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Bacanora Lithium#: Zinnwald Spin Out
Zinnwald Spin Out
Although China is the world leader in terms of battery materials and battery manufacturing, Europe is second and due to grow from 10GWh to around 500GWh by 2030, underpinned by green energy focused post COVID-19 support. BCN has now spun-out of Zinnwald into AIM listed Erris Resources which has been renamed Zinnwald Lithium (LON:ZNWD) and has a dedicated and experienced management team, firm commitment to funding and transparent structure. We believe ZNWD to be well placed to capitalise on the regional tailwinds of massive transitional energy related stimulus unlocking the value potential, post-tax NPV8 US$257m, that we have previously highlighted exists. Under the terms of the transaction ZNWD now owns the 50% shareholding in the Zinnwald project and following a fundraise of £3.75m BCN has a 44.3% stake in ZNWD and an additional net profit royalty of 2%.
Progress at Sonora Continues
Bacanora Lithium (LON:BCN) recently released H1 2020 results highlighting further progress at Sonora and a strong financial position. Cash of US$44.4m at the end of the period leaves the company in an extremely strong position to continue to progress the project and weather further disruption. Final engineering studies remain on track for completion by year end.
Recommendation and Target Price
BCN’s share price is down 13% YTD, however, has rallied 36% since the start of September 2020. Tesla’s (TSLA US) Battery Day and a recognition of the quantum of post COVID-19 stimulus directed at the energy transition has reignited investor interest in the lithium space. Although Europe now faces a challenging winter of lockdowns, the targeted stimulus towards the energy transition means the outlook for lithium remains stronger than earlier this year. The flagship Sonora continues to advance while the fundamentals for targeted first production in 2023 appear increasingly strong.
Zinnwald which previously received little credit is now trading at a value of £13.5m or 6.5p/sh. and this transparency may already have contributed to BCN’s recent rally, however, our readthrough valuation indicates substantial further upside with a per share value of 31.7p/sh. in terms of ZNWD which equates to 7.2p/sh. of our target BCN valuation.
We reiterate our Buy recommendation and target price of 114p/sh.
Oliver O’Donnell, CFA, Natural Resources Analyst | T: +44 (0)20 3617 5180 | E: oodonnell@vsacapital.com
VSA Capital Limited, New Liverpool House, 15-17 Eldon Street, London EC2M 7LD | www.vsacapital.com
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