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Bacanora Lithium PLC (BCN)

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Wednesday 30 September, 2020

Bacanora Lithium PLC

Interim Report

RNS Number : 5125A
Bacanora Lithium PLC
30 September 2020
 

Bacanora Lithium Plc / Index: AIM / Epic: BCN / Sector: Natural Resources

Bacanora Lithium plc ("Bacanora" or the "Company")

Interim Report and Financial Statements

for the six month period ended 30 June 2020

 

Bacanora Lithium Plc, (AIM: BCN) the lithium development and exploration company, is pleased to announce its interim financial results for the six months ended 30 June 2020.

 

Highlights - for the six months ended 30 June 2020 and subsequent events:

 

Corporate - strong cash position

· The Company has a strong cash balance of US$44.4 million as at 30 June 2020.

· The Company retains its US$150.0 million conditional senior debt facility with RK Mine Finance, signed in July 2018, to finance the development of the Sonora Lithium Project. US$125.0 million remains to be drawn.

Sonora Lithium Project, Mexico ("Sonora") - work focused on finalising engineering so that construction may commence after the financing package is completed.

· Whilst Covid-19 has impacted the Company and its partners, work to complete the front-end engineering design ("FEED") has continued throughout the period, with GR Engineering Services ("GRES") advancing the front-end concentrator and mechanical engineering and Ganfeng Lithium ("Ganfeng") undertaking a review of the hydrometallurgical engineering.

· Pilot plant re-opened to supply test materials to support FEED testwork after Covid-related restrictions were lifted in Sonora, Mexico. All the required bulk samples were sent to the Company's relevant partners for optimisation into the final designs.

· Post period end, GRES completed its concentrator design work and Ganfeng completed its flow sheet design testwork for the production of battery-grade lithium from samples provided by the pilot plant; Ganfeng is now integrating these results into a larger scale design, and remains on schedule to deliver its final engineering packages at the end of Q4 2020.

· Our brokers, Citigroup Global Markets Limited ("Citi") and Canaccord Genuity Limited ("Canaccord"), continue to progress work to secure full development capital for Stage 1 construction.

Zinnwald Lithium Project, Germany ("Zinnwald") - Bacanora announces deal securing the future of the Joint venture agreement and the Company continues to look to unlock the value of Zinnwald.

· On 14 February 2020, Bacanora and the administrators of SolarWorld AG ("SolarWorld") agreed to cancel Bacanora's option to purchase the remaining 50% shareholding of Deutsche Lithium GmbH ("DL"), not currently held by the Company. The agreement also cancelled SolarWorld's option to buy back Bacanora's existing stake which was contingent upon Bacanora not exercising its option. Bacanora retains its right of first refusal to purchase the remaining 50% currently held by SolarWorld. Under the second supplemental agreement Bacanora committed to provide €1.35 million funding to DL over the next two years.

· On 30 June 2020, the Board of Directors committed to pursue a plan of selling its DL investment and associated assets/liabilities into a separate vehicle. The Board actively sought interested parties. DL was deemed to meet the classification of a held for sale asset at the period end and was subject to a US$6.0 million impairment charge.

· Subsequently, the Company announced the proposed acquisition of Bacanora's 50% shareholding of DL by AIM-listed Erris Resources Plc ("Erris").  Bacanora will contribute its 50% investment in DL and €1.35 million cash. This cash will be used to settle the commitment under the second supplemental joint venture agreement with SolarWorld and to pay for a portion of the transaction costs. Erris will contribute its remaining cash and its Irish zinc and Swedish gold assets. In exchange, Bacanora will receive 90,619,170 shares (70%) in the enlarged Erris and a net profit royalty. The acquisition constitutes a reverse takeover under AIM rules and is subject to Erris's shareholder approval. The percentage ownership will reduce as Erris will be raising additional funds as part of the process in order to accelerate the further development of the Zinnwald Lithium Project.

Peter Secker, CEO of Bacanora, commented:

 "The last six months have clearly been challenging due to the unprecedented global covid-19 pandemic and Bacanora, along with its strategic partners, has not been immune to the effects. I have however been truly impressed by Bacanora's employees and partners commitment to delivering on their objectives. Despite the trials presented by covid-19, the Company remains focussed on achieving battery-grade lithium production at our flagship asset, the Sonora Lithium Project in 2023.This will ensure this asset's importance to the future lithium supply chain. This is a major achievement and I sincerely thank all parties involved.

 

"Ganfeng's presence as a strategic investor and project partner has brought substantial benefits to Sonora's development. Over the last six months the focus has been on finalising the engineering work so that construction can start in earnest after the development capital for stage 1 has been raised. The obstacle between those two events is the publication of the final engineering packages, currently being worked on by Ganfeng, which are due by the end of Q4 2020. With Bacanora's tier 1 cornerstone shareholders, Ganfeng, M&G and Hanwa Corporation, its strong cash position (US$44.4 million at 30 June 2020) and debt facility, the Company is in a strong position to ensure the final financing package can be achieved.

 

"Earlier in the year, the Board and I committed to pursuing a plan to unlock the inherent value at Zinnwald, our strategic lithium asset in Germany. Today I am delighted to announce the proposed spinout of Bacanora's Zinnwald stake to AIM-listed Erris Resources plc. Bacanora will be the largest shareholder of the enlarged Erris entity and we look forward to working with the Erris team and the administrators of SolarWorld AG to advance Zinnwald further.

 

"This development importantly ensures Bacanora's sole focus is now on Sonora and all the Company's energy is directed at bringing Sonora's stage 1 into fruition. Bacanora represents one of London's few listed pure-play lithium development companies, and we are working tirelessly to unlock the substantial value for shareholders by achieving our number one goal, of becoming an international lithium production company."

 

 

Webcast presentation

 

Bacanora will be hosting a webinar on Tuesday, October 6, 2020 at 3:00 p.m. BST. The webinar will include a question and answer session following the presentation. Please submit any questions by Friday, October 2, 2020 via email to [email protected].

 

To access the webinar please click on the link below:

 

Webinar Link

 

A recording of the webinar will be made available on the Company's website at www.bacanoralithium.com  

following the event.

 

For further information please visit  www.bacanoralithium.com  or contact:

Bacanora Lithium plc

Peter Secker, CEO

Janet Blas, CFO

 

[email protected]

Cairn Financial Advisers LLP, Nomad

Sandy Jamieson / Liam Murray

 

+44 (0) 20 7213 0880

Citigroup Global Markets, Joint Broker

Tom Reid / Patrick Evans / Matthew Kenney

 

+44 (0) 20 7986 4000

Canaccord Genuity, Joint Broker

James Asensio

 

+44 (0) 20 7523 8000

Tavistock, Financial PR Adviser

Jos Simson / Emily Moss / Oliver Lamb

[email protected]

+44 (0) 20 7920 3150

+44 (0) 77 8855 4035

 

The information contained within this announcement is deemed by the Company to constitute inside information under the Market Abuse Regulation (EU) No. 596/2014

Notes to editors

Bacanora Lithium Plc is an AIM-listed (ticker 'BCN') lithium development and exploration company. The Company owns assets in Mexico and Germany. It is focused on building, in collaboration with its major shareholder and offtake partner, Ganfeng Lithium (the world's largest lithium metals producer), a 35,000 tonne per annum open pit lithium carbonate operation at its flagship asset, the Sonora Lithium Project in Mexico. The Sonora Lithium Project has 8.8 million tonnes of lithium carbonate (Li 2 CO 3 ) equivalent resources, with an approximate 250-year resource life, as detailed in its December 2017 Feasibility Study.

 

Sonora Lithium Ltd ("SLL") is the operational holding company for the Sonora Lithium Project and owns 100% of the La Ventana concession. The La Ventana concession accounts for 88% of the mined ore feed in the Sonora Feasibility Study which covers the initial 19 years of the project mine life. SLL is owned 77.5% by Bacanora and 22.5% by Ganfeng Lithium Ltd. SLL also owns 70% of the El Sauz and Fleur concessions. 

In addition, the Company has a 50% interest in the Zinnwald Lithium Project and the Falkenhain and Altenberg Licences in southern Saxony, Germany.

Cautionary Statement Regarding Forward-Looking Information

Except for statements of historical fact, this news release contains certain "forward-looking information" within the meaning of applicable securities law. Forward-looking information is frequently characterized by words such as "plan", "expect", "project", "intend", "believe", "anticipate", "estimate" and other similar words, or statements that certain events or conditions "may" or "will" occur.  Although we believe that the expectations reflected in the forward-looking information are reasonable, there can be no assurance that such expectations will prove to be correct. We cannot guarantee future results, performance or achievements. Consequently, there is no representation that the actual results achieved will be the same, in whole or in part, as those set out in the forward-looking information.

Forward-looking information is based on the opinions and estimates of management at the date the statements are made, and are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those anticipated in the forward-looking information. Some of the risks and other factors that could cause the results to differ materially from those expressed in the forward-looking information include, but are not limited to: commodity price volatility; general economic conditions in the UK, the United States, Mexico, Germany and globally; industry conditions, governmental regulation, including environmental regulation; unanticipated operating events or performance; failure to obtain industry partner and other third party consents and approvals, if and when required; the availability of capital on acceptable terms; the need to obtain required approvals from regulatory authorities; stock market volatility; competition for, among other things, capital, skilled personnel and supplies; changes in tax laws; and the other risk factors disclosed under our profile on SEDAR at www.sedar.com. Readers are cautioned that this list of risk factors should not be construed as exhaustive.

The forward-looking information contained in this news release is expressly qualified by this cautionary statement. We undertake no duty to update any of the forward-looking information to conform such information to actual results or to changes in our expectations except as otherwise required by applicable securities legislation. Readers are cautioned not to place undue reliance on forward-looking information.

Important notice

The contents of this announcement have been prepared by and are the sole responsibility of Bacanora.
 

Chairman's Statement

 

With the half year in review overshadowed by the unprecedented global Covid-19 pandemic, our employees and strategic partners involved in Bacanora's development have shown an unwavering commitment to its progress. Whilst rolling shutdowns of economies have to some extent impacted timelines, the Sonora Lithium Project's ("Sonora" or the "Project") importance to the future lithium supply chain has not diminished. Bacanora still represents one of London's few quoted pure-play lithium development companies, and we are working tirelessly to unlock the substantial value for shareholders by achieving our goal of becoming a producer of high value lithium products from 2023 and for many years to come.

 

The team in place to design, finance and construct Sonora has been significantly bolstered by our strategic investor and project partner, Ganfeng who came onboard in October 2019. As one of the world's largest lithium metals producers in terms of production capacity, Ganfeng brings substantial construction experience alongside its battery knowledge. Bacanora's focus during the period under review has been on the completion of project engineering work for Sonora. Due to the Covid-19 pandemic, over three months of unavoidable delays were incurred due to international travel restrictions and closure of lithium testing facilities in USA and China. Fortunately, though, Bacanora has a strong cash position of US$44.4 million as at 30 June 2020, alongside significant support from its cornerstone shareholders Ganfeng, M&G and Hanwa Corporation ("Hanwa"), and is well placed to weather the ongoing market turbulence from Covid-19.

 

The Company's priority remains the health and well-being of its staff, partners and its local communities and has taken all appropriate measures to protect them in accordance with the relevant governmental and regional requirements. In line with government measures to control the spread of Covid-19, Bacanora's pilot plant in Hermosillo was placed on care and maintenance in late March 2020 but restarted successfully in June 2020, and completed the bulk sampling required for the Sonora plant and engineering designs. In China, the return to work in late April 2020, ensured the Ganfeng test plant and project team could restart work on the flow sheet optimisation and process engineering. Delays were incurred; however, the flow sheet design testwork was completed after the period end. Ganfeng is now integrating these results into a larger scale design, and remains on schedule to deliver its final engineering packages at the end of Q4 2020. After this, the Company will obtain an Engineering, Procurement and Construction ("EPC") style engineering proposal for the construction of the lithium plant. This timetable remains under regular review. In tandem with the Ganfeng schedule, GR Engineering Services has completed its concentrator design work and will be included in the overall EPC. Importantly, these delays do not impact on the Company's overall goal, and it remains our intention to produce battery-grade lithium products from Sonora in 2023.

 

The importance of developing cleaner energy sources and reducing reliance on fossil fuels has never been more critical to the global agenda. Governments are emerging from the Covid-19 lockdown with the promise of supporting a transition to a greener energy future. Indeed, France, Germany and China, have recently outlined plans to spend more than US$140 billion on Electric Vehicles ("EV") production[1]. With this industry shift in mind, Sonora remains extremely well placed to deliver its product in 2023, into an EV market that is expected to surge to 1.4 million tonnes by 2030[2], over a five-fold increase from the 258,000 tonnes of demand in 2019[3].

 

Analysis by the Carbon Tracker Initiative, a climate finance thinktank, found renewable power was a cheaper option than building new coal plants in all large markets, and was expected to cost less than electricity from existing coal plants by 2030 at the latest[4]. In addition, the UK Department of Business, Energy and Industrial Strategy shows that electricity from onshore wind or solar could be supplied in 2025 at half the cost of gas-fired power[5]. Significant additional power storage capability will be required in order to mitigate the peaks and troughs associated with the production of renewable energy. A new initiative from Tesla, arguably the market leader in the green energy revolution, has made it one of the most robust battery companies emerging from Covid-19. Modular Tesla Megapacks come in units of 3 MWh, take up to 40% less space, and can be scaled up to farms exceeding 1 GWh in size. The advances in battery technology are smoothing out the intermittency of renewable energy along with ease of implementation, providing a viable alternative to natural gas "peaker" power plants[6]. The world's largest lithium-ion battery, installed in Hornsdale in South Australia, saved over AUS$40 million in its first and second year inspiring the modular system of Megapacks. In Europe, a hybrid energy storage system combining lithium-ion batteries with mechanical energy storage in the form of flywheels has gone into operation in the Netherlands, providing a continuous supply of reserve power from the flywheel while the battery joins in for lengthier variations in frequency.[7]

 

For EV's, a number of car manufacturers such as Tesla, Mercedes Benz and VW have continued to grow their commitment to the electrification of their fleets. France is one example of a country announcing a stimulus package for its economy and the motor industry; €8 billion of aid including initiatives to be producing one million clean vehicles a year by 2025[8]. The European Union also recognises the multifaceted benefits of using green energy at the heart of its post-pandemic recovery strategy. There are a wider range of incentives available for EVs across Europe to drive demand, while cost and range parity remain tantalisingly out of reach[9]. Whilst these plans are to assist the auto industries in Europe specifically, their impact on demand for raw materials globally cannot be over emphasised.

 

This EV revolution will see EV production increase from 3.2 million units in 2017[10] to an expected 45 million units per year by 2040[11]. Whilst advances in battery technology will dictate the level of demand for lithium and other key battery components, all scenarios will see a significant increase. The barriers to uptake of EVs are constantly being dismantled. In a recent announcement, the Chairman of Contemporary Amperex Technology Co. Ltd. ("CATL"), Zeng Yuqun said that they are able to produce a market ready battery that lasts 16 years and 1.2 million miles.[12] This would significantly reduce the lifetime cost of ownership for EVs helping to drive demand. Price parity with internal combustion engine vehicles is almost upon us and would, no doubt, be a watershed moment for the world and of course the burgeoning lithium market.

 

Even with new initiatives being put in place by Europe, it is expected that the majority of global EV growth is to come from Asian markets in the short term, and Bacanora's off-take agreements with Ganfeng and Hanwa align with these trends.

 

Sonora remains a highly attractive, scalable, low cost development asset which boasts robust economics. By 2023 the Company aims to produce battery-grade lithium to its offtake partners, Hanwa and Ganfeng, at an estimated cost of approximately US$4,000 per tonne. This puts Sonora in a similar position, on the lithium cost curve, to the brine deposits of South America, but with a faster overall process, also rivalling the hard rock producers of Australia.

 

The Company continues to work closely with its advisers, Citi and Canaccord, as well as its partners, on the final financing package for Sonora. Bacanora's strong cash position of US$44.4 million and significant support from its cornerstone shareholders alongside its US$150 million debt facility with RK Mine Finance, provide confidence that the final financing will be secured.

 

As previously disclosed, the Board looked at various strategic options for developing the Zinnwald Lithium Project. It is a strategic asset located near a thriving market for lithium and energy products in Germany. Since Bacanora completed its Feasibility Study in June 2019 and following the restructuring of its 50% ownership of DL in February 2020, the Company has carried out further detailed engineering work. At the end of June 2020, the Board has committed to a plan to sell Zinnwald into a separate vehicle. Subsequently, the Company announced the proposed acquisition of Bacanora's 50% shareholding of DL by AIM-listed Erris Resources Plc ("Erris").  Bacanora will contribute its 50% investment in DL and €1.35 million cash. This cash will be used to settle the commitment under the second supplemental joint venture agreement with SolarWorld and to pay for a portion of the transaction costs. Erris will contribute its remaining cash and its Irish zinc and Swedish gold assets. In exchange, Bacanora will receive 90,619,170 shares (70%) in the enlarged Erris and a net profit royalty. The acquisition constitutes a reverse takeover under AIM rules and is subject to Erris's shareholder approval. The percentage ownership will reduce as Erris will be raising additional funds as part of the process in order to accelerate the further development of the Zinnwald Lithium Project. We look forward to working with the Erris team and the administrators of SolarWorld AG to advance the development of the Zinnwald project.

 

In these challenging times for all businesses, it is also a testament to Bacanora and its strategy, that we welcomed Mr. Graeme Purdy to the Board in April 2020, as a non-executive director. Graeme brings with him a wealth of engineering and technical expertise from the battery industry, as well as UK capital markets. He is currently Chief Executive Officer ("CEO") of AIM-listed Ilika Plc, a solid-state battery technology developer, and we are delighted to add someone of his calibre to the Board.

 

Despite the undeniable impact Covid-19 has had in the last six months, demand forecasts for lithium products remain positive, and battery investment is a key principle for recovery plans leading to forecasts of a demand spike in the medium to long term[13]. Sonora is primed to take advantage of this, and we are confident our continued efforts will allow this to happen. The high quality and strong demand for Sonora's lithium product in Asia, reinforces the view held by the Board and our partners that Bacanora will become a high value battery-grade lithium producer.

 

I am excited for the next phase of Bacanora's journey and look forward to reporting on further progress.

 

Mark Hohnen

Chairman

29 September 2020
 

Operational Review for six months ended 30 June 2020

Sonora Lithium Project

To capitalise on the fast-growing lithium market, our main focus is to monetise the resources and reserves held in Sonora, which benefits from a large, scalable and high-grade lithium resource with a global Resource (measured, indicated and inferred) of almost 9 million tonnes lithium carbonate equivalent ("LCE"). This will be initially achieved by developing phase 1 of the mine and processing plant. The Company aims to produce battery-grade lithium product for sale to downstream cathode and battery manufacturers through existing shareholders and offtake partners Ganfeng and Hanwa. The Company published the Sonora Feasibility Study ("SFS") in January 2018 that showed a pre-tax NPV of US$1.25 billion, 26% IRR and an operating cost of approximately US$4,000 per tonne. This cost base places Sonora among the low-cost brine producers of South America. Bacanora owns ten mining concession areas covering approximately 100,000 hectares in the northeast of Sonora state in Mexico. Seven of these ten mining concessions (the 'Sonora Lithium Project') were included in the SFS published in January 2018. Please refer to the feasibility study for details on the project[14].

The Sonora Lithium Project is located in northern Sonora state, Mexico, which is approximately three hours' drive north east of the state capital of Hermosillo, a city of over one million people. Access to the site is by road from either Hermosillo or the US border town of Agua Prieta.

The Sonora Lithium Project hosts a large lithium deposit. The polylithionite mineralisation is hosted within shallow dipping sequences, outcropping on surface. As part of the SFS, a Mineral Resource estimate was prepared by SRK Consulting (UK) Ltd in accordance with the terminology, definitions and guidelines of the Canadian institute of mining, metallurgy and petroleum standards for mineral resources and reserves national instrument 43-101 ("NI 43-101"). The following tables present the summary of current lithium resources for Sonora. These Mineral Resources are inclusive of Mineral Reserves. Mineral reserves and resources are unchanged since they were published.

Measured and Indicated Mineral Resources

Category

Cut-off

Tonnes(2)

Li

K

LCE

 

(Li ppm)

(000t)

(ppm)

(%)

(000t)

Measured(1)

1,000

103,000

3,480

1.5

1,910

Indicated

1,000

188,000

3,120

1.3

3,130

Total

1,000

291,000

3,250

1.4

5,038

Inferred Mineral Resources

Category

Cut-off

Tonnes(2)

Li

K

LCE(3)

 

(Li ppm)

(000t)

(ppm)

(%)

(000t)

Inferred

1,000

268,000

2,650

1.2

3,779

 

Mineral Reserves : (Cut-off grade of 1,500ppm Li)

 

Category

Tonnes

Li

K

LCE

 

(000t)

(ppm)

(%)

(000t)

Proven

80,146

3,905

1.64

1,666

Probable

163,662

3,271

1.36

2,849

Total

243,808

3,480

1.45

4,515

(1)Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability.

(2)Tonnes rounded to the nearest thousand.

(3)Reported from a block model above 1,000 ppm Li and above a simple open pit shell generated using the technical and economic parameters established during the SFS, with the exception of the LCE selling price of US$14,300 (which represents a 30% premium on top of the US$11,000 used for the Mineral Reserve estimate). All LCE is presented on 100% interest basis.

The mining operation for the Project is planned as an open-pit development using a combination of continuous miners to mine the ore zones and a truck/shovel fleet to remove the waste material. Mining operations will be augmented with an ancillary fleet of dozers, graders and water trucks. During the initial 19-year mine life, 37,058,000 tonnes of ore with a Li grade of 4,151 ppm will be mined and processed with a stripping ratio of 3.4:1.

The process plant design comprises a pre-concentration stage to produce an initial concentrate prior to roasting. The concentrate is subsequently heated in a kiln, at approximately 950 degrees Celsius, in combination with recycled sodium sulphate, which is a by-product produced from the Sonora Lithium plant, to produce an intermediate lithium sulphate product. This sulphate material then undergoes hydrometallurgical treatment, filtration, cleaning, precipitation and packaging, to produce a >99.5% lithium final battery-grade product. The integrated plant has been designed to initially process 1.1 million tonnes of ore per year, during Stage 1 of the Project, subsequently increasing to some 2.2 million tonnes per year at Stage 2, producing 17,500 tpa and 35,000 tpa of battery-grade lithium product, respectively. The plant design also includes a circuit to produce up to 30,000 tpa of potassium sulphate product through a series of evaporation and precipitation stages.

Sonora Lithium Project Developments

During the period, Sonora was primarily focused on progressing the FEED work. Work to finalise the FEED is ongoing with experienced engineering groups, as follows:

· Front-end ore concentrator and mechanical processing with GR Engineering Services ("GRES"), an ASX listed engineering, consulting and contracting Company specialising in fixed priced engineering design and construction services to the resources and mineral processing industry. GRES has completed its concentrator design work and will now integrate this into the overall project scope.

· Pyrometallurgical engineering, primarily for the kiln designs, is being engineered by an international manufacturer of industrial furnace, kilns and heating systems. Kiln optimisation testwork is ongoing.

· The hydrometallurgical plant, including the production of the final battery-grade lithium product, will be engineered by Ganfeng themselves due to their proven expertise in this field.

Ganfeng commenced a technical review of the hydrometallurgical circuit and representative samples were sent to Ganfeng in China to facilitate test work. Like many companies in China, Ganfeng's operations, have been impacted by the outbreak of coronavirus. Precautions to limit the spread of the virus has led to travel restrictions, precautionary working from home and the extension of the Lunar New Year holiday break causing shutdowns at their facilities. In late April 2020, Ganfeng was able to reopen its factories and head office which has slowly allowed the resumption of the technical work on the Sonora Project. Ganfeng completed its flow sheet design testwork for the production of battery-grade lithium from the samples provided by the pilot plant. Ganfeng is now integrating these results into a larger scale design and remains on schedule to deliver its final engineering packages at the end of Q4 2020. Ganfeng is also working with its equipment suppliers to determine equipment delivery times and process guarantees.

Bacanora has not been immune to the impact of Covid-19. In March 2020, the Mexican Ministry of Health declared a national health emergency and suspended all non-essential businesses. Mining companies were obliged to halt all production and exploration activities and place their operations on care and maintenance. On 13 May 2020, the government of Mexico added mining to its list of essential businesses and announced plans for a gradual reopening of the country allowing mining companies to resume operations on 18 May 2020[15] and a broader relaxation of lockdown rules from 1 June 2020 based upon a traffic light system. As such, the pilot plant in Hermosillo, Mexico was operated on an "as needs" basis in the reporting period, around the mandatory shutdown period. The pilot plant produced samples to aid FEED partners for design and test work. The pilot plant has completed its initial objectives including production of bulk samples for feasibility studies, final product samples for customers and proof of design. Placing the pilot plant into reduced activity led to a reduction in staffing levels, whilst the Company retained key staff. The pilot plant continues to form part of our strategy to train operators in preparation for commissioning of the large-scale plant at the mine site.

Survey, geotechnical and hydrogeological work for the plant site location is being optimised as part of the work with GRES. Detailed design for the permanent access road is underway including detailed route survey, geotechnical engineering, slope design and construction material optimisation. The work is expected to be completed by Q4 2020.

Access roads for the borefield have has been surveyed for construction estimates and modelling of the borefield has been completed. An application for permissions to drill test holes wells has been made to the Secretaría del Medio Ambiente y Recursos Naturales ("SEMARNAT") and was approved in August 2020. Following the receipt of the permit, pump testing and equipment installation will be performed to confirm hydrological modelling and will be completed in Q3 2020. Geotechnical design work for the dry tailings disposal site is also underway. Furthermore, proposals for the cogeneration energy facilities and LNG supply have been received from several suppliers and are under assessment. It is currently envisaged that trucked LNG supplies will be initially utilised at Sonora during the early stages of commissioning and production, whilst gas consumption is low. Once energy consumption reaches steady state, pipeline supply to Sonora would be initiated.

We continue to work with the community to develop an integrated sustainability programme, that will encompass the construction and operational phases of the Project. Unfortunately, Covid-19 continues to have an impact on the timing of community engagement, however a framework for community engagement has been developed. In the process of developing the framework, education has been identified as a key enabler of employment for the community. Future community engagement activities will focus on education.

In previous periods the Company has received the relevant approvals to start construction of the plant and mine. The environmental impact assessment procedure begins with the presentation of an environmental impact statement by the developer, known as the Manifestación de Impacto Ambiental ("MIA" - Environmental impact assessment permissions). Mexican authority Secretaría de Medio Ambiente y Recursos Naturales ("SEMARNAT") approved the Project's MIA in October 2017 and its amendment in May 2018 for new site location. Further to these approvals, an exemption to the MIA for the purpose of road maintenance was approved in July 2018, which enables interim access to the project site during construction.

For land zonation purposes, land use change in non-urban areas is made through an Estudio Técnico Justificativo de Cambio de Uso de Suelo en Terrenos Forestales ("ETJ"). The plant site's ETJ has been approved by the Sonora state forestry council and payment requirement to CONAFOR's Mexican Forestry Fund has been issued by SEMARNAT and was paid by the Company in December 2018. This will allow the Project to begin construction as soon as funding is available. With all relevant construction, land access, water licences and environmental MIA permits in place, the Company is currently focussing on secondary permitting such as the process water borefield and co-gen power supply.

Zinnwald Lithium Project [16]

Zinnwald Lithium Project Developments

At the reporting date the Company held a 50% investment in DL, which owns the Zinnwald Lithium Project (covering 256.5 ha and with a 30 year mining licence to 31 December 2047), the Falkenhain licence (covering 295.7 ha and with a 5 year exploration licence to 31 December 2022) and the Altenburg licence (covering 4,225.3 ha and with a 5 year exploration licence to 15 February 2024).

Bacanora acquired an initial 50% interest in DL (the 100% owner of Zinnwald) in February 2017 and had an option to acquire the outstanding 50% that it does not own from our joint venture partner, SolarWorld, for €30 million. Since then SolarWorld entered administration. The option to purchase the remaining 50% interest in DL (the "Bacanora Call Option") was extended until 17 February 2020. In the event that the Company did not exercise the Bacanora Call Option, SolarWorld had the right but not the obligation to purchase the Company's 50% interest in DL (the "SolarWorld Call Option"). On 14 February 2020, the Company signed an agreement with the administrators of SolarWorld to remove both the Bacanora Call Option and SolarWorld Call Option. Bacanora retains its right of first refusal to purchase the remaining 50% currently held by SolarWorld. As part of the agreement, the Company has committed to providing additional financing of €1.35 million to fund the DL operations until February 2022.

On 30 June 2020, the Board of Directors committed to pursue a plan of selling the DL investment and associated assets/liabilities into a separate vehicle.

Subsequently, the Company announced the proposed acquisition of Bacanora's 50% shareholding of DL by AIM-listed Erris Resources Plc ("Erris").  Bacanora will contribute its 50% investment in DL and €1.35 million cash. This cash will be used to settle the commitment under the second supplemental joint venture agreement with SolarWorld and to pay for a portion of the transaction costs. Erris will contribute its remaining cash and its Irish zinc and Swedish gold assets. In exchange, Bacanora will receive 90,619,170 shares (70%) in the enlarged Erris and a net profit royalty. The acquisition constitutes a reverse takeover under AIM rules and is subject to Erris's shareholder approval. The percentage ownership will reduce as Erris will be raising additional funds as part of the process in order to accelerate the further development of the Zinnwald Lithium Project.

3  Lithium Market Update January to June 2020

The world is expected to consume approximately 196,000 tonnes of LCE in 2020, a 24% decrease over 2019's 258,000 tonnes according to June 2020 Resources and Energy Report on Lithium from the Australian government[17]. This compares to 343,000 tonnes consumption in 2020 forecast pre-Covid-19[18]. World lithium production is forecasted to decline YOY from 486,000 tonnes LCE to 373,000 tonnes in 2020, down 23% on 2019[19], as a result of Covid-19 related pullback. This compares to pre-Covid-19 production forecasts of 439,000 tonnes. Thus far in 2020, oversupply in the lithium market has caused a significant pull back on spot prices.

At the end of 2019, Fastmarkets reported 99.5% lithium carbonate battery-grade spot prices CIF China, Japan & Korea of US$8,000-9,500 per tonne[20]. By the end of June 2020, spot prices had slid further to US$6,500-8,500 per tonne with Fastmarkets' seaborne battery-grade lithium hydroxide monohydrate, 56.5% LiOH.H2O min, battery- grade, spot price at US$9,000-10,500 per tonne on a CIF China, Japan and Korea basis. By September prices have continued to weaken with comparative lithium carbonate prices US$6,500-8,000 and lithium hydroxide at US$8,800-10,000 per tonne respectively[21]. As mentioned, the reduction in lithium pricing has been attributed to an oversupply of lithium products. This has been compounded by dwindling lithium demand caused by rolling regional Covid-19 related lockdowns which restricted manufacturing output and reductions in consumer confidence, thereby dampening demand.

On 26 June 2020, Citi released an analyst research paper[22], which forecast a 6% Covid-19 related drop in lithium demand this year, amid a ~19% 5-year CAGR to 2025 and a 25% forecast surge in 2021 as pent up demand rebounds. Citi forecasts that current levels of depressed prices will prove unsustainable and expects prices will trend towards incentive pricing in order to avoid potential deficits and meet expanding demand from the electric vehicle (EV) battery market. With an estimated 30% of the market currently underwater, Citi expect prices to move toward incentive pricing, with long term prices estimated at US$9,000 per tonne and US$9,990 per tonne for battery-grade lithium carbonate and lithium hydroxide respectively.

Most of the reductions in production have been seen in the Australian spodumene mines. Prior to the Covid-19 crisis, oversupply was being addressed by reductions in production and expansion in the wider market. In January 2020, Galaxy Resources announced that in response to market conditions, it has reviewed operations at Mount Cattlin, resulting in a reduction in operations by circa 60%[23]. This continued from the trend in 2019, with a number of lithium companies either mothballing operations, reducing output, delaying construction of new capacity or filling for creditor protection [24],[25],[26],[27]. Ramping up these projects in the near term looks unlikely given the current market fundamentals. In the research note, Citi expects further supply chain rationalisation to come[28].

The brine producers operate over a longer production cycle by virtue of the evaporation production methodology employed and are currently the lowest cost producers of lithium products. This has meant that they have not implemented large scale reductions in production as a result of the challenging pricing environment in 2019 and H1 2020. However, they have not been immune from the impact of Covid-19. In Argentina, operations were closed on 20 March 2020 due to governmental decree but has since re-opened[29]. Livent has since announced CAPEX reduction of 50% to maintain liquidity[30]. Orocobre reported production production losses in Q2 2020 of 27% at Olaroz compared to the Q2 2019 as a result of the Covid-19 related shutdown from 20 March to 9 April 2020[31]. Covid had a knock on effect of delaying construction of the Stage 2 of the Olaroz Lithium facility. That said, in Chile, SQM stated that production targets had been met or exceeded, which was in line with the annual rate of 70,000 tonnes, posting record sales in Q2 2020[32].

The impact of Covid-19 on the battery market was significant, Adamas Intelligence says that 20.5 GWh of EV batteries were deployed in Q1 2020, which represents a 22.6% reduction compared to Q4 2019 (26.5 GWh)[33]. Although the full impact of Covid-19 on the lithium market is currently unclear, according to a report by the International Energy Agency (IEA), EV demand is undimmed with sales expected to match or slightly exceed figures from last year (2.3 million sold in 2019) despite an expected 15% drop in sales for the wider automotive market[34].

In a recent research paper published by Wood Mackenzie, nearly 800,000 tonnes of additional lithium carbonate equivalent would need to come online in the next five years to meet the needs of the battery sector, based on its own Accelerated Energy Transition scenario, which sees global warming limited to 2.5 degrees Celsius. This would entail the electric vehicle market to require over 1,000,000 tonnes LCE in 2025. Governments are responding to the climate crisis and the  outbreak of Covid-19. Consequently, several countries have increased or extended incentives for EVs as part of eco-friendly stimulus packages. China extended its subsidies for EVs until 2022, which were originally planned to end in 2020. Italy has made additional funds available for its EV purchase incentives in 2021 and 2022, as well as a €1,500 (US$1,690) car scrappage scheme. In France, the government announced enhanced EV subsidies and scrappage schemes where buyers could be eligible to receive €12,000 (US$13,150) towards an EV[35]. In Germany, the government announced subsidies of up to €9,000 per EV until the end of 2021 and a longer term benefit abolition of vehicle tax for purely electric cars until the end of 2030[36]. In the UK, there are a raft of incentives for EVs, including a maximum grant of £3,500 and £8,000 for cars and vans respectively, £500 for home charging point, no vehicle excise duty, and company car drivers choosing a pure electric vehicle will pay no benefit-in-kind (BIK) tax in 2020/21. This means that the total cost of ownership for EVs is lower for people with company car[37]. In July, UK Electric Fleets Coalition, run by international non-profit The Climate Group, called on the UK Government to target 100% electric car and van sales by 2030. The 21 members of the Coalition collectively operate over 400,000 cars and vans in the UK. Globally, the 77 members of The Climate Group's EV100 initiative have committed to switch over 4.5m vehicles to zero emissions and install EV charging at over 3,000 company locations by 2030[38]. As part of the Covid-19 recovery plan, the UK government announced a raft of measures to support the nascent battery market for the UK's first gigafactories, research and development and EV infrastructure[39]. The UK government completed a public consultation on 31 July 2020 on plans to introduce a ban on the sale of new combustion-engined cars by 2035[40], the results of which are pending.  The UK government has pledged £2.5bn to reducing road transport emissions as part of the UK's net-zero strategy[41]. In other news, EV battery firm Britishvolt and the Welsh government confirmed plans to open the UK's first gigafactory in 2023[42]. The European subsidies to stimulate demand for EVs is working, with sales in July 2020 exceeding those in China[43]

The vulnerability of global supply chains has been laid bare by the Covid-19 outbreak, which has been disrupting manufacturing operations around the world[44]. Companies have been sourcing supply for components and materials from factories in Asia in a quest to remain cost competitive. However, many companies have been forced to shut down production due to a lack of available parts sourced from the region. The lock down has led to reduced output of key components and it has been more difficult for goods to clear borders. As an example, Fiat Chrysler Automobiles NV announced in February that it was temporarily halting production at Kragujevac car factory in Serbia because it could not get parts from China[45]. Deloitte identified companies who have diversified geographic supply chains as being more robust[46]. It is clear that manufacturers of all types will renew focus on diversifying the geographic source of their suppliers and reducing distance to source, and the automotive and battery sectors will not be exceptions. This push for localisation provides an opportunity for Sonora and Zinnwald projects to supply the key element, lithium, to their respective geographic markets. Evidence of this trend to manufacture battery components close to market came with the announcement, in July 2020, from South Korea's SK Innovation Co Ltd, a supplier for Volkswagen and Ford Motors, that they had broken ground on construction of  its second EV battery plant in the United States[47] and will spend US$940 million to build it[48].

For the lithium market to expand at 18%+ CAGR to 2030[49], barriers for mass-market uptake of EV's must be overcome. Presently, these are range anxiety (range, recharging speed, charging infrastructure) and cost (cost to buy, battery life, residual value). H1 2020 has seen a host of significant announcements on technological advancements for lithium batteries that ameliorate these issues. Lithium battery life is currently limited by the growth of dendrites, which form from the chemical deposition of lithium on the anode (negative electrode). Dendrites reduce battery capacity over many charge cycles. Failure of the battery occurs when dendrites grow large enough to reach the cathode (positive electrode); this causes shorting in the battery and potentially a fire[50]. One solution that battery companies and universities are using with the aim to control dendrite formation in lithium metal batteries is through the use of a solid electrolyte. Samsung's Advanced Institute of Technology ("SAIT") has revealed a new solid state battery, with more than treble the energy density of similarly sized batteries (Samsung 900Wh/L vs Tesla lithium ion 272Wh/L) meaning a +1,000km range would be within grasp[51]. With ranges available in excess of vehicles with internal combustion engines, range anxiety and charging infrastructure becomes much less of an issue. In the United States, average annual distances driven is 13,476 miles (21,682km) per year[52] meaning most people would need to charge the car less than twice a month. Furthermore, Samsung says that they can be recharged more than 1,000 times (about a million kilometres of total range) making the electric vehicle more compelling for consumers.

CATL says it is ready to produce a battery that can power an electric vehicle for more than 1.24 million miles, over a period of 16 years[53] marking a major increase over current offerings; Tesla are currently offering warranties of up to 8 years or 0.15 million miles, whichever comes first[54]. According to the Chairman of CATL the battery would cost about 10% more than current EV batteries. Battery packs with a cost of US$100/kWh has been described as the price to enable EV's to reach a price parity with internal combustion vehicles without subsidies[55]. By the end of 2019 battery costs were an average of US$156/kWh have been reported by BloombergNEF[56]. The cost of CATL's cobalt-free lithium iron phosphate battery packs has fallen below US$80/kWh, with the cost of the battery cells dropping below US$60/kWh and CATL's low-cobalt NMC battery packs are close to US$100/kWh[57]. With the recovery of the precious elements in the batteries from recycling and potentially "second life" usage of batteries in grid/home storage, it is not difficult to see that tipping point for cost is very close to being realised.

In the longer term, LCE consumption is forecast to reach 1,000,000 tonnes by between 2025 and 2027[58][59], based on growing uptake of EV's and grid storage for renewable energy. The supply overhang will narrow as demand grows rapidly, rebalancing of the supply and demand fundamentals by 2024 based on research by Citi[60]. Given the current lack of incentive pricing for the marginal cost producers, it continues to be our belief that new production of lithium will likely originate from existing low-cost producers and projects that have attractive cost bases. With Sonora's estimated cost of production of over US$4,000 per tonne, the Sonora Project sits in the lower quartile of lithium production costs, giving it a significant competitive advantage when compared to the higher cost producers such as the existing spodumene production in Australia. Whilst there is a degree of uncertainty in the nascent lithium market, Bacanora is well placed to weather the near-term oversupply related price fluctuations and Covid-19 given favourable production costs and the high-quality nature of our product.

 

 

Financial Review

In the previous reporting period, the Company took the decision to move the year end from 30 June to 31 December in order to align the financial year for Group companies with local statutory reporting requirements and stakeholder reporting. Consequently, the reporting period presented herein is an interim statement for the six month period from 1 January to 30 June 2020. This period is comparable to the six month period of 1 July 2019 to 31 December 2019 previously reported.

The Company made an operating loss of US$10.8 million for the six month period ended 30 June 2020, which includes a US$6.0 million impairment on assets held for sale. Excluding the impairment charge, the Company made an underlying operating loss of US$4.8 million which is comparable with the loss of US$4.9 million for the six month period ended 31 December 2019.

DL, which holds the Zinnwald Lithium Project, had a US$0.1 million loss during the six month period, of which, Bacanora Lithium's 50% share was US$0.05 million loss. At 31 December 2019, the Company had an option valid until 17 February 2020 to purchase the remaining 50% interest in DL. In the event that the Company did not exercise the Bacanora Call Option, SolarWorld had the right but not the obligation to purchase the Company's 50% interest in DL. On 14 February 2020, the Company signed an agreement with the administrators of SolarWorld to remove both the Bacanora Call Option and SolarWorld Option. As part of the agreement, Bacanora retains its right of first refusal to purchase the remaining 50% currently held by SolarWorld. Bacanora committed to providing additional financing of €1.35 million to fund the DL operations over the two year period starting February 2020.

At 30 June 2020, the Board resolved to pursue a plan to sell the DL investment to a separate vehicle. As a result, the DL investment was assessed to be an asset held for sale. In accordance with IFRS 5, an asset held for sale is required to be measured at the lower of the carrying amount and fair value less cost to sell. This resulted in a US$6.0 million impairment loss being recognised during the period.

Subsequently, the Company announced the proposed acquisition of Bacanora's 50% shareholding of DL by AIM-listed Erris Resources Plc ("Erris").  Bacanora will contribute its 50% investment in DL and €1.35 million cash. This cash will be used to settle the commitment under the second supplemental joint venture agreement with SolarWorld and to pay for a portion of the transaction costs. Erris will contribute its remaining cash and its Irish zinc and Swedish gold assets. In exchange, Bacanora will receive 90,619,170 shares (70%) in the enlarged Erris and a net profit royalty. The acquisition constitutes a reverse takeover under AIM rules and is subject to Erris's shareholder approval. The percentage ownership will reduce as Erris will be raising additional funds as part of the process in order to accelerate the further development of the Zinnwald Lithium Project. The sale of the investment will allow Bacanora and Erris to drive the project forward in a new listed entity with the JV partner, SolarWorld. The new structure will enable Bacanora and Erris to raise the funding required to develop the project.

During the six month period ended 30 June 2020, the Company incurred finance costs of US$2.5 million in relation to the Company's debt financing (six month period ending 31 December 2019: US$2.4 million). Finance income of US$0.6 million in the period (six month period ending 31 December 2019: US$0.9 million) comprised a revaluation of the Company's financial warrants of US$0.3 million and interest on cash reserves of US$0.3 million.

Furthermore, during the current period under review, the Company incurred US$2.4 million general and administrative costs (six month period ending 31 December 2019: US$2.8 million) and share-based payment compensation of US$0.2 million (six month period ending 31 December 2019: US$0.3 million). Overall, excluding the asset held for sale impairment, operating loss reduced in the six month period ended 30 June 2020 due to reduced corporate activities compared to the prior period.

The net assets of the Company decreased to US$54.4 million at 30 June 2020 from US$65.0 million at 31 December 2019, due primarily to the US$6.0 million impairment of asset held for sale and loss from continuing operations for the six month period of US$4.7 million, offset by a US$0.2 million increase in share based payment reserve. The Company had a cash balance of US$44.4 million as at 30 June 2020, which decreased by US$4.5 million from US$48.9 million as at 31 December 2019. The reduction in cash was as a result of the cash expenditure on operations of US$3.0 million, US$1.4 million on property, plant and equipment and exploration and evaluation assets and funding DL of US$0.4 million. The Company received interest income of US$0.3 million on cash reserves, offsetting the expenditure.

Given the unprecedented Covid-19 health and ensuing economic crises, many companies have seen their balance sheets come under duress since the turn of the year, resulting in record rates of Chapter 11 filings[61]. Being at a preconstruction phase of operations, Bacanora has not entered into commitments to develop the Sonora Lithium Project and retains a significant cash balance. Consequently, the Directors have, at the time of approving the Interim Consolidated Financial Statements, a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future.

Financing update:

In addition to the existing conditional US$150 million debt facility with RK Mine Finance, of which US$125 million remains undrawn, the Company completed a strategic investment and offtake agreement with Ganfeng on 18 October 2019 whereby Ganfeng subscribed for a 29.99% equity interest in Bacanora for a cash consideration of £14,400,091. Ganfeng also acquired an initial 22.5% interest in Sonora Lithium Ltd (SLL), for a cash payment of £7,563,649, equivalent to a price of 25 pence per share, with an option to increase its interest in SLL to up to 50% from 22.5%, within 24 months of the completion of the initial investment. The valuation of any additional investment by Ganfeng would be based on the share price of Bacanora Lithium Plc at the time of the additional purchase. The strategic investment from Ganfeng forms a major part of the Company's finance package for the construction of an initial 17,500 tonnes per annum lithium operation at Sonora. Furthermore, the Company received a strategic investment from M&G Plc on 25 November 2019, with Bacanora raising £7,729,150 via the placing of new ordinary shares in the Company with M&G, one of our long-standing cornerstone shareholders. The transaction completed at a price of 25 pence per share. The investment increased M&G's strategic shareholding in Bacanora to 19.9%.

These financing milestones have provided Bacanora with a strong cash position of US$44.4 million at the period end and Bacanora is well placed to weather ongoing market fluctuations and continued effects of Covid-19 while progressing with pre-construction works for Sonora.

Whilst the completion of the Project financing has been impacted by the ongoing Covid-19 pandemic, the Company continues to look at various debt and equity financing solutions and work towards obtaining full financing of the Sonora Project.

 

On behalf of the Board of Directors,

 

 

Janet Blas

Chief Financial Officer

29 September 2020

 

 

 

Interim Consolidated Statement of Financial Position

As at 30 June 2020

In US$

 

30 June 2020

31 December 2019

Assets

 

 

 

Current assets

 

 

 

Cash and cash equivalents

 

 44,381,570

 48,903,551

Other receivables and prepayments

 

 1,820,176

 1,777,421

Non-current assets held for sale

 

 3,825,276

-

Total current assets

 

 50,027,022

 50,680,972

Non-current assets

 

 

 

Investment in joint venture

 

-

 9,545,993

Property, plant and equipment

 

 31,741,241

 30,443,640

Exploration and evaluation assets

 

 554,108

 534,588

Total non-current assets

 

 32,295,349

 40,524,221

Total assets

 

 82,322,371

 91,205,193

Liabilities and shareholders' equity

 

 

 

Current liabilities

 

 

 

Accounts payable and accrued liabilities

 

 1,049,340

 1,451,346

Joint venture obligation

 

 114,456

 113,697

Total current liabilities

 

 1,163,796

 1,565,043

Non-current liabilities

 

 

 

Borrowings

 

 26,563,638

 24,051,610

Warrant liability

 

 176,144

 587,315

Total non-current liabilities

 

 26,739,782

 24,638,925

Total liabilities

 

 27,903,578

 26,203,968

Shareholders' equity

 

 

 

Share capital

 

 30,240,469

 30,240,469

Share premium

 

 16,646,060

 16,646,060

Merger reserve

 

 53,557,251

 53,557,251

Share-based payment reserve

 

 2,631,908

 3,807,562

Foreign currency translation reserve

 

 3,568,358

 3,568,358

Retained earnings

 

(64,688,420)

(55,464,190)

Equity attributable to equity shareholders of Bacanora Lithium Plc

 

 41,955,626

 52,355,510

Non-controlling interest

 

 12,463,167

 12,645,715

Total shareholders' equity

 

 54,418,793

 65,001,225

Total liabilities and shareholders' equity

 

 82,322,371

 91,205,193

 

The Interim Consolidated Financial Statements of Bacanora Lithium Plc, registered number 11189628, were approved and authorised for issue by the Board of Directors on 29 September 2020 and were signed on its behalf by:

 

Mark Hohnen

29 September 2020
 

Interim Consolidated Statement of Comprehensive Income

For the six month period ended 30 June 2020

In US$

 

Six months ended

Six months ended

 

 

30 June 2020

31 December 2019

Expenses

 

 

 

General and administrative

 

(2,441,159)

(2,763,202)

Depreciation

 

(96,225)

(101,549)

Share-based payment expense

 

(217,641)

(290,391)

Foreign exchange loss

 

(94,314)

(18,307)

Operating loss

 

(2,849,339)

(3,173,449)

 

 

 

 

Finance and other income

 

 646,206

 928,796

Finance costs

 

(2,512,028)

(2,429,443)

Revaluation of derivative asset

 

-

(191,066)

Loss before tax from continuing operations

 

(4,715,161)

(4,865,162)

 

 

 

 

Loss after tax from continuing operations

 

(4,715,161)

(4,865,162)

 

 

 

 

Loss on discontinued operation

 

(6,084,912)

(80,887)

Total comprehensive loss

 

(10,800,073)

(4,946,049)

 

 

 

 

Loss attributable to shareholders of Bacanora Lithium Plc

 

(10,617,525)

(4,864,910)

Loss attributable to non-controlling interests

 

(182,548)

(81,139)

Loss after tax

 

(10,800,073)

(4,946,049)

 

 

 

 

Total comprehensive loss attributable to shareholders of Bacanora Lithium Plc

 

(10,617,525)

(4,864,910)

Total comprehensive loss attributable to non-controlling interests

 

(182,548)

(81,139)

Total comprehensive loss

 

(10,800,073)

(4,946,049)

 

 

 

 

Net loss per share (Continuing operations) (basic and diluted)

 

(0.02)

(0.03)

Net loss per share (Held for sale operations) (basic and diluted)

 

(0.03)

(0.00)

 

 

 

 

Interim Consolidated Statement of Changes in Equity

For the six month period ended 30 June 2020

 

 

Share capital

 

 

 

 

 

 

 

 

In US$

 

Number of shares

Value

Share premium

Merger reserve

Share-based payment reserve

Foreign currency translation reserve

Retained earnings

Total equity attributable to Bacanora Lithium Plc

Non-controlling interest

Total equity

30 June 2019

 

 134,464,872

 18,996,790

 153,366

 53,557,251

 5,417,193

 3,568,358

(48,539,746)

 33,153,212

(707,892)

 32,445,320

Comprehensive income for the period:

 

 

 

 

 

 

 

 

 

 

 

Loss for the period

 

-

-

-

-

-

-

(4,864,910)

(4,864,910)

(81,139)

(4,946,049)

Total comprehensive loss

 

-

-

-

-

-

-

(4,864,910)

(4,864,910)

(81,139)

(4,946,049)

Contributions by and distributions to owners:

 

 

 

 

 

 

 

 

 

 

 

Issue of share capital - Ganfeng investment

 

 57,600,364

 7,251,886

 10,877,829

-

-

-

-

 18,129,715

-

 18,129,715

Issue of share capital - M&G investment

 

 30,916,601

 3,991,793

 5,987,690

-

-

-

-

 9,979,483

-

 9,979,483

Share issue costs

 

-

-

(372,825)

-

-

-

-

(372,825)

-

(372,825)

Adjustment arising from change in non-controlling interest

 

-

-

-

-

-

-

(3,959,556)

(3,959,556)

 13,434,746

 9,475,190

Lapsed option charge

 

-

-

-

-

(1,900,022)

-

 1,900,022

-

-

-

Share-based payment expense

 

-

-

-

-

 290,391

-

-

 290,391

-

 290,391

31 December 2019

 

 222,981,837

 30,240,469

 16,646,060

 53,557,251

 3,807,562

 3,568,358

(55,464,190)

 52,355,510

 12,645,715

 65,001,225

Comprehensive income for the period:

 

 

 

 

 

 

 

 

 

 

 

Loss for the period

 

-

-

-

-

-

-

(10,617,525)

(10,617,525)

(182,548)

(10,800,073)

Total comprehensive loss

 

-

-

-

-

-

-

(10,617,525)

(10,617,525)

(182,548)

(10,800,073)

Contributions by and distributions to owners:

 

 

 

 

 

 

 

 

 

 

 

Lapsed option charge

 

-

-

-

-

(1,393,295)

-

 1,393,295

-

-

-

Share-based payment expense

 

-

-

-

-

 217,641

-

-

 217,641

-

 217,641

30 June 2020

 

 222,981,837

 30,240,469

 16,646,060

 53,557,251

 2,631,908

 3,568,358

(64,688,420)

 41,955,626

 12,463,167

 54,418,793

 

 

 

Interim Consolidated Statement of Cash Flows

For the six month period ended 30 June 2020

In US$

 

Six months ended

Six months ended

 

 

30 June 2020

31 December 2019

Cash flows from operating activities

 

 

 

Loss for the period

 

(10,800,073)

(4,946,049)

Adjustments for:

 

 

 

Depreciation of property, plant and equipment

 

 96,225

 101,549

Share-based payment expense

 

 217,641

 290,391

Foreign exchange

 

 57,521

 58,755

Finance and other income

 

(646,206)

(928,796)

Finance costs

 

 2,512,028

 2,429,443

Loss on discontinued operation

 

 6,084,912

 80,887

Revaluation of derivative asset

 

-

 191,066

 

 

 

 

Changes in working capital items:

 

 

 

Other receivables

 

(129,470)

 525,594

Accounts payable and accrued liabilities

 

(392,680)

(82,356)

 

 

 

 

Net cash used in operating activities

 

(3,000,102)

(2,279,516)

 

 

 

 

Cash flows from investing activities:

 

 

 

Interest received 

 

 270,462

 214,408

Purchase of property, plant and equipment

 

(1,393,826)

(560,950)

Purchase of exploration & evaluation assets

 

(19,520)

(10,641)

Proceeds on sale of subsidiaries

 

-

 9,475,190

Payments to the joint venture

 

(364,195)

(401,972)

Net cash (used in)/from investing activities

 

(1,507,079)

 8,716,035

 

 

 

 

Cash flows from financing activities

 

 

 

Issues of share capital, net of share costs

 

-

 27,736,373

Net cash flows from financing activities

 

-

 27,736,373

 

 

 

 

Change in cash and cash equivalents during the period

 

(4,507,181)

 34,172,892

Exchange rate effects

 

(14,800)

(33,047)

Cash and cash equivalents, beginning of the period

 

 48,903,551

 14,763,706

Cash and cash equivalents, end of the period

 

 44,381,570

 48,903,551

 

 

 

Notes to the Interim Consolidated Financial Statements

1  Corporate information

Bacanora Lithium Plc (the "Company" or "Bacanora") was incorporated under the Companies Act 2006 of England and Wales on 6 February 2018. The Company is listed on the AIM market of the London Stock Exchange, with its common shares trading under the symbol, "BCN". The registered address of the Company is 4 More London Riverside, London, SE1 2AU. The Company was incorporated prior to the Bacanora Group re-domicile from Canada to the UK in March 2018 where the Company became the new holding company for Bacanora Minerals Ltd, the original parent company for the Group.

The Group is a development stage mining group engaged in the identification, acquisition, exploration and development of mineral properties located in Mexico and Germany.

The Group issued the results of the feasibility study for the Sonora Lithium Project in Mexico on 25 January 2018. The feasibility study confirmed the positive economics and favourable operating costs of a 35,000 tpa battery-grade lithium carbonate operation. The feasibility study estimates a pre-tax project net present value of US$1.253 billion at an 8% discount rate and an internal rate of return of 26.1%. Key estimates and judgements assessed by management on the Group's Sonora Lithium Project assets have been disclosed in Note 4.

Basis of preparation

a)  Statement of compliance

The Interim Consolidated Financial Statements for the six months ended 30 June 2020 and the information relating to the period ended 31 December 2019 contained within the Interim Consolidated Financial Statements do not constitute statutory accounts as defined in Section 435 of the Companies Act 2006. The Interim Consolidated Financial Statements for the period ended 30 June 2020 have been delivered to the Registrar of Companies and the auditor's report on those Financial Statements was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under Section 498(2) or 498(3) of the Companies Act 2006.

The Financial Statements have been prepared in accordance with International Accounting Standard ("IAS") 34 - Interim Financial Reporting as adopted by the European Union and should be read in conjunction with the audited Consolidated Financial Statements for the period ended 31 December 2019.

The Interim Consolidated Financial Statements were authorised for issue by the Board of Directors on 29 September 2020.

b)  Basis of measurement

These Interim Consolidated Financial Statements have been prepared on a historical cost basis, except for certain financial instruments and investments that have been measured at fair value.

These Interim Consolidated Financial Statements are presented in United States dollars ("US$"). The functional currency of the Company and its subsidiaries is the United States dollar.

c)  Going Concern

The Directors have, at the time of approving the Interim Consolidated Financial Statements, a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. The Group has a significant cash balance of US$44.4 million as at 30 June 2020 and has not entered into commitments to develop the Sonora Lithium Project. In relation to DL, the total commitment entered into by the Company amounts to US$1.75 million, however these are expected to be extinguished on completion of the DL transaction, see notes 6 and 7 for further detail. Thus, the going concern basis of accounting in preparing the Financial Statements continues to be adopted.

The Company has taken into account the impact of Covid-19 on going concern for the Company. The main impact of Covid-19 for Bacanora has been its effect on the timing of test and design work for FEED. Going concern models reflect the delays as a consequence of Covid-19.

3  Significant accounting policies

The preparation of Interim Consolidated Financial Statements in compliance with IFRS requires management to make certain critical accounting estimates. It also requires management to exercise judgement in applying the Group's accounting policies.

The Interim Consolidated Financial Statements have been prepared using accounting policies consistent with those used in the preparation of the audited Consolidated Financial Statements for the Group for the period ended 31 December 2019 and those which will be effective for the year ended 31 December 2020.

a)  Standards, amendments and interpretations adopted

During the period, the following standards and amendments have been implemented.

Standard

Effective date

IAS 1

1 January 2020

 

b)  Standards, amendments and interpretations effective in future periods

At the date of authorisation of these Interim Consolidated Financial Statements, the following new standards, amendments and interpretations to existing standards have been published but are not yet effective and have not been adopted early by the Group.

Standard

Effective date

IFRS7

1 January 2022

IAS 1

1 January 2023

IFRS 17

1 January 2023

 

c)  Assets held for sale and disposal groups

Non-current assets and disposal groups are classified as held for sale when:

-  They are available for immediate sale

-  The appropriate level of management is committed to a plan to sell

-  It is unlikely that significant changes to the plan will be made or that the plan will be withdrawn

-  An active programme to locate a buyer has been initiated

-  The asset or disposal group is being marketed at a reasonable price in relation to its fair value, and

-  A sale is expected to complete within 12 months from the date of classification.

Non-current assets and disposal groups classified as held for sale are measured at the lower of

-  Their carrying amount immediately prior to being classified as held for sale in accordance with the group's accounting policy; and

-  Fair value less costs to sell/dispose.

Following their classification as held for sale, non-current assets (including those in a disposal group) are not depreciated. The results of operations disposed during the year are included in the Consolidated Statement of Comprehensive Income up to the date of disposal.

A discontinued operation is a component of the Group's business that represents a separate major line of business or geographical area of operations or is a subsidiary acquired exclusively with a view to resale, that has been disposed of, has been abandoned or that meets the criteria to be classified as held for sale.

Discontinued operations are presented in the Consolidated Statement of Comprehensive Income as a single line which comprises the post-tax profit or loss of the discontinued operation along with the post-tax gain or loss recognised on the re-measurement to fair value less costs to sell or on disposal of the assets or disposal groups constituting discontinued operations.

4  Critical accounting estimates and judgements

The preparation of the Interim Consolidated Financial Statements requires management to make certain judgements, estimates, and assumptions about recognition and measurement of assets, liabilities, income and expenses. The actual results are likely to differ from these estimates. Management's assessment of the significant judgements, estimates, and assumptions that have the most significant effect on the Financial Statements has not changed from the period ended 31 December 2019, for further detail please refer to the Consolidated Financial Statements for the period ended 31 December 2019. Management have assessed there to be one additional area of critical accounting estimates and judgements in the period to 30 June 2020:

a)  Assets held for sale and disposal groups

The application of the Group's accounting policy for assets held for sale and disposal groups requires estimation in determining the fair value of assets held for sale, whether those assets are being marketed at a reasonable price in relation to its fair value and the total transaction costs to sell the asset to be incurred. In particular, estimations have been made in relation to the expected sale price of the investment using analysis of market data. Estimates and judgements made in the calculation of the fair value less costs to sell may change if new information becomes available. The expected price of the DL transaction has been estimated at 5p using market available data in valuing the fair value less cost to sell of the asset held for sale. Judgements are made in assessing whether the sale is expected to complete within 12 months of the date of classification and that it is unlikely that significant changes to the plan to sell will be made or withdrawn. The forward looking nature of these judgements and reliance on third parties ensure that management can only estimate that these events are unlikely.

5  Investments in jointly controlled entities

a)  Investment in Deutsche Lithium GmbH ("DL")

On 17 February 2017, the Group acquired a 50% interest in a jointly controlled entity, DL located in southern Saxony, Germany that is involved in the exploration of a lithium deposit in the Altenberg-Zinnwald region of the Eastern Ore Mountains in Germany. The joint venture has a functional currency of euros. The determination of DL as a joint venture was based on DL's structure through a separate legal entity whereby neither the legal form nor the contractual arrangement gives the owners the rights to the assets and obligations for the liabilities within the normal course of business, nor does it give the rights to the economic benefits of the assets or responsibility for settling liabilities associated with the arrangement. Accordingly, the investment is accounted for using the equity method.

The Group acquired its interest in DL for a cash consideration of €5.1 million from SolarWorld and an obligation to contribute €5 million toward the costs of completion of a feasibility study. Additionally, legal fees of US$0.2 million were paid in connection to this transaction.

On 28 May 2019 a supplemental agreement was signed between the Bacanora Lithium Plc, Bacanora Minerals Ltd and the nominated admistrator of SolarWorld. As a result:

1)  Bacanora Minerals Ltd's 50% share in DL was novated to Bacanora Lithium Plc

2)  The DL option exercise period extended for six months until February 2020, see note 6c for further details.

3)  Additional funding will be provided by Bacanora Lithium Plc, totalling €543,221, becoming payable progressively throughout the option period.

On 14 February 2020, Bacanora Lithium Plc and the nominated administrator of SolarWorld, signed a second supplemental agreement. As a result:

1)  Bacanora Lithium Plc will provide a further €1.35 million prior to 28 February 2022, the first payment was made on 21 February 2020 for €30,000 and subsequently, €55,000 per month will be payable for a further 24 months.

2)  The call option which gives Bacanora Lithium Plc the option to purchase the remaining 50% of the joint venture for €30 million was cancelled.

3)  The call option which gives SolarWorld the right to purchase the remaining 50% of the joint venture for €1, if Bacanora Lithium Plc did not exercise the above option, was cancelled.

4)  Bacanora retains its right of first refusal to purchase the remaining 50% currently held by SolarWorld.

On 30 June 2020, the Board of Directors committed to pursue a plan of selling the DL investment and associated assets/liabilities into a separate vehicle. The Board actively sought interested parties. DL was deemed to meet the classification of a held for sale asset at the period end and has been subject to a US$6.0 million impairment charge, see note 7 for further details.

Subsequently, the Company announced the proposed acquisition of Bacanora's 50% shareholding of DL by AIM-listed Erris Resources Plc ("Erris").  Bacanora will contribute its 50% investment in DL and €1.35 million cash. This cash will be used to settle the commitment under the second supplemental joint venture agreement with SolarWorld and to pay for a portion of the transaction costs. Erris will contribute its remaining cash and its Irish zinc and Swedish gold assets. In exchange, Bacanora will receive 90,619,170 shares (70%) in the enlarged Erris and a net profit royalty. The acquisition constitutes a reverse takeover under AIM rules and is subject to Erris's shareholder approval. The percentage ownership will reduce as Erris will be raising additional funds as part of the process in order to accelerate the further development of the Zinnwald Lithium Project.

Reconciliation of the carrying amount of net investment in joint venture is as follows:

In US$

Joint venture investment

 9,347,086

Joint venture investment loss

(80,887)

Additional investment

 279,794

31 December 2019

 9,545,993

Additional investment

 364,195

Joint venture investment loss

(55,111)

Reclassified as held for sale (Note 7)

(9,855,077)

-

 

b)  Deutsche Lithium obligation

As part of the first supplemental agreement, discussed in note 6a, Bacanora agreed to further fund the joint venture until the end of the option period on 17 February 2020, for a total of €543,221. The obligation has been assessed by management to not be part of the disposal group as the obligation is to be settled by the Group directly.

The movement in the obligation is detailed below

In US$

Joint venture liability

30 June 2019

(237,105)

Payments of joint venture obligation

 401,972

First supplemental agreement obligation

(279,794)

Foreign exchange gain

 1,230

31 December 2019

(113,697)

Payments of joint venture obligation

 88,403

First supplemental agreement obligation

(88,622)

Foreign exchange gain

(540)

(114,456)

 

Post period end Bacanora paid all the remaining balance under the first supplemental agreement to DL.

As part of the second supplemental agreement, a further €1.35 million was committed prior to 28 February 2022, of which €250,000 was paid as it became payable in the six month period to 30 June 2020. Post period end Bacanora paid a further €165,000 under the second supplemental agreement to DL. The commitment shall be transferred in the disposal of the DL investment to Erris. The proposed cash to be paid to Erris as part of the proposed acquisition will be partly used to settle the remaining commitment.

c)  Derivative asset - Deutsche Lithium option

The Group's joint venture arrangement with SolarWorld stated above gave it the right, either alone or together with another party, to purchase the remaining 50% of the voting rights of DL for €30 million. In the event that the Group did not exercise this right prior to the termination date, SolarWorld had the right but not the obligation to purchase the Group's 50% interest for €1.

On 14 February 2020, Bacanora Lithium Plc and the nominated administrator of SolarWorld, signed a second supplemental agreement which agreed that the above options were cancelled.

6  Assets held for sale

On 30 June 2020, the Board of Directors committed to pursue a plan of selling the DL investment and associated assets/liabilities into a separate vehicle. As a result, management has assessed that the investment in DL qualifies as part of a disposal group by meeting the following conditions:

-  The assets/liabilities available for immediate sale

-  The appropriate level of management is committed to a plan to sell the disposal group

-  It is unlikely that significant changes to the plan will be made or that the plan will be withdrawn

-  An active programme to locate a buyer was initiated

-  The disposal group was being marketed at a reasonable price in relation to its fair value, and

-  A sale is expected to complete within 12 months from the date of classification.

As a result, the DL investment has been reclassified to held to sale and remeasured at lower of carrying value or fair value less costs to sell in the Interim Consolidated Statement of Financial Position as at 30 June 2020, being its fair value less costs to sell of US$3,825,276, per the table below:

In US$

30 June 2020

Investment carrying value

 9,855,077

Impairment loss on fair value on investment

(6,029,801)

Asset held for sale carrying value

 3,825,276

 

In addition, within cash and cash equivalents is US$1.7 million which will be used to settle the second supplemental commitment under the JV with SolarWorld and to pay for a portion of the transaction costs.

An impairment loss of US$6,029,801 has been recognised on the remeasurement of the investment in DL to fair value less costs to sell and is included in loss on discontinued operation in the Interim Consolidated Statement of Comprehensive Income. The investment belonged to the German segment disclosed in Note 16. The investment was valued using a level 3 valuation technique where market data has been analysed and estimated, in order to estimate the expected sale price of the investment.

The following expenses have been included in loss on discontinued operation in the Interim Consolidated Statement of Comprehensive Income in the six month period ended 30 June 2020:

In US$

30 June 2020

31 December 2019

Deutsche Lithium investment loss

(55,111)

(80,887)

Impairment loss on fair value on investment

(6,029,801)

-

Total

(6,084,912)

(80,887)

 

The following cash flows have been included in the Interim Consolidated Statement of Cash Flows in the six month period ended 30 June 2020:

In US$

30 June 2020

31 December 2019

Cash flows from operating activities

 

 

Adjustments to the loss for the period:

 

 

Deutsche Lithium investment loss

 55,111

 80,887

Impairment loss on fair value on investment

 6,029,801

-

Total

 6,084,912

 80,887

 

Subsequently, the Company announced the proposed acquisition of Bacanora's 50% shareholding of DL by AIM-listed Erris Resources Plc ("Erris").  Bacanora will contribute its 50% investment in DL and €1.35 million cash. This cash will be used to settle the commitment under the second supplemental joint venture agreement with SolarWorld and to pay for a portion of the transaction costs. Erris will contribute its remaining cash and its Irish zinc and Swedish gold assets. In exchange, Bacanora will receive 90,619,170 shares (70%) in the enlarged Erris and a net profit royalty. The acquisition constitutes a reverse takeover under AIM rules and is subject to Erris's shareholder approval. The percentage ownership will reduce as Erris will be raising additional funds as part of the process in order to accelerate the further development of the Zinnwald Lithium Project.

7  Property, plant and equipment

a)  Sonora Lithium Project

The Group owns ten contiguous mineral concessions in Sonora, Mexico. Seven of these ten concessions form the "Sonora Lithium Project" covered by the technical Feasibility Study released in January 2018.

Group company owner

Concession name

Group ownership

MSB

La Ventana

77.5%

MSB

La Ventana 1

77.5%

Mexilit

El Sauz

54.25%

Mexilit

El Sauz 1

54.25%

Mexilit

El Sauz 2

54.25%

Mexilit

Fleur

54.25%

Mexilit

Fleur 1

54.25%

 

As previously reported to shareholders, Bacanora is challenging the validity of the previously reported 3% royalty over the MSB concessions within the Sonora Lithium Project, payable to the Orr-Ewing Estate, and is seeking a judgment of the Court in Alberta declaring such royalty invalid. The basis of Bacanora Minerals Ltd claim is that the royalty was originally granted based on a negligent or fraudulent misrepresentation by Mr. Orr-Ewing that he held a pre-existing royalty granted prior to the acquisition of the MSB concessions by Bacanora Minerals Ltd. The Company engaged in voluntary, independent mediation in early 2019, but was unable to reach an agreement with the Estate's advisers. The Estate applied for a Summary Trial of the action in December 2019. In February 2020, the Alberta Court decided to hear only the preliminary issue of whether the action is limitation barred. The Court's original schedule was that this hearing was to be in May 2020, but this date was cancelled as the impact of Covid-19 effectively closed down the Alberta Court system. As at this time, the Court has not set a new date for the hearing. Otherwise, both sides continue to provide evidence as part of the process. The Company has at all times taken a conservative approach to the treatment of the purported royalty and included it fully in the financial model for the Feasibility Study published in 2018, as well as all financial projections to investors and debt funding partners.

 

The carrying value of Property, plant and equipment as at 30 June 2020 is set out below:

 

 

 

Cost (US$)

Evaluated mineral property

Land

Buildings

Plant and machinery

Office furniture and equipment

Transportation

Total

30 June 2019

 25,401,154

 3,035,000

 840,472

 737,266

 435,697

 120,734

 30,570,323

Additions

 739,076

-

-

-

-

-

 739,076

Disposals

-

-

-

-

-

-

-

31 December 2019

 26,140,230

 3,035,000

 840,472

 737,266

 435,697

 120,734

 31,309,399

Additions

 1,387,722

-

-

-

 6,104

-

 1,393,826

Disposals

-

-

-

-

-

-

-

 27,527,952

 3,035,000

 840,472

 737,266

 441,801

 120,734

 32,703,225

 

 

 

 

 

 

 

 

Depreciation

 

 

 

 

 

 

 

30 June 2019

-

-

 189,536

 331,987

 126,831

 115,856

 764,210

Charge for the period

-

-

 18,665

 46,417

 34,049

 2,418

 101,549

Disposals

-

-

-

-

-

-

-

31 December 2019

-

-

 208,201

 378,404

 160,880

 118,274

 865,759

Charge for the period

-

-

 21,755

 37,432

 34,578

 2,460

 96,225

Disposals

-

-

-

-

-

-

-

-

-

 229,956

 415,836

 195,458

 120,734

 961,984

 

 

 

 

 

 

 

 

Net Book Value

 

 

 

 

 

 

 

30 June 2019

 25,401,154

 3,035,000

 650,936

 405,279

 308,866

 4,878

 29,806,113

31 December 2019

 26,140,230

 3,035,000

 632,271

 358,862

 274,817

 2,460

 30,443,640

 27,527,952

 3,035,000

 610,516

 321,430

 246,343

-

 31,741,241

 

 

 

8  Borrowings

On 3 July 2018, the Group entered into a US$150 million senior debt facility with RK Mine Finance ("RK"), a specialist in the provision of senior debt capital to mining companies, for the development of Stage 1 of the Sonora Lithium Project in Mexico.

The Facility is structured as two separate Eurobonds, listed in Jersey: 

Primary bond: US$150 million nominal amount secured notes issued at a purchase price of US$138 million with a 6-year term and bearing an interest rate of three months USD LIBOR + 8% per annum based on a nominal amount of US$150 million but payable only on drawn down principal. The 3 month USD LIBOR rate has a 1% floor. Interest will be capitalised every three months for the first 24 months and thereafter interest will be paid every three months in cash starting in October 2020;

Second bond: US$56 million nominal amount, zero interest-bearing, secured notes issued at a purchase price of US$12 million with a 20-year term. The nominal amount is repayable by reference to monthly production of lithium at a rate of US$160 per tonne of lithium produced, with any remaining amount repayable at the end of the 20-year term.

The bonds may be drawn in three tranches of US$25 million, US$50 million and US$75 million, subject to certain conditions precedent. The first tranche was drawn down in July 2018. The conditions precedent to further drawdowns include but are not limited to: various matters in respect of the execution, registration and perfection of certain security, the granting of listing consent by The International Stock Exchange, a minimum of US$200 million equity funding raised, energy and engineering contracts executed, relevant permits obtained and security over offtake agreements. All drawdowns under the RK Facility will be pro-rata across the two Eurobond instruments. The loans can be voluntarily redeemed at any stage by repayment of the principal and any outstanding interest and early repayment charges.

RK holds a fixed charge security over the shares of various subsidiaries of the Group except for Bacanora Lithium Plc, Deutsche Lithium GmbH and Zinnwald Lithium Ltd. RK also holds a fixed charge security over certain bank accounts held by the relevant UK and Canadian holding companies and Mexican subsidiaries. RK holds a floating charge over Bacanora Lithium Plc's assets not covered by the fixed charge. RK holds fixed and floating charge over the assets of the relevant Mexican subsidiaries related to the Sonora Lithium Project.

The Facility has a debt covenant for the Group to maintain a minimum working capital balance of US$10 million measured monthly until 31 March 2020, after which it increased to US$15 million. Working capital for the purpose of the debt covenant is defined as current assets minus current liabilities, excluding assets and liabilities relating to the German assets and overdue VAT receivables. In addition, there are certain conditions precedent to the second drawdown to the debt facility, including but not limited to a minimum equity funding raise of US$200 million, the completion of certain operational permits and entering into direct agreement in relation to the offtake agreements.

The effective interest rate of the primary and secondary Eurobonds is 19.49% and 15.35% respectively, having reduced in the current period due to the significant reduction in US LIBOR rates.

The carrying value of the Group's borrowings at 30 June 2020 is as follows:

In US$

Interest rate

Maturity

30 June 2020

31 December 2019

Primary Eurobond

LIBOR + 8%

2024

 23,834,163

 21,607,156

Secondary Eurobond

Zero interest bearing

2038

 2,729,475

 2,444,454

Total non-current borrowings

 

 26,563,638

 24,051,610

 

The movement in the Group's borrowings in the six month period ended 30 June 2020 is as follows:

In US$

Primary Eurobond

Secondary Eurobond

Total

30 June 2019

 19,418,800

 2,203,367

 21,622,167

Primary Eurobond finance cost

 1,466,824

-

 1,466,824

Eurobond unwinding

 721,532

 241,087

 962,619

31 December 2019

 21,607,156

 2,444,454

 24,051,610

Primary Eurobond finance cost

 1,423,328

-

 1,423,328

Eurobond unwinding

 803,679

 285,021

 1,088,700

30 June 2020

 23,834,163

 2,729,475

 26,563,638

 

9  Financial warrants liability

The Company granted RK with 6 million warrants alongside the above Eurobonds. The warrants are exercisable over five years at an exercise price of a 20% premium to the 20-day VWAP determined on 3 July 2018, subject to normal anti-dilution provisions, cash settlement at the Company's option, and share exercise at either party's option. The warrants have been initially recorded, as a non-current liability, at their level 3 hierarchy fair value on 3 July 2018 of US$2.9 million and subsequently revalued at each reporting period, determined using the Black-Scholes pricing model with the following inputs.

The expected volatility has been determined by calculating the historical volatility of the Company's share price since listing. The term used in the model has been adjusted to reflect the period in which the warrants can be exercised.

 

30 June 2020

31 December 2019

Term 

3.01

3.50

Share Price (£)

0.22

0.35

Exercise Price (£)

0.99

0.99

Volatility

67.48%

65.06%

Risk Free rate

0.66%

1.92%

Valuation (US$)

 176,144

 587,315

 

10  General and administrative expenses

The Group's general and administrative expenses for the six month period ended 30 June 2020 include the following:

For the period ended

Six months ended

Six months ended

30 June 2020

31 December 2019

Management fees

 1,234,826

1,184,934

Legal and accounting fees

 700,780

992,063

Investor relations

 164,077

147,696

Travel and other expenses

 160,478

208,669

Office expenses

 103,005

138,844

Audit fee

 77,993

90,996

Total

 2,441,159

 2,763,202

 

11  Segmental information

The Group currently operates in two operating segments which includes the exploration and development of mineral properties in Mexico through the development of the Sonora mining concessions and the Group's corporate entities with head office located in London, UK. At 30 June 2020, the operating segment in Germany has been reclassified as a discontinued operation. Operating segments as per IFRS 8 are identified by management of the Group as those who, engage in business activities from which revenues may be earnt, whose operating results are regularly reviewed by the Group's management to make decisions about resources to be allocated to the operating segments and to assess its performance, and, for which discrete financial information is available. A summary of the identifiable assets, liabilities and net losses by operating segment are as follows:

 

30 June 2020 (In US$)

Mexico

Head Office

Germany

Consolidated

 

Continued operation

Continued operation

Discontinued operation

 

Current assets

 1,899,960

 44,301,786

 3,825,276

 50,027,022

Property, plant and equipment

 31,741,241

-

-

 31,741,241

Exploration and evaluation assets

 554,108

-

-

 554,108

Total assets

 34,195,309

 44,301,786

 3,825,276

 82,322,371

Current liabilities

 361,652

 802,144

-

 1,163,796

Borrowings

-

 26,563,638

-

 26,563,638

Warrant liability

-

 176,144

-

 176,144

Total liabilities

 361,652

 27,541,926

-

 27,903,578

Property, plant and equipment additions

 1,393,826

-

-

 1,393,826

Exploration and evaluation asset additions

 19,520

-

-

 19,520

 

 

For the period ended
30 June 2020 (In US$)

Mexico

Head Office

Germany

Consolidated

 

Continued operation

Continued operation

Discontinued operation

 

General and administrative expense

(453,895)

(1,987,264)

-

(2,441,159)

Depreciation

(96,225)

-

-

(96,225)

Share-based payment expense

-

(217,641)

-

(217,641)

Foreign exchange gain/(loss)

(103,503)

 9,189

-

(94,314)

Operating loss

(653,623)

(2,195,716)

-

(2,849,339)

Finance income

 3,265

 642,941

-

 646,206

Finance costs

-

(2,512,028)

-

(2,512,028)

Loss on held for sale operations (Note 7)

-

-

(6,084,912)

(6,084,912)

Segment loss for the period

(650,358)

(4,064,803)

(6,084,912)

(10,800,073)

 

 

31 December 2019 (In US$)

Mexico

Head Office

Germany

Consolidated

Current assets

 1,840,652

 48,840,320

-

 50,680,972

Property, plant and equipment

 30,443,640

-

-

 30,443,640

Exploration and evaluation assets

 534,588

-

-

 534,588

Investment in jointly controlled entity

-

-

 9,545,993

 9,545,993

Total assets

 32,818,880

 48,840,320

 9,545,993

 91,205,193

Current liabilities

 417,864

 1,033,482

 113,697

 1,565,043

Borrowings

-

 24,051,610

-

 24,051,610

Warrant liability

-

 587,315

-

 587,315

Total liabilities

 417,864

 25,672,407

 113,697

 26,203,968

Property, plant and equipment additions

 739,076

-

-

 739,076

Exploration and evaluation asset additions

 10,641

-

-

 10,641

 

For the period ended
31 December 2019 (In US$)

Mexico

Head Office

Germany

Consolidated

General and administrative expense

(432,753)

(2,330,449)

-

(2,763,202)

Depreciation

(101,549)

-

-

(101,549)

Share-based payment expense

-

(290,391)

-

(290,391)

Foreign exchange gain/(loss)

 345

(18,652)

-

(18,307)

Operating loss

(533,957)

(2,639,492)

-

(3,173,449)

Finance income

 18,962

 909,834

-

 928,796

Finance costs

-

(2,429,443)

-

(2,429,443)

Joint venture investment loss

-

-

(80,887)

(80,887)

Revaluation of derivative asset

-

-

(191,066)

(191,066)

Segment loss for the period

(514,995)

(4,159,101)

(271,953)

(4,946,049)

 

12  Subsequent events

Subsequently, the Company announced the proposed acquisition of Bacanora's 50% shareholding of DL by AIM-listed Erris Resources Plc ("Erris").  Bacanora will contribute its 50% investment in DL and €1.35 million cash. This cash will be used to settle the commitment under the second supplemental joint venture agreement with SolarWorld and to pay for a portion of the transaction costs. Erris will contribute its remaining cash and its Irish zinc and Swedish gold assets. In exchange, Bacanora will receive 90,619,170 shares (70%) in the enlarged Erris and a net profit royalty. The acquisition constitutes a reverse takeover under AIM rules and is subject to Erris's shareholder approval. The percentage ownership will reduce as Erris will be raising additional funds as part of the process in order to accelerate the further development of the Zinnwald Lithium Project.

 

 

[5] https://www.carbonbrief.org/wind-and-solar-are-30-50-cheaper-than-thought-admits-uk-government

[7] https://www.energy-storage.news/news/flywheel-lithium-battery-hybrid-energy-storage-system-joining-dutch-grid-se

[11] https://www.woodmac.com/press-releases/323-million-electric-vehicles-will-be-on-the-roads-by-2040/

[15] https://www.mining-journal.com/covid-19/news/1386958/mexico-mining-to-resume

[22] "What's next for Lithium? - Commodity and Equities View" Citi commodity research paper 26 June 2020.

[28] "What's next for Lithium? - Commodity and Equities View" Citi commodity research paper 26 June 2020.

[31] https://www.orocobre.com/wp/?mdocs-file=7527

[32]https://www.reuters.com/article/us-chile-lithium-sqm/chile-lithium-producer-sqm-posts-record-sales-profits-plagued-by-low-prices-idUSKBN25G140

[40] https://www.autocar.co.uk/car-news/industry/2035-combustion-engine-ban-last-chance-have-your-say#:~:text=Today%20is%20the%20last%20day,at%20the%20end%20of%20May.

[43] https://www.bloomberg.com/news/articles/2020-08-13/europe-s-electric-car-subsidies-has-market-exceeding-china-sales

[47] https://insideevs.com/news/433334/sk-innovation-construction-2nd-us-battery-plant/

[49]https://roskill.com/market-report/lithium/

[53] https://www.bloomberg.com/news/articles/2020-06-07/a-million-mile-battery-from-china-could-power-your-electric-car

[58] https://oilprice.com/Metals/Commodities/The-World-Is-In-Desperate-Need-Of-More-Lithium.html

[59] https://roskill.com/market-report/lithium/

[60]"What's next for Lithium? - Commodity and Equities View" Citi commodity research paper 26 June 2020.

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