I am a firm believer in the EV revolution, and am always on the lookout for lithium stocks that have great growth potential. I have read several encouraging reports from Bacanora Lithium (LSE: BCN) that suggest to me that this is a mining stock to buy now for my portfolio.
The Sonora Project
With interests around the globe, the Sonora Lithium Project in Mexico is by far Bacanora’s largest asset. In 2018, the Sonora Feasibility Study confirmed that Bacanora’s Mexican sites comprise one of the largest lithium deposits in the world. The report concluded that the deposits are easy to mine, with huge scalability over the next 19 years.
However, there is still a long road to profitability. Access roads are yet to be built, and mining equipment still needs to be sourced. The company expects the mine will open in 2023, but it could be years beyond this before investors see profitability. However, this is true of many of the developing lithium sites worldwide. If I’m going to buy in, it’s got to be for the long haul.
The long play
Every automotive company in the world is shifting from petrol to battery powered vehicles. Lithium, as an essential battery component, may soon replace oil as a major global commodity. I believe this makes a future major lithium miner a stock to buy now. The company’s management is headed up by Director Eric Carter and Plant Manager Samir Chefai; between them, they have over 42 years of experience in mining North American lithium. Mexico’s National Geological Service Director Flor de Maria Harp recently restated the high concentration of lithium in Sonora, and its strategic national importance to Mexico.
The potential takeover
In February, Chinese mining giant Ganfeng invested $31m to increase its position in Bacanora, and now owns 29% of the company’s shares. In May, it tried to acquire the rest of the company at 67.5p per share. While this takeover has not yet happened, the deadline to agree a deal was recently extended to 29 July. This is because Bacanora wants a guarantee of direct investment into the development of Sonora. I think the takeover is likely as the board is clearly interested. Meanwhile, Ganfeng is likely to acquire approval from Chinese regulators keen to expand Chinese lithium sources.
A word of caution
Bacanora’s share price is at 60p, down from a 68p high in January. This is almost three times what it was only a year ago, so I think the likelihood of a takeover bid is already priced in. A key risk is that Bacanora plans to extract commercially viable lithium from clay ore, a process that has not yet been achieved elsewhere. However, for me, it is a stock to buy now. I will limit the risk by spreading my investments among several other lithium companies.
Charles Archer owns shares of Bacanora Lithium. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.