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The battle for Bacanora

Bacanora Lithium (BCN) has 10 concessions that enable it to mine in an area of almost 100,000 hectares in Sonora, Mexico, about 100 miles from the US border, and it’s a rare thing on Aim: a pure-play lithium company. Another company Ganfeng Lithium (HK:1772), which owns 50 per cent of the Sonora Lithium Project, is working with Bacanora by developing a commercial process to extract lithium from the Mexican clays and production is due to start in 2023. The target is for 35,000 tonnes of high-quality battery-grade lithium products to be made every year.  

Lithium has many industrial uses, the main one being in electric vehicles (EVs) and plug-in hybrid vehicles and in future energy storage for wind and solar power. 3.2m EVs were sold worldwide last year and sales are forecast to quadruple when solid-state batteries make EVs cheaper than their internal combustion equivalents, probably by 2024. That’s just as well since new petrol and diesel cars won’t be sold in the UK after 2030. These batteries are made in gigafactories that cost between £2bn and £4bn and Britishvolt is building the UK’s first in Blyth in Northumberland, with a promised output sufficient to power 300,000 EVs a year. It’s due to open in 2023 and others are being talked about in Coventry and Sunderland.

According to Simon Moores of Benchmark Mineral Intelligence: “We are in the midst of a global battery arms race, [in] which the US is presently a bystander.” And in which, he might have added, Britain was late to arrive. Worldwide, 181 gigafactories are due to be open by 2030, of which 88 were already up and running in 2020, and 136 of these are in China, which has been opening them at the rate of almost one a week. Continental Europe can muster 16 and the US 10. The lithium-ion batteries they produce need nickel, copper, granite and manganese, as well as massive amounts of lithium and cobalt. Moores predicts that “those that control these supply chains will control the industrial power for the remainder of this technological cycle, which could last well into the 22nd century”.

It’s worth noting that comment because in May, Ganfeng, which now owns 29 per cent of Bacanora, offered to buy the whole company for two-thirds more than its closing share price. That includes distributing to Bacanora’s shareholders its 36 per cent stake in Aim-traded Zinnwald Lithium (ZNWD), which is developing lithium mines near Dresden and in Saxony. Bacanora had originally listed in London to raise cash, but since few institutional investors had shown interest, Bacanora’s directors supported the Ganfeng offer.

But private investors were outraged. They’d bought into the company for the long term and, as one said: “There’s so much further to go with this project – I feel like I’ve taken all the risk and been dropped before the rewards kick in.” So, through Sharesoc, they formed The Bacanora Investment Group to secure a more realistic price and collectively their vote could be large enough to prevent the company from delisting. But their efforts to reach Bacanora’s shareholders were thwarted because for most shareholders only the nominee accounts of their investor platforms, Sipps and Isas appear on the share register. For shareholders to communicate with each other, the action group needs to know the underlying owner and their email addresses. In takeover approaches, companies carry out searches to find out the underlying names, but their email addresses are held by the nominee companies. Even where the registrar (Link, in this case) knows the email addresses, it refuses to tell third-parties, so the group has had to rely on social media and WhatsApp to organise resistance.

There’s another fundamental issue here. Recent disruption elsewhere has exposed Brexit Britain’s vulnerability to global supply chains and China increasingly dominates the supply of key battery ingredients. Earlier this year, Ganfeng paid $130m for a stake in a lithium mine in Mali and was recently outbid by another Chinese company for Millennial Lithium, which mines in Argentina. China already owns or controls half the lithium mines in Australia, the country with more lithium than anywhere else, and almost all the lithium produced there is processed in China – which now produces four-fifths of the world's lithium hydroxide. Since those much-hyped British gigafactories will depend on reliable supplies of lithium, the action group is lobbying the British government to use the National Security and Investment Bill to block the deal. In the House of Lords, Lord Lee’s question to ministers about "whether the takeover could restrict the UK's access to lithium supplies” is yet to receive a response.

Some frustrated shareholders have accused the British Government of taking an eye off the ball. But others dispute this, saying that its failure to act has led them to question whether it ever had its eyes on the ball in the first place.