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Bacanora Lithium Share Price Under Threat From Political Risk

Tim Worstall
Tim Worstall trader
Updated 7 Dec 2021

The Bacanora Lithium (LON: BCN) share price should be fully stable. There’s an agreed cash share offer for Bacanora from Ganfeng which is what has had the share price in the 66 pence to 70 pence range for months now. This stability might be under threat from a political decision. The more that political decision looks like going against the takeover then the more risk there is to the share price of Bacanora itself.

Bacanora Lithium is largely based upon its lithium prospect at Sonora in Mexico. This project is in the pre-development stage and the valuation depends upon the lithium price and the probability of Banacora being able to bring it to fruition. However, Ganfeng is building out its position as a major player in the lithium market. It owns a significant portion of the global ability to refine spodumene concentrate, one of the two major sources – the other is salt brines. 

As part of that building out Ganfeng has made an offer for Bacanora which has been accepted. Thus the stability of the share price while the varied regulatory approvals are sought. The slight variations, the occasional penny or even tenth of one, are either just slight market variations or changes in the valuation of Zinnwald Lithium. That’s a German subsidiary looking at mining zinnwaldite for the lithium content and the shares will be distributed. It’s a minor issue though. 

The price should be stable – there’s a cash takeover offer and it’s just the regulatory sign-off awaited. Which is where this new risk comes in. One approval needed is in China, to invest outside the country. That’s not in doubt. Another is in Mexico, the location of the Sonora project, that’s also not worried about. However, given that Bacanora is a British company (actually, English) there is also the possibility of political action here. Which is the thing that is becoming a rising doubt.

For there are those appealing to the British government to ban the takeover. The concern is that Ganfeng will own too much of global lithium production. In combination with other Chinese companies, the country will definitely own too much of global lithium production. Therefore the takeover should be banned. There are also certain shareholders who think Bacanora is being sold off cheap who are likely to back such a demand.

The problem this gives for the valuation of Bacanora shares is that it’s difficult to gauge how successful this appeal for political intervention will be. It’s possible to argue either way on the merits of the case – to allow Ganfeng to buy or not. So, what will the government then do? 

The importance being that what the government does do will determine the share price at Bacanora. If government does nothing over this appeal to ban the takeover then it will likely go through and there might be a penny in arbitrage profit. If it’s banned then there could be a significant fall in that share price.

That’s the trading opportunity, is the British government going to ban Ganfeng’s takeover of Bacanora Lithium on competition grounds? Or not?

Should you invest in Bacanora Lithium shares?

Bacanora Lithium shares are traded on the London stock exchange's AIM market (the alternative investment market), which is the submarket specifically for smaller companies. AIM stocks are attractive to investors as they have tax advantages and smaller companies have the potential to benefit from rapid growth. But are Bacanora Lithium shares the best buy? Our stock market analysts regularly review the market and share their picks for high growth companies

Tim Worstall
Tim Worstall is a freelance writer specialising in economics and the financial markets.