferred

1,000

268,000

2,650

1.2

3,779

3,220

Notes:
(i) Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability.
(ii) Tonnes rounded to the nearest thousand.
(iii) LCE is the industry standard terminology for, and is equivalent to, Li2CO3. 1 ppm Li metal is equivalent to 5.323 ppm LCE / Li2CO3. Use of LCE is to provide data comparable with industry reports and assumes complete conversion of lithium in clays with no recovery or process losses.
(iv) Reported from a block model above 1000 ppm Li and above a simple open pit shell generated using the technical and economic parameters established during the FS, with the exception of the LCE selling price of US$ 14,300 (which represents a 30% premium on top of the US$11,000 used for the Mineral Reserve estimate).

Mining Operations

The mining operation for the Project is planned as an open-pit development using a combination of continuous miners to mine the ore zones and a truck/shovel fleet to remove the waste material.  Mining operations will be augmented with an ancillary fleet of dozers, graders and water trucks.  The Mineral Reserve estimate was prepared by Independent Mining Consultants Inc. ("IMC") in Tucson, Arizona.  The Mineral Reserve estimate includes an ore recovery factor of 100% and mining dilution of 100 mm at the top and bottom of the mineralized beds, with the grades of the elements in the adjacent lithologies.

Table 4: Mineral Reserves: (Cut-off grade of 1,500 ppm Li)

Category

Tonnes Ore (000t)

Li (ppm)

K (%)

LCE (000t)

LCE attributable to
Bacanora (000t)

Proven

80,146

3,905

1.64

1,666

1,550 

Probable

163,662

3,271

1.36

2,849

2,126

Total

243,808

3,480

1.45

4,515

3,676

Notes:
(i) Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability.
(ii) Tonnes rounded to the nearest thousand.
(iii) LCE is the industry standard terminology for, and is equivalent to, Li2CO3. 1 ppm Li metal is equivalent to 5.323 ppm LCE / Li2CO3. Use of LCE is to provide data comparable with industry reports and assumes complete conversion of lithium in clays with no recovery or process losses

During the initial 19-year mine life, 37,058,000 tonnes of ore with a Li grade of 4,151 ppm will be mined and processed with a stripping ratio of 3.4:1.

Processing

Metallurgical testwork for the FS was carried out at SGS Laboratories ("SGS") in Perth, WA, and ANSTO Laboratories ("ANSTO") in Sydney, NSW, Australia. The process engineering and design for the process plants and infrastructure was completed by Ausenco Pty Ltd ("Ausenco").  The process plant design comprises a pre-concentration stage to produce an initial concentrate prior to roasting. The concentrate is subsequently heated in a kiln, at approximately 950 degrees Celsius, in combination with re-cycled sodium sulphate ("Na2SO4"), which is a by-product produced from the Sonora lithium plant, to produce an intermediate lithium sulphate ("Li2SO4") product. This sulphate material then undergoes hydrometallurgical treatment, filtration, cleaning, precipitation and packaging, to produce a >99.5% Li2CO3 final battery grade product.  The integrated plant has been designed to initially process 1.1 Mt of ore per year, during Stage 1 of the Project, subsequently increasing to some 2.2 Mt per year at Stage 2, producing 17,500 tpa and 35,000 tpa of lithium carbonate, respectively.

The plant design also includes a circuit to produce up to 30,000 tpa of K2SO4/SOP product through a series of evaporation and precipitation stages. 

Capital Costs

The initial mining fleet, comprises a continuous miner to excavate the ore zones and a front end loader and a 90 tonne haul truck fleet to remove the non-mineralised waste material. In addition, there is an ancillary mobile fleet including dozers, graders and front end loaders, which will also be purchased. The initial capital cost for the mining operation is estimated to be US$17.6 million.

The metallurgical processing facility capital cost estimate is based on an on-site processing plant comprising all new equipment, to produce battery-grade lithium carbonate.

The capital cost estimates for the process plant, infrastructure, Tailings Management Facility ("TMF") construction, Engineering, Procurement, and Construction Management ("EPCM") fees, and general and administration costs were compiled by Ausenco.

Table 5: Construction Capital Costs

Category

Estimate Stage 1
(US$000)

Estimate Stage 2
(US$000)

Mining

17,611

17,614

Beneficiation plant

18,483

18,483

Lithium processing plant

158,288

158,285

Plant Services

55,334

55,334

Infrastructure

58,841

23,581

EPCM/Owner cost/Indirect

72,912

72,393

Contingency

38,147

34,569

Total

419,616

380,262

The LOM sustaining mining and processing capital requirement is approximately US$140.6 million.

Energy

Energy has been a significant focus of the FS and the Company has received a number of proposals for the supply of both natural gas (via pipeline) and LNG to the Project. There is a significant operating cost saving in using natural gas rather than LNG and the Company is currently working with a shortlist of potential pipeline and natural gas suppliers to ensure that natural gas supplies from Agua Prieta to the project site are available in time for the commissioning Stage 1 of the Project. In addition to supplying natural gas for the kiln circuit, the energy supply package would include the installation of a gas turbine combined cycle plant on site to produce high voltage electricity for the processing plants.

Operating Cost Estimate

The mining and processing operating costs are for an operation achieving average annual production of approximately 17,500 rising to 35,000 tonnes of battery-grade, 99.5% Li2CO3. The estimated average operating cost for the mine, primary and secondary processing facilities are as follows:

Table 6: Project Operating Costs

Category

Stage 1
(US$/t Li2CO3)

Stage 2
(US$/t Li2CO3)

Average LOM
(US$/t Li2CO3)

Mining

295

499

490

Processing

3,093

3,266

3,198

G&A

263

209

222

Total

3,651

3,974

3,910

Cash Flow Analysis

The Project is currently estimated to have a payback period of four years. Cash flows are based on a 100% equity funding basis and the economic analysis indicates a pre-tax Net Present Value, discounted at 8%, of approximately US$1.25 billion as shown below, and IRR of approximately 26.1%.  Post tax the NPV is approximately US$803 million and the IRR 21.2%.

Table 7: Sensitivity Analysis (Discount Rate)

Discount Rate

Base Case Pre Tax
NPV (US$ million)

Base Case Post Tax
NPV (US$ million)

0%

3,425.1

2,371.4

2%

2,644.3

1,808.0

4%

2,054.0

1,381.7

6%

1,602.4

1,055.2

8%

1,253.0

802.5

Table 8: Sensitivity Analysis (Li2CO3 Selling Price)

Selling Price

Pre Tax NPV
(US$ million)

Pre Tax IRR

-20%

638.6

18.1%

-10%

945.8

22.2%

Base Case (US$11,000/t)

1,253.0

26.1%

+10%

1,560.2

29.8%

+20%

1,876.5

33.2%

Base case LOM total revenue is estimated at US$6.9 billion, with an EBITDA of approximately US$4.4 billion.

Market Review and Lithium Pricing

SignumBox (Chile) has provided the Company with their detailed 20 year analysis of the global lithium market, summarised as follows:

  • By 2037, SignumBox anticipate global demand for lithium chemicals to reach about 1,700,000 tonnes of LCE in their base scenario, compared to the current 190,000 tonnes in 2017, equating to an average annual growth rate of about 11.5% over the next 20 years.
  • SignumBox estimates that the battery segment of the market will continue to grow strongly and by 2037 it would represent 84% of total lithium demand, compared to the current 35% in 2017.
  • When considering various pricing scenarios, SignumBox estimates that the lithium carbonate (battery grade) long term price (2030) would range between US$13,700/t to US$20,600/t.

For the FS cashflow analysis, the Company has taken a more conservative approach to pricing and is using a flat price of US$11,000/t for battery grade lithium carbonate over the 20 year LOM. The cashflow analysis was prepared by the Company's financial consultants.

Lithium Off-take

The Company's lithium pilot plant in Hermosillo continues to produce high quality battery grade lithium carbonate samples for distribution to potential customers in Asia. In April 2017, the Company signed a long term lithium off-take with the Hanwa Co., Ltd. of Japan up to 100% of the Stage 1 lithium carbonate production from Sonora. In addition, Hanwa became a cornerstone 10% shareholder in Bacanora via a private placement at the then current share price of 82.5 pence per share on 2 May 2017.

Community and Environment

As part of the Company's Environmental Management Programs ("EMP"), the Manifestacion de Impacto Ambiental ("MIA"), was lodged with the government authorities in May, 2017. Approval for the MIA was received in October, 2017.

Land access agreements were signed in October 2017 securing access and surface rights mainly relating to the land area covering mineral resources contained within the La Ventana, Fleur and El Sauz areas.  Bacanora has entered into binding agreements to acquire the freehold to two parcels of land which will provide the Company with unrestricted access to develop the Project and operate it for the initial life of mine.

In addition, the Company has commenced an active programme to engage with the local communities within the Project area.

Project Timetable

Subject to Bacanora's Board of Directors ("Board") approvals, project financing and general lithium market conditions, the Company will continue to progress the Sonora Lithium Project through the project development stages over the next 24 months. Subsequent to a Board approval in Q1, 2018 to develop the project, the detailed design engineering phase of the project is currently scheduled for late Q1, 2018. During this stage a definitive schedule for the project development will be completed and presented to the Board for final approval. Regular updates on the project progress will be provided throughout the Project schedule.

Report Filing

A technical report on this Feasibility Study, prepared in accordance with NI 43-101, will be filed on SEDAR at www.sedar.com and at www.bacanoraminerals.com within forty-five (45) days of the date of this news release.

Qualified Persons

Each of the qualified persons below has reviewed and approved the technical information contained in this press release and are independent of the Company. The qualified persons are:

Greg Lane, FAusIMM., of Ausenco, is the qualified person responsible for the process engineering, infrastructure, capital cost and operating cost estimates, and the overall preparation of the report.

The Mineral Resource estimate was prepared by Mr. Martin Pittuck of SRK, who is an independent Qualified Person as defined by NI 43-101.

The Ore Reserve estimate and mine plan was prepared by Mr. Herb Welhener of Independent Mining Consultants Inc. who is an independent Qualified Person as defined by NI 43-101.

The Mineral Resource and Ore Reserve estimates in this press release were prepared in accordance with the CIM "Definition Standards on Mineral Resources and Mineral Reserves" adopted by the CIM Council on May 10, 2014, and the CIM "Estimation of Mineral Resources and Mineral Reserves Best Practice Guidelines," adopted by CIM Council on Nov. 23, 2003, in compliance with NI 43-101 guidelines.

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