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Sonora Lithium Project Signs Lithium Supply Contract
Bacanora, the London and Canadian listed (AIM:BCN) and (TSX-V:BCN) lithium and borates company, and Rare Earth Minerals plc(AIM:REM), the owners of the Sonora Lithium Project1 in Northern Mexico , have finalised a conditional long-term lithium hydroxide supply agreement with Tesla Motors, Inc., the maker of electric vehicles and energy storage solutions.
The Sonora Lithium Project Partners are working to develop a mineral-rich, lithium-bearing clay deposit into a planned low-cost sustainable and environmentally conscious mining operation. It is estimated that the mine and processing facility will have an initial production capacity of approximately 35,000 tonnes of lithium compounds, with scaling potential of up to 50,000 tonnes per annum. To achieve this, the Sonora Lithium Project Partners will need to raise finances to design and construct a mine and processing facility. It is currently anticipated that lithium hydroxide and lithium carbonate would be among the materials produced by the mine. Lithium hydroxide is a key feedstock material in the manufacture of certain kinds of lithium-ion battery cells.
On the condition that, over the next two years, the Sonora Lithium Project reaches certain performance milestones and successfully passes product specification qualifications, Tesla – or its authorised purchasers – will buy lithium hydroxide to feed the manufacturing of batteries at Tesla’s Gigafactory in Nevada. One of the key milestones will be the confirmation that the Sonora Lithium Project will be able to supply lithium hydroxide in accordance with volumes and timeframes to be established by Tesla. The Supply Agreement has an initial five year term commencing from the date of the first order by Tesla, with an option to extend for a further five years.
During the initial five years, and subject to certain terms and conditions in relation to project execution, product quality, pricing and timing of delivery, Tesla will purchase agreed minimum tonnages, with estimated forecasted maximum deliveries to be determined following delivery of future production orders from Tesla. Tesla will purchase minimum quantities in accordance with an agreed upon pricing formula, below current market prices, with actual prices and volumes that can only be finalised during the development phase in due course. The forecast tonnages and delivery dates are structured to coincide with Tesla’s forecasted Gigafactory production. This agreement will form a portion of Tesla’s anticipated lithium-based feedstock needs; the remainder of which is expected to come from other lithium peers.
To meet both Tesla’s minimum and forecasted tonnages and timelines and any other potential market demands, the Sonora Lithium Project Partners will need to design and construct a suitable mining and processing operation. This will require the Sonora Lithium Project Partners to secure significant financing through debt and/or equity. Tesla has the right to participate in any such financing or other capital transactions. Bacanora and REM will be pursuing next steps to raise finances in order to achieve this goal. There can be no assurance that the conditions to supply product under the supply agreement will be met or that the agreement will prove to be economic.
Development work to be used for the pre-feasibility study for the Sonora Lithium Project is currently being carried out. The PFS alongside additional studies will establish a revised estimate of capital and operating costs, taking into account the new product mix that will be required to service Tesla’s anticipated demands plus those of any additional potential customers.
Non- Executive Chairman, Colin Orr-Ewing commented:
“This Supply Agreement with Tesla represents a vital and monumental step forwards in the commercialisation of the large lithium resources that the Company holds, together with its partner REM, in Northern Mexico. We anticipate this contract to accelerate rapidly the development of the Sonora Lithium Project, which we expect will prove to be invaluable in an increasingly lithium hungry world.”
