Bacanora Lithium Plc
Annual Report and Financial Statements
Six month period ended 31 December 2019
Company Directory
Board of Directors
Chief Financial Officer
Company Secretary
Registered Office
Website
Lead Broker
Joint Broker
Nominated Advisers
Lawyers
Auditors
Registered Number
Mark Hohnen (Chairman)
Peter Secker (CEO)
Eileen Carr
Jamie Strauss
Andres Antonius
Junichi Tomono
Wang Xiaoshen (Appointed – 18 October 2019)
Derek Batorowski (Resigned – 12 September 2019)
Janet Blas
Cherif Rifaat
4 More London
Riverside
London
SE1 2AU
www.bacanoralithium.com
Citigroup Global Markets
33 Canada Square
London, UK
E14 5LB
Canaccord Genuity
88 Wood Street
London
EC2V 7QR
Cairn Financial Advisers LLP
Cheyne House
Crown Court
62–63 Cheapside
London
EC2V 6AX
Gowling WLG (UK) LLP
4 More London
Riverside
London
SE1 2AU
BDO LLP
55 Baker St
London
W1U 7EU
11189628
1
Contents
Business Review ...................................................................................................................... 3
Strategic Report ...................................................................................................................... 6
Governance ........................................................................................................................... 36
Independent Auditor’s Report to the members of Bacanora Lithium Plc .................................................... 54
Consolidated Statement of Financial Position ................................................................................... 58
Consolidated Statement of Comprehensive Income ............................................................................ 59
Consolidated Statement of Changes in Equity ................................................................................... 60
Consolidated Statement of Cash Flows ........................................................................................... 61
Notes to the Consolidated Financial Statements................................................................................ 62
Parent Company Statement of Financial Position............................................................................... 96
Parent Company Statement of Changes in Equity .............................................................................. 97
Parent Company Statement of Cash Flows ....................................................................................... 98
Notes to the Parent Company Financial Statements ........................................................................... 99
2
Business Review
Highlights – for the six months ended 31 December 2019 and subsequent events:
Corporate – significant progress made in securing funding package for flagship Sonora Lithium Project
(“Sonora”) in Mexico
•
In October 2019, Bacanora concluded an Investment and Offtake Agreement with Ganfeng Lithium Co., Ltd.
(“Ganfeng”), the world’s largest lithium metals producer in terms of production capacity and the world’s
third largest lithium compounds producer. Having obtained the government approvals:
o Ganfeng acquired 29.99% of Bacanora and 22.5% of Sonora Lithium Ltd (“SLL”), the holding company
for the Sonora Lithium Project, for £14,400,091 and £7,563,649 respectively. Ganfeng retains pre-
emption rights to maintain its shareholding of Bacanora.
o Mr. Wang Xiaoshen, the Deputy Chairman of Ganfeng, was appointed to the Board of Bacanora.
o A long-term offtake agreement was signed with Ganfeng for 50% of Stage 1 production at the Sonora
Lithium Project and up to 75% during Stage 2 production, both at a market-based price per tonne.
o Ganfeng initiated a review of the engineering design and capital costs of Stage 1 with a view to
optimising capital costs and timetable to construction.
•
In November 2019, Bacanora raised £7,729,150 via a placing of ordinary shares with its longest-standing
institutional shareholder, M&G Plc (“M&G”), increasing M&G’s strategic holding in Bacanora to 19.9%.
• The Company retains its US$150 million conditional senior debt facility with RK Mine Finance, signed in July
2018, to finance the development of the Sonora Lithium Project. US$125 million remains to be drawn.
Sonora – work focused on ensuring project construction may commence after the financing package is
completed.
• Work to complete the front-end engineering design (“FEED”) has continued throughout the period, with
Ganfeng undertaking a review of the hydrometallurgical engineering.
• Our brokers, Citigroup Global Markets (“Citi”) and Canaccord Genuity (“Canaccord”), continue to progress
work to secure full development capital for Stage 1 construction.
Zinnwald Lithium Project, Germany (“Zinnwald”) – Bacanora completes deal securing the future of the Joint
venture agreement
• 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 the Bacanora not exercising its option. Bacanora retains its right of
first refusal to purchase the remaining 50% currently held by Solarworld. Under the agreement Bacanora will
provide €1.35 million funding to DL over the next two years.
3
Chairman Statement
Bacanora remains focused on its objective to advance the development of the Sonora Project in Mexico with the
ultimate objective of becoming a producer of high value lithium products for many years to come. The period
under review has been critical for Bacanora and has resulted in a number of significant developments that continue
to add incremental shareholder value as we work towards completing the financing to support the construction at
Sonora.
The Company celebrated a number of milestone achievements during the six month period with Ganfeng becoming
a strategic investor and project partner in Sonora, and long-standing cornerstone shareholder, M&G, increasing its
shareholding in the Company to 19.9%. These serve to highlight the compelling investment case behind the
Company: Sonora’s high-quality product, robust economics, a blue-chip shareholder base, a management team with
a proven track record of delivery, a supportive jurisdiction, and excellent access to fast-growing end markets such
as electric vehicles and energy storage. Furthermore, Sonora is expected to be one of the lowest cost operators in
the industry at around US$4,000 per tonne production cost. This low-cost profile is a significant advantage at a time
when falling spodumene prices are putting Australian hard rock producers’ higher cost production models under
increasing pressure.
Securing Ganfeng, one of the world’s largest lithium producers, in October 2019 as a 29.9% cornerstone investor as
well as a 22.5% direct investor in Sonora, not only represents a major step towards securing development capital
but also provides us with a highly credible joint-venture development partner with significant development and
operational expertise. Furthermore, by signing an offtake agreement with Ganfeng, 100% of Stage 1 production at
Sonora is now covered under two guaranteed offtake agreements with Hanwa Co., Ltd (“Hanwa”) and now
Ganfeng. These key milestone achievements follow the Sonora Feasibility Study for the Project which was
completed in January 2018 along with the US$150 million RK debt financing finalised in July 2018. The
achievements move us closer to construction and production at Sonora.
Already, Ganfeng has embarked on metallurgical flow sheet optimisation and FEED work in China in tandem with
work being carried out by GR Engineering Services (“GRES”). Ganfeng continues to incorporate the Sonora Project
in its ongoing work schedules being undertaken in China, Australia and Argentina as part of a series of planned
manufacturing capacity expansions to capitalise on the growing demand for lithium and to solidify its leading
position in the lithium products industry. In China, work continues to increase the capacity of Ganfeng’s battery-
grade lithium carbonate production line in Ningdu County, Jiangxi Province which has reached its 17,500 tonnes per
annum designed capacity and achieved its 2019 production targets. In addition, Ganfeng intends to build a battery-
grade lithium hydroxide production line with a 50,000 tonnes per annum capacity at Basic Lithium Plant in Xinyu
with commissioning targeted in 2020. These initiatives will support Ganfeng’s target of 200,000 tonnes per annum
lithium carbonate equivalent production capacity by 2025 which would represent 20% of forecast world demand,
although final capacity expansion will be based on changes in, and assessment of, future price fundamentals for
lithium products.
Both Bacanora and Ganfeng are also developing testwork programmes to evaluate the potential to produce other
high value lithium products at Sonora in addition to battery-grade lithium carbonate. The results of this work will
be reviewed over the next few months.
In November 2019, the Company raised approximately US$10 million from one of its long-standing cornerstone
shareholders, M&G, increasing its strategic holding in Bacanora to 19.9%. We believe this represents an
endorsement of Sonora's potential to become a leading supplier of high-value lithium products to fast-growing
industries such as electric vehicles and energy storage.
The price of lithium spodumene concentrates continued to fall during the period as significant oversupply from
Australian concentrate producers continued to build overcapacity in West Australia and stockpile surplus in China.
As a result, we have seen substantial restructuring within the Australian concentrate industry with some mines
placed on care and maintenance and production capacities at some mines being reduced by as much as 60%. In
addition, proposed expansion plans at downstream lithium plants in West Australia were downsized or halted.
The Australian spodumene oversupply to Chinese end users impacted downstream lithium prices of lithium
carbonate and hydroxide in China. The price reduction in China exceeded corresponding reductions in Japan and
Korea. The demand for battery-grade lithium products for the electric vehicle industry however, continued to be
4
supported by milestone vehicle production from Tesla, Volkswagen and other automotive manufacturers. Ongoing
environmental legislation and the introduction of affordable family models of EVs continue to focus attention on
the growth of the EV industry. The spodumene oversupply situation continues to support Bacanora’s strategy to
focus on low cost integrated facilities for downstream lithium production of value-added products in Sonora. The
ongoing Coronavirus outbreak is having an impact on both Chinese and World economies, and we understand that
this will have a knock-on effect on the lithium market and impacting our project schedule.
As demand for lithium is forecast to triple by 2025, Bacanora remains in a strong position to capitalise on this
thanks to having one of the world’s largest lithium deposits and the financial backing of blue-chip partners.
I sincerely thank the Board, our management team and all our employees for their continued dedication and hard
work during this major phase of development. I also welcome the appointment of Mr Wang Xiaoshen to our Board
and acknowledge the service of Derek Batorowski, who stood down as Non-Executive Director in September 2019.
Lastly, I would like to thank all our shareholders for their continued support, I look forward to providing updates on
our progress.
Mark Hohnen, Chairman
28 February 2020
5
Strategic Report
Business Model
Our business model is to create shareholder value by identifying and investing in undeveloped lithium assets. The
Company is achieving this through its investments in two key projects, Sonora and Zinnwald Lithium Projects in
Mexico and Germany respectively.
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.
Bacanora has 10 licences covering almost 100,000 hectares in Sonora, of which 7 licences form part of the SFS. The
Company has invested over US$31 million on the development of Sonora including a pilot plant in Hermosillo, which
has produced high quality battery-grade (>99.5%) lithium carbonate during ongoing test work conducted over the
last 4 years.
The Company also holds 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). The Company published the Zinnwald Feasibility Study (“ZFS”) in June
2019, that showed a pre-tax NPV of €428 million and IRR of 27%. The Company is currently evaluating its options to
complete the financing of the project as a whole, which may include the spinning-out of the project into a separate
company.
Our approach to delivering this core business model is predicated on the following:
1. A world class lithium resource containing approximately 9 million tonnes of lithium carbonate
2. Experienced Board and operational leadership team.
3. Over 4 years of pilot plant operations in Mexico.
4. Access to strong technical skills either from our in-house team or network of advisers.
5. Emphasis on building strong local organisations and skill sets.
6. Commitment to excellence in Health, Safety, Environment and Community matters (“HSEC”).
7. Long-term lithium offtake agreements with key shareholders Ganfeng and Hanwa.
8. Disciplined capital management and careful handling of Company resources.
Strategy
Bacanora intends to become an international lithium production company with a portfolio of global projects.
The Board’s strategy to achieve this goal involves several steps:
1. Find world class projects that can address the rapidly increasing demand for lithium for electric vehicles
and energy storage industries.
•
Sonora has identified its NI 43-101 Measured, Indicated and Inferred Resource of 8.8 million tonnes of
LCE resources suitable for open pit mining to ultimately produce battery-grade lithium carbonate.
• Zinnwald has identified its NI 43-101 compliant Measured and Indicated Resource of 124,974 tonnes of
contained lithium, which is expected to supply battery-grade lithium fluoride to support local chemical
industry requirements.
2. Complete feasibility studies to evaluate and quantify the economic potential of its projects.
•
•
In January 2018, Bacanora published the SFS on a small part of the concessions in Sonora that showed a
pre-tax NPV of US$1.25 billion, 26% IRR and an operating cost of around US$4,000 per tonne.
In June 2019, Bacanora published the ZFS that showed a pre-tax NPV of €428 million and 27.4% IRR over
a 30 year mine plan equating to less than 50% of the current identified mineral resources.
3. Complete the detailed design of the mines and processing plants for Sonora and Zinnwald.
6
• Bacanora is finalising its FEED for Sonora. GRES is reviewing the process guarantee proposals as part of
their FEED and EPC work. Furthermore, Ganfeng will complete a review within the next 6 months, of the
engineering design and capital costs of Stage 1 with a view to optimising costs and timetable to
construction.
• Bacanora is currently exploring funding options to further develop the projects.
4. Validate the quality of its product by securing high quality offtake partners.
• Bacanora has used its pilot plant, which has been in operation for several years to provide samples of
its lithium carbonate to prospective customers, predominantly in Japan and China. This has resulted in
Hanwa, one of Japan’s largest metals trading houses, signing a 10 year offtake agreement for 50% of
Stage 1 of production and investing in the Company directly. In October 2019, the Company completed
its offtake agreement with Ganfeng, the world’s largest lithium metals producer by production capacity
and the world’s third largest lithium compounds producer, for 50% of Stage 1 production and up to 75%
of Stage 2 production, as well as investment in the Company at both a Group level and project level.
• The Company has commenced discussions with potential offtake partners in Germany for the outputs
from Zinnwald.
5. Complete the funding required to construct its projects.
• Bacanora has secured US$150.0 million of debt funding from RK Mine Finance and has a commitment for
an additional US$25.0 million of equity finance from Hanwa. Ganfeng has invested an initial £22.0
million for 29.99% of the Company and 22.5% of the Sonora project at the project level with the option
to acquire up to 50% at the project level. M&G have invested a further £7.7 million to increase their
holding to 19.9% of the Company. The Company intends to raise the remaining funding requirements
required to construct the Stage 1 mining and processing operation in Sonora.
• Bacanora is in discussions with interested strategic third parties in relation to funding the construction
of the Zinnwald Lithium Project, which may include a separate listing of DL.
6. Construction and commissioning of its lithium plants
• Bacanora is finalising its FEED work for its Stage 1 17,500 tpa lithium carbonate plant. The Company
will also work with Ganfeng on further optimization and cost reductions over the next 6 months. The
Company currently envisages Engineering, Procurement and Construction (“EPC”) style contracts for
the construction of the processing plant.
7. DL intends to commence the detailed design engineering phase of the Zinnwald Lithium Project, during
which a detailed schedule for the project development will be completed.
8. Hiring of a team with the expertise to deliver the projects into production.
• As at 31 December 2019, the Group had over 30 employees and contractors. Bacanora is led by CEO
Peter Secker who has built and operated 5 greenfield mining projects over the past 35 years.
Operations
Bacanora is currently at the exploration and development stage of its two main projects and will only move into
construction on the completion of its next stage of equity fund raising, completion of FEED and Board approval. In
terms of how the Company expects its main operations to evolve, this will include inter alia:
1. Property, plant and equipment
• The Company’s property, plant and equipment comprise primarily the pilot plant in Hermosillo, land
covering the mining concessions, and office furniture and IT equipment in Mexico and the UK.
• As the Sonora and Zinnwald Lithium Projects move into construction and production, they will have the
property, plant and equipment as determined by completion of the FEED.
2. Maintenance
• At Sonora, Bacanora’s existing staff maintain the pilot plant and have had no material issues. They
continue to produce samples of lithium products including lithium carbonate, lithium hydroxide, lithium
sulphate and roasted concentrate. It is envisaged that the construction of the three main portions of
the processing plant will be done under EPC contracts, which will include all relevant inspections,
guaranteed cost to complete and process guarantees. Once construction is complete, the Company will
maintain and operate its facilities.
3. Delivery and transportation
7
• The final lithium products will be sold on an Free On Board basis to its offtake partners and will be
transported by road from the processing plant to the port of Guaymas at which point ownership will
pass to Hanwa and Ganfeng, who will then ship the product by sea to their end customers.
4. Sales and marketing
• The Company intends to sell the majority (if not all) of its lithium carbonate production to its offtake
partners, who will sell the product on to end-users. This is in line with the wider industry requirements
for battery-grade lithium products, where users typically require long-term supply contracts. The
Company will work in conjunction with its offtake partners to assist them in this process but does not
envisage a dedicated internal sales and marketing function.
5. Suppliers and contractors
• At Sonora, the main suppliers of its raw materials, such as soda ash and liquified natural gas (“LNG”),
will be local Mexican and US suppliers and the Group is in discussions to secure long-term supply
agreements. Energy will primarily come from the consumption of gas, which will be initially supplied by
trucked LNG, and then via a gas pipeline as outlined in the SFS.
6. R&D
• The Company currently has no patents registered on its production techniques and intends to use a
well-established sulphate roast processing route.
7. Employees
• As at 31 December 2019, the Group employed 19 people in Mexico, including contractors. There are 12
people at the Company’s head office in the UK, including the Board.
8. Environmental, occupational, health and safety
• The Group monitors its HSEC obligations as a basic KPI (see below). It also has a number of Corporate
Social Responsibility Policies, which are published on the Company’s website at
https://www.bacanoralithium.com/investor-relations/csr-documents/. As projects move into its
construction and production phases, the appropriate local level policies will also be put in place.
Key Challenges
Since January 2018, Bacanora Lithium has delivered two bankable feasibility studies with a combined independent
NPV of more than US$1.7 billion. The Company has successfully negotiated a US$150 million debt facility from RK
Mine Finance. The business also secured one of the world’s biggest lithium producers in Ganfeng as a cornerstone
equity investor with a further vote of confidence from M&G with their investment in November 2019. Offtake
agreements with Ganfeng and Hanwa have been secured, subject to conditions and full project financing for
Sonora. However, the Sonora Lithium Project is dependent upon significant additional funding being available to
fund capital expenditure and working capital requirements. There is no assurance that any such funds will be
available. Bacanora is working with Ganfeng to optimise the capital costs required for Stage 1 and plans to re-
engage with the equity markets in order to raise sufficient capital. Similarly, funding will be required to develop
Zinnwald, although the capital requirement is lower.
The production of battery-grade lithium products from the Sonora Lithium Project will be from open pit mining
operations feeding a three-part chemical processing plant using the conventional sulphate route. The Company has
operated a lithium pilot plant in Sonora for the past 4 years to demonstrate the viability of Sonora. Sonora’s
processing plant will require the supply of both gas and high voltage electricity infrastructure to the site. The long-
term plan is for a third-party service provider to provide energy supply via a cogeneration plant using natural gas as
the fuel from a pipeline that they will construct. We are currently in discussion with a number of suppliers for this.
Due to the long lead time for construction of a gas pipeline and potential delays in construction and permitting, an
early stage alternative approach includes trucking liquified natural gas to site.
In response to the attractive demand side fundamentals of the lithium market, lithium producers have responded
with new production volumes coming online leading to oversupply in the market. Oversupply has had a downward
pressure on prices in 2019. The lower prices have caused existing suppliers to roll back production and postpone
expansion plans. The delicate balance of the supply and demand fundamentals currently, and over the next 5
years, creates pricing uncertainty. Please refer to the Operational Review section for more detailed analysis of
market dynamics.
8
Principal Risks and Uncertainties
The Board is responsible for putting in place a system to manage risk and implement internal control. The Board
has considered mechanisms by which the business and the financial risks facing the Group are managed and
reported to the Board. The principal business and financial risks have been identified and control procedures
implemented. The Board acknowledges it has responsibility for reviewing the effectiveness of the systems that are
in place to manage risk.
The Board has delegated certain authorities of risk management to the Audit Committee, which has its own formal
terms of reference. The Committee meets at least bi-annually to coincide with the annual audit and the interim
Financial Statements and to assess the effectiveness of the Group’s system of internal controls. The Audit
Committee is chaired by Eileen Carr, a qualified accountant, and comprises only independent non-executive
Directors.
a Financial controls
The Company has an established framework of internal financial controls, the effectiveness of which is regularly
reviewed by the senior management team, the Audit Committee and the Board in light of an ongoing assessment of
significant risks facing the Company.
• The Board is responsible for reviewing and approving overall Company strategy, approving budgets and
plans. Monthly results and variances from plans and forecasts are reported to the Board.
• The Audit Committee assists the Board in discharging its duties regarding the financial statements,
accounting policies and the maintenance of proper internal business, and operational and financial
controls.
• There are procedures for budgeting and planning, for monitoring and reporting to the Board business
performance against those budgets and plans, and for forecasting expected performance over the
remainder of the financial period. These cover cash flows, capital expenditures and balance sheets.
b
Internal controls
The Board is responsible for ensuring that a sound system of internal control exists to safeguard shareholders’
interests and the Group’s assets. It is responsible for the regular review of the effectiveness of the systems of
internal control. Internal controls are designed to manage rather than eliminate risk as even the most effective
system cannot provide assurance that each and every risk, present and future, has been addressed. The key
features of the system that operated during the period are described below.
• Regular Board meetings to consider the schedule of matters reserved for Directors’ consideration;
• A risk management process;
• An established organisation with clearly defined lines of responsibility and delegation of authority;
• Appointment of staff of the necessary calibre to fulfil their allotted responsibilities;
• Comprehensive budgets, forecasts and business plans, approved by the Board, reviewed on a regular basis,
with performance monitored against them and explanations obtained for material variances;
• An Audit Committee of the Board considers significant financial control matters as appropriate;
• Documented whistle-blowing policies and procedures.
c Corporate risk register
The Group’s internal risk identification and management process is undertaken by the senior management team
who prepares and reviews the risk register for the Group. The risk register details specific risks to the Group and
with some mitigating actions to manage these risks and contains a “traffic-light” management system for ongoing
review. The risk register is reported to the Audit Committee, and specific risk items may also be discussed at Board
level as appropriate.
While the list is not exhaustive, it is derived from the Group’s detailed risk register, which was disclosed in full
detail in the Company’s 2018 Appendix to the AIM Schedule 1 announcement.
9
The following risks are those that the Group considers could have the most serious adverse effect on its
performance and reputation.
Risk 1: Successful development of the Sonora and Zinnwald Lithium Projects
Development of mineral properties involves a high degree of risk and only a few properties that are explored are
ultimately developed into producing mines. The commercial viability of a mineral deposit is dependent upon a
number of factors which are beyond the Group's control, including but not limited to the following:
• obtain sufficient financing for the development of the Projects (see Risk 2 below);
inability to attract sufficient numbers of qualified workers (see Risk 4 below);
•
change in environmental compliance requirements (see Risk 5 below);
•
• delays in obtaining or an inability to obtain, or conditions imposed by, regulatory approvals (see Risk 5
below);
a reduction in the market price of lithium (see Risk 6 below);
lack of availability of infrastructure capacity (see Risk 7 below);
•
•
• non-performance by third party contractors;
• unfavourable weather conditions;
contractor or operator errors;
•
access to and increased costs of inputs, including plant, material, energy and labour costs;
•
lack of availability of mining and processing equipment and other exploration services;
•
catastrophic events such as fires, storms or explosions;
•
the breakdown or failure of equipment or processes;
•
construction, procurement and/or performance of the processing plant and ancillary operations falling
•
below expected levels of output or efficiency;
violation of permit requirements;
the lack of progress with respect to the development of appropriate extraction technologies;
the political stability of Mexico;
•
•
•
• disruption caused by external groups e.g. cartel and demonstrators;
•
•
taxes and imposed royalties; and
shortage of required inputs.
There are numerous activities that need to be completed in order to successfully commence production at Sonora
and Zinnwald including, without limitation: optimising the mine plan; recruiting and training personnel; negotiating
contracts for transportation and for the sale of products; updating, renewing and obtaining, as required, all
necessary permits, including, without limitation, environmental permits; and handling any other infrastructure
issues. There is no certainty that the Group will be able to recruit and train personnel, have available funds to
finance construction and development activities, avoid potential increases in costs, negotiate transportation or
product sales agreements on terms that would be acceptable to the Group, or that the Group will be able to
update, renew and obtain all necessary permits to start or to continue to operate the Projects. Most of these
activities require significant lead times, and the Group will be required to manage and advance these activities
concurrently in order to begin production. A failure or delay in the completion of any one of these activities may
delay production, possibly indefinitely, and would have a material adverse effect on the Group’s business,
prospects, financial position, results of operations and cash flows.
Mitigation:
The Company completed the SFS in January 2018. Since that date the Company has secured Ganfeng, the world’s
third largest lithium producer, as the project’s cornerstone investor, obtained additional equity investment from
one of its long standing institutional shareholder, M&G, acquired additional land, secured water permits, made key
internal hires, concluded offtake contracts with Ganfeng and Hanwa, secured debt financing and is in final stages
of its FEED work. The Company is also working towards completing the full financing package to be able to start
construction.
For Zinnwald, the ZFS was concluded in June 2019. This mitigates some of the above risks to a degree, e.g. analysis
of infrastructure requirements and availability thereof.
Trend:
10
Reduction in the risk profile due to the investments by Ganfeng who bring financing as well as design and
construction expertise to the project, de-risking the project. There have been no significant developments which
increase the above risks.
Risk 2: Financing risk
Additional funding will be required in order to complete the proposed future exploration and development plans on
the projects. There is no assurance that any such funds will be available. Failure to obtain additional financing, on
a timely basis, could cause the Group to reduce or delay its proposed operations. The financing currently available
to the Group for its projects is in a large proportion derived from the issuance of equity. There is no assurance that
it will be able to obtain adequate financing in the future or that such financing will be on terms advantageous to
the Company. The second and third tranches of RK debt have conditions precedent attached, which must be
fulfilled prior to being able to draw on those funds. The raising of debt has introduced financial covenants to the
business that must be maintained to avoid defaulting on the loan.
Funding will be required for the €159 million capital cost to develop Zinnwald, as the feasibility study forecasts.
Mitigation:
Bacanora has secured US$150.0 million of conditional debt funding from RK Mine Finance in 2018. In October 2019,
Ganfeng acquired 29.99% of the Company and 22.5% at the project level for a total of £22.0 million while M&G Plc
has invested £7.7 million in the Company in November 2019. The business also has a commitment for an additional
US$25.0 million of equity finance from Hanwa. All of these reduce the Company’s financing risk. The Company is
currently finalising its plans to secure the balance of its funding requirements.
We are actively seeking to secure strategic partners to help fund the €159 million capital cost to develop Zinnwald.
As part of this process, we are actively considering a public listing for Deutsche Lithium GmbH (“DL”), our 50%-
owned subsidiary that holds Zinnwald.
Trend:
Despite the Company raising significant debt financing and securing funding from cornerstone equity partners,
there is still considerable financing risk due to the outstanding capital requirements to fully fund the Projects.
Risk 3: Reserve and resource estimates
The Group’s reported mineral reserves and resources are only estimates at this stage. Estimates of mineral reserves
and resources are uncertain and may not be representative. There are numerous uncertainties inherent in
estimating mineral reserves and resources, including factors beyond the control of the Group. The estimation of
mineral reserves and resources is a subjective process and the accuracy of any such estimate is a function of the
quality of available data and of engineering and geological interpretation and judgement. Results of drilling,
metallurgical testing, production, and exploration activities subsequent to the date of any estimate may justify
revision (up or down) of such estimates. The Company and the Directors cannot give any assurance that the
estimated mineral resources will be recovered if the Group proceeds to production or that they will be recovered
at the volume, grade and rates estimated.
Mitigation:
The Company engaged reputable third-party organisations to perform the competent persons report on the
feasibility of the operations in Mexico and Germany and confirm as far as possible the mineral resources and
reserves at Sonora which was published in January 2018 and at Zinnwald, which was published in June 2019.
Trend:
Since 30 June 2019, the risk of the mineral asset not being present in forecast quantities remains unchanged in
both projects.
Risk 4: Dependence on key personnel
The success of the Company, in common with other businesses of a similar size, will be highly dependent on the
expertise and experience of its Directors and senior management. The loss of any key personnel could harm the
business or cause delay in the plans of the Company while management time is directed at finding suitable
11
replacements. The future success of the Company is in part dependent upon its ability to identify, attract,
motivate and retain staff with the requisite expertise and experience. Although the Group has entered into
consulting arrangements with its key personnel to secure their services, some of the agreements are not subject to
any minimum notice periods and the Company cannot guarantee the retention of such key personnel. Should key
personnel leave, the Company’s business, prospects, financial condition or results of operations may be materially
adversely affected.
Mitigation:
The Company is migrating its key senior management team to full time employment contracts. The recruitment of
new staff and the development of all staff will enable more robust succession planning. Once funding has been
secured for the Project a recruitment programme will start, this will reduce reliance on the key members of staff.
Five out of twenty-four employees and contractors excluding the board are female (21%) at 31 December 2019.
Staffing levels reduced due to the reduced activity in the pilot plant. One of the seven Board members is female
(14%) at 31 December 2019.
Trend:
No change since 30 June 2019. There continues to be a reliance on key personnel.
Risk 5: Environmental impact and compliance
All phases of the Group’s operations in Mexico and Germany are subject to environmental regulation of their
respective jurisdiction. Environmental approvals and permits are currently, and may also in the future be, required
in connection with the Group’s operations. Environmental legislation is evolving in a manner that will require
stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent
environmental assessments of proposed projects and a heightened degree of responsibility for companies and their
officers, directors and employees. Compliance with environmental laws requires ongoing expenditure and
considerable capital commitments from the Company. Non-compliance may subject the Group to significant
penalties, including the suspension or revocation of its rights in respect of its concessions or assets, causing
operations to cease or be curtailed, or requiring corrective measures resulting in significant amounts of capital
expenditures, installation of additional equipment, or remedial actions. The Group may be required to compensate
those suffering loss or damage by reason of the mining activities and may have civil, administrative or criminal
fines or penalties imposed for violations of applicable environmental laws or regulations. There is no assurance that
existing or future environmental regulation will not materially adversely affect the Group’s business, financial
condition and results of operations.
During construction and in operation, the mine and processing plant will have an impact on the environment. These
impacts include but are not limited to:
• emissions to air (release of carbon dioxide gases from the burning of fossil fuels);
• dust emissions from the mine;
• disposal of mining overburden and solid waste from the plant;
• disposal of spent reagents, batteries, tyres and oils;
• process plant tailings;
• pit dewatering, water abstraction and discharge;
•
• disposal of human waste from camp.
relocation of vegetation, and;
Mitigation:
The Company has been granted all environmental and water permits it requires to date and has instituted
corporate and companywide environmental policies. The Company has dedicated staff who deal with Health,
Safety, Environment and the Community (“HSEC”) as well as applying for and maintaining all relevant permits. As
the Company moves towards construction of Sonora, the HSEC dedicated staff and local management team will also
be engaged with Environmental Social and Governance (“ESG”) objectives. Zinnwald will also be in compliance with
appropriate environmental law prior to commencement of each part of the project life cycle.
Trend:
12
The environmental risks have not changed since 30 June 2019.
Risk 6: Market forces of supply / demand and pricing fluctuations
Numerous factors beyond the Company’s control do and will continue to affect the marketability and price of
lithium products created by the Company. The Company intends to sell most or all of its production of battery-
grade lithium products to its offtake partners on long-term supply contracts for on-sale to battery manufacturers.
The market for these long-term supply contracts is opaque and not subject to any globally accepted or hedgeable
spot market price.
The price of these contracts will be largely dictated by the expected growth in demand for lithium-ion batteries in
conjunction with increased supply from other mines. Whilst growth in demand for lithium has been strong in recent
years primarily due to increased usage of electric vehicles and grid storage; there is no guarantee that this growth
will continue at the same rate. The Company competes on a supply basis with established competitors, who may be
able to increase their production to fill any supply shortfalls.
A material decline in prices could result in a reduction of the Company’s net production revenue and cash flows
from operations, which could in turn impact on profitability and borrowing capacity, and may have a material
adverse effect on the Company’s business, financial condition, results of operations and prospects. The economics
of producing lithium may change because of lower prices, which could result in reduced production of lithium.
Furthermore, reserve estimates and feasibility studies using different commodity prices than the prevailing market
price could result in material write-downs of the Company’s investment in its assets, increased amortisation,
reclamation and closure charges or even a reassessment of the feasibility of the Company’s lithium projects.
Downside price cannot currently be mitigated as no derivatives are currently available on the market.
Bacanora has entered into an offtake agreement with Ganfeng for 50% of the lithium produced at Sonora during
Stage 1 and 75% of the production during Stage 2. The Company also has an offtake agreement with Hanwa for the
remaining 50% of Stage 1 lithium production. The final pricing for both contracts is to be agreed on a quarterly
basis based on market price or any other mutually agreeable method. The Company is therefore exposed to the risk
of market fluctuations between the present and the commencement of production.
Commodity prices of key production inputs, for instance energy and reagents, could have a material impact on the
level of profitability. Commodity prices are driven by general economic factors as well as the world supply of
mineral commodities, the stability of exchange rates and political developments. At this stage of the development
of the Sonora or Zinnwald, we cannot protect the business against the impact of adverse commodity price
movements. However, adverse movements in input costs for global commodities may be coupled with increases in
lithium prices, thereby offsetting an adverse cost environment to some extent.
Mitigation:
For budgeting and longer-term forecasting, conservative prices of lithium and input commodities have been assumed.
A battery-grade lithium carbonate price of US$11,000 per tonne was used for the life of mine, compared to long-term
pricing estimate from Canaccord of US$15,000 per tonne. This is felt as reasonable as there is a two year construction
time from the start of construction, in which time, the supply and demand fundamentals is expected to rebalance.
Sonora has two offtake agreements, contract pricing tends to be less volatile than spot market pricing, reducing the
impact of short-term pricing fluctuations. Bacanora is currently in discussion with potential offtake partners for
Zinnwald project, looking for long-term supply.
Trend:
Spot prices declined over the second half of 2019 for battery-grade lithium carbonate, Cost, Insurance and Freight
China, Japan and Korea to US$8,750 per tonne1. The price has stabilised in January and February 2020. The risk of
sustained oversupply in the market leading to low prices on the longer term is being addressed in the market, with
high cost producers rolling back production. Please see the Lithium Market Update 2019 section of the Operational
Review for further details on the supply and demand fundamentals of the lithium market.
1 https://www.lme.com/Metals/Minor-metals/Lithium-prices#tabIndex=0
13
Risk 7: Infrastructure
The Group’s Lithium Projects depend to a significant degree on adequate infrastructure. In the course of
developing its operations, the Company may need to construct and support the construction of infrastructure,
which includes permanent gas pipelines, water supplies, power, transport and logistics services which affect capital
and operating costs. Unusual or infrequent weather phenomena, sabotage, government or other interference in the
maintenance or provision of such infrastructure or any failure or unavailability in such infrastructure could
adversely affect the Group’s operations, financial condition and results of operations in a material fashion.
Mitigation:
The technical report on the feasibility study for Sonora has laid the groundwork for the infrastructure requirements
and the Company is currently finalising contracts with third parties for the construction of required infrastructure.
The technical report on the feasibility study for Zinnwald details the already well-developed surrounding
infrastructure that would be available to the project.
Trend:
No change.
Key Performance Indicators
Our key performance indicators (“KPIs”) help the Board and executive management assess performance against our
strategic priorities and business plans. However, as a pre-operational business, our use of KPIs is limited, our
current KPIs relate to cost control and safety. Currently, the Board receives update reports on a monthly basis for
operational and corporate parts of the business. The reports include measures of operational expenditure and
capex spend against the budget as well as the Group’s cash position. The reports also contain operational
information, which includes, updates on permissions, safety performance using number of lost time injuries and
lost time injury frequency rate.
As the Company progresses toward construction and production, the KPIs will be reassessed in order to drive and
monitor business performance and will be aligned to the business strategy. It is likely that this will include
financial, operational and HSEC KPIs.
Key Performance
indicator
Lost time injury
frequency rate
(LTIFR)
Cash Balance
Capex investment
Description
Analysis
A key safety metric, the number
of lost time injuries per 1 million
hours worked on a rolling 12-
month basis
Cash balance available to
continue with the activity of
the Group, including exploration,
development and maintenance
on going concern.
Funds spent on property, plant
and equipment (PPE). It is a
measure of the investment in the
business and the rate at which
value is being generated.
In the calendar year 2019, there were no LTIs
resulting in a LTIFR of 0. In calendar year 2018 there
were 2 LTIs resulting in a LTIFR of 22.16 for the year.
At 31 December 2019 the Group’s cash balance was
US$48.9 million (30 June 2019: US$14.8 million).
There is sufficient cash to continue working on its
development activities. Please refer to the Financial
Review section on page 34 for analysis of movement in
cash.
For the six months ended 31 December 2019 the Group
has spent US$0.6 million (twelve months ended 30
June 2019: US$8.3 million) on PPE on a cash basis (see
Cash flow Statement). This expenditure is primarily
related to the FEED work at Sonora, as well as the
continued operation of the pilot plant. Furthermore, a
total of US$0.4 million was spent on Zinnwald during
the six months ended 31 December 2019 compared to
US$2.4 million in the twelve months ended 30 June
2019.
14
Reserves and
Resources held at
year end
As a mining development
group, the report of satisfactory
mineral reserve and resource
results is a key indicator of the
value potential of the Group and
its projects.
Sonora has 5 million tonnes of lithium carbonate
equivalent measured and indicated resources, of that,
4.5 million tonnes are reserves. There has been no
change on these resources and reserves estimates.
In June 2019, Zinnwald published its NI 43-101
compliant reserves statement as part of the ZFS,
which revealed that the project has mineral reserves
of 94,000 tonnes of contained lithium and resources of
125,000 tonnes of contained lithium. Lithium
carbonate (Li2CO3) contains around 18.8% lithium;
therefore, one tonne of lithium is equivalent to 5.3
tonnes of lithium carbonate. No change since the
original publication.
15
Directors’ section 172 statement
The following disclosure describes how the Directors have had regard to the matters set out in section 172(1)(a) to
(f) and forms the Directors’ statement required under section 414CZA of The Companies Act 2006. This new
reporting requirement is made in accordance with the new corporate governance requirements identified in The
Companies (Miscellaneous Reporting) Regulations 2018, which apply to company reporting on financial years
starting on or after 1 January 2019.
The matters set out in section 172(1) (a) to (f) are that a Director must act in the way they consider, in good faith,
would be most likely to promote the success of the Company for the benefit of its members as a whole, and in
doing so have regard (amongst other matters) to:
(a) the likely consequences of any decision in the long term;
(b) the interests of the Company’s employees;
(c) the need to foster the Company’s business relationships with suppliers, customers and others;
(d) the impact of the Company’s operations on the community and the environment;
(e) the desirability of the Company maintaining a reputation for high standards of business conduct; and
(f) the need to act fairly between members of the Company.
In the above Strategic Report section of this Annual Report, the Company has set out the short to long term
strategic priorities, and described the plans to support their achievement.
We have split our analysis into two distinct sections, the first to addresses Stakeholder engagement, which provides
information on stakeholders, issues and methods of engagement, disclosed by stakeholder group. The second
section addresses principal decisions made by the Board and focuses on how the regard for stakeholders influenced
decision-making.
Section 1. Stakeholder mapping and engagement activities within the reporting period.
The Company continuously interacts with a variety of stakeholders important to its success, such as equity
investors, joint venture partners, debt providers, workforce, government bodies, local community, vendor partners
and offtake partners. The Company strives to strike the right balance between engagement and communication.
Furthermore, the Company works within the limitations of what can be disclosed to the various stakeholders with
regards to maintaining confidentiality of market and/or commercially sensitive information.
16
Who: Key Stakeholder groups
Equity Investors and Joint
Venture Partners
All substantial shareholders that
own more than 3% of the
Company’s shares are listed on
page 51 within the
Governance Report.
The Company owns 77.5% of
Sonora Lithium Ltd holding
company for the Sonora Lithium
Project and the remaining 22.5%
is held by Ganfeng. The Zinnwald
Lithium Project is 50:50 joint
venture with Solarworld, whose
stake in Zinnwald is being
managed by its administrators.
The Company requires further
funding to develop the Sonora
and Zinnwald Lithium Projects.
As such, existing and prospective
equity investors as well as
Project level joint venture
partners are important
stakeholders.
Why: why is it important to engage this
group of stakeholders
Access to capital is of vital importance to
the long-term success of our business to be
able to construct the Sonora and Zinnwald
Projects. Joint venture partner
involvement is vital to the success of the
development of these Projects. Without
which the Company cannot create value
for our shareholders by producing lithium
products and therefore a return on the
investment.
Through our engagement activities, we
strive to obtain investor buy-in into our
strategic objectives detailed on page 6 and
how we go about executing them.
We are seeking to promote an investor
base that is interested in a long term
holding in the Company and will support
the Company in achieving its strategic
objectives.
Over the course of 2019, the number of
shares held in public hands has increased
and the overall daily volume of shares
traded has increased significantly.
How: how Bacanora engaged with the
stakeholder group
The key mechanisms of engagement included:
Substantial Shareholders
• Both Ganfeng and Hanwa have appointed
Directors under the terms of shareholder
agreements.
• The other existing substantial
shareholders have regular meetings with
the Chairman, CEO and CFO.
Joint venture partners
• Ganfeng has a representative at the
Sonora Lithium Ltd board of directors
under the terms of the joint venture
agreement.
• The Administrator of Solarworld has a
representative on the Deutsche Lithium
board of directors. The Administrator of
Solarworld has a representative to the
advisory board.
• Regular meetings are held with the joint
venture partners.
Prospective and existing investors
• The AGM and Annual and Interim Reports.
Investor roadshows and presentations.
•
• One-on-one investor meetings with the
Chairman, CEO and CFO.
• Access to the Company’s brokers and
advisers
• Regular news and project updates.
Social media accounts e.g. Twitter
•
@BacanoraL
Site visits for potential cornerstone
investors.
•
What: what came of the engagement
We engaged with investors on topics of
strategy, governance, project updates
and performance. Please see Dialogue
with Shareholders section of the Annual
report on page 50. The CEO and CFO
presented at a number of investor
roadshows and one-to-one meetings.
The Company completed a key
strategic investment with Ganfeng
Lithium to acquire 29.9% of the
Company and a further 22.5% at the
Project level. Post completion of the
investment, we have engaged with
Ganfeng to utilise their expertise in the
operational development of the Sonora
Lithium Project and are undertaking a
review of the hydrometallurgical
engineering of the lithium processing
plant.
The Company completed additional
investments from its longest standing
institutional investor, M&G, to increase
their stake to 19.9%. At the Company’s
AGM all resolutions were duly passed
with at least 90% votes in favour
demonstrating broad shareholder
support.
The DL option was cancelled by the
administrators of Solarworld and
Bacanora thereby ensuring the long-
term future of the joint venture. See
Note 6 for details.
17
Who: Key Stakeholder groups
Debt providers
The Company has a six year
US$150 million debt facility with
RK Mine Finance that commenced
in July 2018.
Why: why is it important to engage this
group of stakeholders
Access to capital is of vital importance to
the long-term success of our business to be
able to construct the Sonora and Zinnwald
Projects. Ongoing support from Debt
providers is crucial to enable the
construction of Sonora Lithium Project.
Various contractual conditions of the debt
finance require regular updates on ongoing
progress.
How: how Bacanora engaged with the
stakeholder group
• One-on-one meetings with the CEO and
CFO.
• Monthly reporting on project progress.
• Adhoc discussions with management as
required.
• Tripartite discussions between RK,
Ganfeng and management to ensure there
were no impediments for the investment
from Ganfeng.
What: what came of the engagement
In the period, the Company agreed
with RK to convert a number of time-
bound covenants to conditions
precedent as well as completed other
ongoing conditions.
The Company’s CFO and RK went on
a site visit to see Ganfeng’s
production facilities in China.
Workforce
The Company has eleven UK
employees including its
Directors. Three of the Directors
are UK residents and four are
overseas resident Directors. Both
the CEO and CFO are UK based.
The rest of the Company’s
workforce is based in Mexico.
The vast majority of its employees going
forward will be based in Mexico and the
Directors consider workforce issues
holistically for the Group as a whole.
The Company’s long-term success is
predicated on the commitment of our
workforce to our vision and the
demonstration of our values on a daily
basis.
General Workforce:
• The Company maintains an open line of
communication between its employees,
senior management and Board of
Directors.
UK employees
• The CEO and CFO report regularly to the
Board, including the provision of board
information. Key members of the finance
team are invited on some of the audit
committee meetings.
The Board have identified that reliance on
key personnel is a known risk (see the
corporate risk register on page 9).
• There is a formalised employee induction
into the Company’s corporate governance
policies and procedures.
Mexico
• There is a Mexico HR Function.
•
Senior management regularly visit the
operations in Mexico and engage with its
employees through one-on-one and staff
meetings, employee events, project
updates, etc.
Staff safety committee continues to
operate.
•
• Employees are expected to be
represented by ratified workplace
18
UK Employees
The Board met with management to
discuss long term remuneration
strategy. Advisors have been
appointed to do the independent
review party review to examine Non-
executive Director and Executive
team remuneration.
Board reporting has been optimised
to include sections on engagement
with workforce.
Mexico
The team were trained in aspects of
corporate policies and procedures to
engender positive corporate culture
aligned with the Company code of
conduct.
Who: Key Stakeholder groups
Why: why is it important to engage this
group of stakeholders
How: how Bacanora engaged with the
stakeholder group
agreements once operations grow
sufficiently
Governmental bodies
The Company is impacted by
local governmental organisations
in the UK, Mexico and Germany.
The Company will only be able to
commence production once it receives
relevant licences and permits from
government to mine and undertake
chemical processing.
• The Company provides general corporate
presentations regarding the Sonora
Project development as part of ongoing
stakeholder engagement with the Sonora
state government, Bacadehuachi local
government and Mexico federal
government. The Company maintained its
good relations with the respective
government bodies and frequently
communicated progress.
• The Company engages with the relevant
departments of the Mexican government
in order to progress the operational
licences it will require.
What: what came of the engagement
Meetings were held with staff to
provide project updates and ongoing
business objectives.
Efforts to focus on plant safety have
yielded significant improvements in
safety performance, resulting in no
lost time injuries in calendar year
2019.
Meetings have been held jointly with
Ganfeng with various representatives
of the Sonora state government, to
discuss the involvement of Ganfeng in
the Sonora Lithium Project.
The Company has given general
corporate presentations to senior
federal government officials in
Mexico City.
To date, the Company has received
its requisite environmental and land
use permits to enable construction to
commence as soon as financing is
secured. With this in place, the
Company is now focused on
secondary permitting such as process
water borefield and co-gen power
supply.
Community
The local community at the mine
site in Bacadehuachi, Mexico and
the surrounding area.
The community provides social licence to
operate.
We need to engage with the local
community to build trust. Having the
• The Company has a Community Relations
Officer permanently based in
Bacadehuachi.
The Company has ongoing
engagements with the local
community as part of the
19
Who: Key Stakeholder groups
Why: why is it important to engage this
group of stakeholders
community’s trust will mean it is more
likely that any fears the community has
can be assuaged and our plans and
strategies are more likely to be accepted.
Community engagement will inform better
decision making.
The local community in Bacadehuachi and
wider Sonora area will provide employees
to the mine and our suppliers.
The Company will in due course have a
social and economic impact on the local
community and surrounding area. The
Company is committed to ensuring
sustainable growth minimising adverse
impacts. The Company will engage these
stakeholders as appropriate.
How: how Bacanora engaged with the
stakeholder group
• The Company has identified all key
stakeholders with the local community
within the reporting period.
• Bacanora has open dialogue with the
Bacadehuachi local government and
community leaders regarding the project
development.
• The Company has existing ESG/CSR
policies and management structure at
corporate level. The Company will expand
on these policies and structures at a local
project level as the Company moves into
construction and then production.
Suppliers
During the construction phase,
we will be using key suppliers
under commercial engineering
contracts to deliver the mine and
plant, all of whom are large
international vendors.
Our suppliers are fundamental
to ensuring that the Company can
construct the project on time and budget.
Using quality suppliers ensures that as a
business we meet the high
standards of performance that we expect
of ourselves and vendor partners.
At a local level, we also partner
with a variety smaller
companies, some of whom are
• Management team continue to work
closely with proposed EPC suppliers to
finalise their FEED work, contracts and
end deliverables.
• One on one meetings between
management and suppliers.
• Vendor site visits and facility audits to
ensure supplier able to meet
requirements.
20
What: what came of the engagement
development of its sustainability
initiatives.
Stakeholder identification has
enabled the Company to ensure that
representatives of all stakeholder
groups may participate in the
community engagement programme.
A more formalised community
engagement programme will
commence in 2020.
Bacanora provided food and water
relief to the Bacadehuachi
community during the severe flood
event in the area.
The local community has also granted
Bacanora with access rights to the
road which provides direct route
from the highway via the
Bacadehuachi community land to the
mine, and this access right has been
recorded at the Public Registry.
See Page 29 of the CEO’s operational
report for latest on progress on
testwork and finalising EPC contracts.
Smaller local vendors were engaged
at a broader level to better align
with company objectives.
Who: Key Stakeholder groups
Why: why is it important to engage this
group of stakeholders
independent or family run
businesses.
How: how Bacanora engaged with the
stakeholder group
• Contact with procurement department
and accounts payable.
• Assist local suppliers to address liquidity
challenges.
What: what came of the engagement
Offtake partners
The Company has two
commercially priced lithium
offtake agreements with Ganfeng
and Hanwa, both of whom are
investors in the Company and
have Board seats.
The Company is moving toward the
construction stage of its project and a key
metric to sourcing the capital required, is
securing its offtake agreements.
• Non-executive Directors representing both
of our offtake partners are engaged at
board meetings and receive all Board
materials.
The Company will sell its product under
long term offtake agreements.
• They remain informed of project
developments and provide management
with advice and guidance.
• Management prepares monthly project
reports for the Board.
The Company completed commercial
offtake agreement with Ganfeng in
the period and also updated its
existing one with Hanwa. 50% of the
production will be sold to Ganfeng
and 50% will be sold to Hanwa during
Stage 1 production, and up to 75%
during Stage 2 production to
Ganfeng.
21
Section 2, Principal decisions by the board during the period.
We define principal decisions as both those that have long-term strategic impact and are material to the Group,
but also those that are significant to our key stakeholder groups. In making the following principal decisions, the
Board considered the outcome from its stakeholder engagement, the need to maintain a reputation for high
standards of business conduct and the need to act fairly between the members of the Company:
a) Strategic Investment and Offtake Agreement with Ganfeng:
The Board originally entered into a Memorandum of Understanding with Ganfeng in the prior period for an
investment, in both the Company and at the Project Level, together with a long-term offtake agreement. The
investments and the offtake agreement were successfully completed during the period following receipt of all
approvals from the Chinese government. This resulted in Ganfeng acquiring 29.99% stake at the Company level and
22.5% stake at the Sonora Project level, with the option to increase their stake up to 50%, within 24 months of the
completion of the initial investment. The agreement came with a commitment from Ganfeng to assist in the review
of the hydrometallurgical engineering.
The decision is aligned with several of the key parts of the Company’s business model, namely:
o
o
o
Item 3, “Complete the detailed design of the mines and processing plants for Sonora”
Item 4, “Validate the quality of its end product by securing high quality offtake partners”
Item 5, “Complete the funding required to construct its projects”
The key stakeholder groups that could be materially impacted: Existing shareholders and potential investors,
governmental bodies and offtakers.
Existing shareholders may have conflicting interests with the Ganfeng due to potential dilution of their
shareholding. The Directors considered the impact and concluded that obtaining a strategic and cornerstone
investor in Ganfeng, significantly de-risks completing the funding package for the development of the Sonora
Lithium Project, which will create shareholder value in the longer term. The existing shareholders has also granted
authority for the Company to issue up to 500 million shares to support the financing of the Sonora Lithium Project.
The Directors considered whether it would adversely impact the ability to attract further investment in order to
fund the Sonora Lithium project, which is considered critical to the long-term success of the Company. The Board
concluded that such a substantial investment from Ganfeng would be seen as a vote of confidence from a major
player in the Lithium market and would be viewed positively by the capital market.
The Board concluded that the involvement of a proven developer of lithium projects would enhance the credibility
of the project and a successful long-term completion of construction. Ganfeng’s involvement could also open the
possibility of cost savings from sourcing products in China and from Ganfeng’s other partners.
The Directors considered the potential impact of the investment on governmental bodies, in particular the Sonora
state government. Representatives of the Sonora state government met with Ganfeng and Bacanora to discuss the
involvement of Ganfeng in the Sonora Lithium Project.
Prior to Ganfeng’s investment in the Project, the Company has an offtake agreement with Hanwa for 100% of the
offtake of Stage 1 production. The Directors, including Hanwa’s board representative, considered the impact on
both its existing offtake partner, Hanwa, as well as potential future offtake partners. The Board concluded that
adding an additional offtake partner who would provide capital into the Project would strengthen the likelihood of
the project successfully moving into production. Hanwa has agreed to reduce its offtake for Stage 1 production to
50%, with the remaining 50% to be sold to Ganfeng.
b) Additional Strategic Investment in Bacanora by M&G:
The Board accepted an offer of investment from M&G, a longstanding institutional investor in the Company, which
resulted to M&G investing additional £7.7 million and increasing its stake in the Company to 19.9% in November
2019. M&G became the first major institutional investor in the Company in November 2015. Prior to the issuance of
equity in November 2019, M&G also provided additional equity investment in September 2017.
22
The decision is aligned with the business model set out in the Company strategy, item 5, “Complete the funding
required to construct its projects.”.
In the same way as the Ganfeng investment, the Directors considered the potential impact of the issuance of
additional equity to M&G on other existing shareholders and potential investors. The Directors concluded that the
additional equity investment from M&G further de-risks the required funding of the Project. The Board concluded
that continued support from its longest standing cornerstone investor via substantial investment would be viewed
positively by the wider equity market. M&G is a reputable investment institution and their additional investment in
the Company represents an endorsement of Sonora’s potential to become on the leading lithium supplier.
As per the Strategic Investment agreement with Ganfeng, Ganfeng has an existing pre-emption rights proportionate
to its shareholding in Bacanora. In relation to the issuance of new equity shares to M&G, Ganfeng has agreed to
waive this pre-emption rights but reserved the right to subscribe for additional shares in the next equity fund
raising to allow it to return to its original shareholding of 29.99%.
In making the above principal decisions, the Directors believe that they have considered all relevant stakeholders,
potential impact and conflicts, the Company’s business model and its long-term strategic objectives, and have
acted accordingly to promote the success of the Company for the benefit of its members as a whole.
Our Assets:
Sonora Lithium Project2
The Sonora Lithium Project is located in northern Sonora State, Mexico, 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. 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.
The SFS revealed positive economics and favourable operating costs for the 35,000tpa battery-grade lithium
carbonate operation. The results indicated a US$1.253 billion pre-tax project Net Present Value at an 8% discount
rate and US$11,000 per tonne lithium carbonate price, 26.1% IRR and US$4,000 per tonne lithium carbonate LOM
operating costs, placing Sonora among the low-cost brine producers of South America. There are no updates on the
feasibility study since January 2018.
SLL owns 100% of La Ventana concession via the holding in Minera Sonora Borax S.A. de C.V., accounting for 88% of
the mined ore feed in the SFS, covering the initial 19 years of the project mine life. SLL also owns 70% of Mexilit
S.A. de C.V. (“Mexilit”) which owns the El Sauz and Fleur concessions. The remaining plant feed is derived from the
El Sauz and Fleur concessions.
The Sonora lithium property 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
Measured(1)
Indicated
Total
Cut–off
(Li ppm)
1,000
1,000
1,000
Inferred Mineral Resources
Tonnes(2)
(000t)
103,000
188,000
291,000
Li
(ppm)
3,480
3,120
3,250
K
(%)
1.5
1.3
1.4
LCE
(000t)
1,910
3,130
5,038
2 https://www.bacanoralithium.com/pdfs/Bacanora-FS-Technical-Report-25-01-2018.pdf
23
Category
Inferred
Cut–off
(Li ppm)
1,000
Tonnes(2)
(000t)
268,000
Li
(ppm)
2,650
K
(%)
1.2
LCE(3)
(000t)
3,779
Mineral Reserves: (Cut-off grade of 1,500ppm Li)
Category
Proven
Probable
Total
Tonnes
(000t)
80,146
163,662
243,808
Li
(ppm)
3,905
3,271
3,480
K
(%)
1.64
1.36
1.45
LCE
(000t)
1,666
2,849
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 carbonate 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 lithium carbonate, 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.
Zinnwald Lithium Project3
Zinnwald is located in southeast Germany, some 35 km from Dresden and adjacent to the border of the Czech
Republic and within 3 km of the town of Altenberg and 50 km of the town of Freiberg. Zinnwald is in a granite
hosted Sn/W/Li belt that has been mined historically for tin, tungsten and lithium at different times over the past
300 years. With an abundant supply of fluorspar/hydrofluoric acid available in the immediate vicinity, DL has
chosen to focus on lithium fluoride (“LiF”) production. LiF is one of the two key components in the manufacturing
process of LiPF6, which is the most important conducting salt in lithium electrolytes and serves as the “shuttle” in
the battery electrolyte which “ships” the lithium ion between the cathode and the anode. Approximately 95% of all
lithium battery electrolytes use LiPF6 and the percentage used in each cathode is increasing in newer battery
types. The strategic location of the Zinnwald allows immediate access to the German automotive and downstream
lithium chemical industries.
In June 2019, Deutsche Lithium published the results of the ZFS, which confirmed the positive economics for the
production of 5,112 tpa (~7,285 tpa LCE) of battery-grade LiF. With a long project life of 30 years, the ZFS
estimates a pre-tax project NPV8 of €428 million; an IRR of 27.4%; and a 46% EBITDA margin.
Mineral Resource Estimates
Zinnwald hosts one of the largest lithium deposits in Europe. The table below provides a breakdown of the
upgraded Mineral Resource estimate for Zinnwald as of 30 September 2018. The upgraded resource has been
3 http://www.deutschelithium.de/wp-content/uploads/2019/06/NI43-101-Zinnwald_Feasibility-Study_Summary.pdf
24
reported in accordance with NI 43-101 and was carried out by G.E.O.S. Ingenieurgesellschaft mbH (“G.E.O.S.”).
Mineral reserves and resources are unchanged since they were published.
Lithium Mineral Resource estimate of the Zinnwald Lithium Deposit:
Resource classification*
Ore tonnage
(000t)
Mean Li grade
(ppm)
Contained Li
(tonnes)
Measured
Indicated
Inferred
Demonstrated (Measured + Indicated)
Total (Measured + Indicated + Inferred)
(* Vertical thickness ≥ 2 m, cut-off Li = 2,500 ppm)
18,510
17,000
4,865
35,510
40,375
3,630
3,399
3,549
3,519
3,523
67,191
57,783
17,266
124,974
142,240
Notes:
(i) Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability.
Using a minimum thickness of 2 m and 2,500 ppm Li cut-off, the Zinnwald Demonstrated Mineral Resource
(Measured and Indicated) of 35.5 million tonnes at a grade of 3,519 ppm Li containing 124,974 tonnes of Li. The
equivalent total Mineral Resource (Measured, Indicated and Inferred) at a 2 m minimum thickness and 2,500 ppm
cut-off grade is 142,240 tonnes of contained Li.
Mineral Reserve Estimates
The Mineral Reserve estimate was prepared by independent mining consultants G.E.O.S with a cut-off of 2,500 ppm
lithium metal.
The Mineral Reserves of the Zinnwald lithium deposit is based on the development of the whole deposit including
an underground mine. Internal dilution mostly consists of greisen and greisenized granite that shows average
lithium grades of roughly 1,900 ppm. External dilution shows average lithium grades of around 1,700 ppm.
Approximately 7% of the demonstrated mineral resource cannot be mined due to existing mine workings or which
cannot be economically mined due to isolation of the ore bodies or insignificant ore thickness was excluded from
the resource. Based on this reduced resource, Mineral Reserves have been estimated based on standard mining
technology with optimised back fill applying sublevel stoping with longitudinal stopes.
The portion of the Proven Mineral Reserve accounts for 16.5 million tonnes of ore and contains 51 thousand tonnes
Li. This corresponds to 54 % of the total lithium metal Reserve. The Probable Mineral Reserve is 14.7 million tonnes
of ore with a content of 43 thousand tonnes Li. It comprises 46 % of the total lithium metal Reserve. For further
details see the table below.
Lithium Mineral Reserve estimate of the Zinnwald Lithium Deposit:
Category
Ore and Dilution
Tonnage
(000t)
Li Grade
(ppm)
Li Metal Content
(000t)
Mineral Reserve considering mining loss and dilution
(1) Parameter conform ore
(2) Internal dilution
(3) External dilution
22,270 (71 %)
2,632 (8 %)
6,300 (20 %)
(4) Total Mineral Reserve (1+2+3)
31,203 (100 %)
(5) Proven Mineral Reserve
(6) Probable Mineral Reserve
16,504 (53 %)
14,699 (47 %)
Notes: (i) Tonnes rounded to the nearest thousand.
3,500
1,929
1,700
3,004
3,075
2,933
78
5
11
94 (100 %)
51 (54 %)
43 (46 %)
In January 2018, Deutsche Lithium was granted a five-year exploration licence covering 295 ha of the previously
mined Falkenhain lithium deposit in southern Saxony, Germany. Falkenhain, which is located within 5 km of
25
Zinnwald. As with Zinnwald, Falkenhain lies in a geological setting of granite hosted for tin, tungsten and lithium
belts that have been explored and mined historically for those elements.
In March 2019, Deutsche Lithium secured the five-year Altenberg exploration licence, covering an area of around
42km² in the Erzgebirge (Ore Mountain) region of Saxony, Germany. The licence completely encloses the Zinnwald
Lithium Project. Altenberg forms part of the same geological unit that hosts the historic deposits at Zinnwald and
Falkenhain. The Altenberg and Falkenhain deposits have the potential to increase the life of mine at Zinnwald.
Deutsche Lithium plans to investigate these licences and to combine their exploration and development with its
Zinnwald licences as appropriate.
26
CEO Statement
Bacanora is a multi-project lithium development company. The Company’s primary asset is its world class Sonora
Lithium Project in Mexico which, with 8.8 million tonnes of lithium carbonate resources and a current resource life
in excess of 200 years, is one of the world’s larger lithium resources. In January 2018 the Sonora Feasibility Study
(‘SFS’) for a 35,000tpa battery-grade lithium carbonate operation at Sonora assigned a pre-tax NPV8 of US$1.25
billion and an IRR of 26% based on a lithium carbonate price of US$11,000 per tonne. In addition, with estimated
operating costs of just over US$4,000 per tonne, Sonora is well placed into the lower end of the industry cost curve
and substantially below prevailing prices for lithium carbonate. During the period, we secured almost £30 million in
equity investment from Ganfeng Lithium, the world’s third largest lithium compounds producer, and M&G, our long-
standing institutional investor who has supported us since 2015.
In 2019, the world consumed approximately 315,000 tonnes of LCE, which is a 21% increase from 261,000 tonnes
consumed in 20184, mainly driven by the increasing sales of electric vehicles in USA and Europe. During 2019,
battery-grade lithium prices in China softened throughout the year to US$8,750 per tonne by year end5, due to
significant oversupply of spodumene concentrates from new Australian mining operations. Pricing for EV grade
lithium products in Korea and Japan remained higher than China while the spot prices for US and Europe were
around US$10,000-11,500 per tonne. This reduction in pricing has significantly impacted the Australian high cost
spodumene concentrate producers resulting in mines being delayed, closed, decreased production or put on care
and maintenance. With these marginal high cost spodumene producers being forced to scale back production,
current market forecasts indicate stronger medium to long-term prices, for example in November 2019, Canaccord
estimated battery-grade lithium carbonate at US$13,000 per tonne by 2026 with long-term price of US$15,0006. The
current financial difficulties now being reported by the Australian spodumene companies supports the Bacanora
strategy of developing a fully integrated lithium project that produces a final EV battery-grade lithium product at
much lower costs rather than a low-grade intermediate concentrate.
In 2019, China produced 1.2 million New Energy vehicles7 (‘NEV’) and Tesla produced circa 365,000 vehicles8. The
German automotive manufacturers led by Volkswagen continue to aim for 50% EV production by 2025. Advances in
battery and automotive design to make mass-market NEVs cost competitive are now on the near horizon, which
could be the tipping point for the lithium market. Market commentators are forecasting lithium carbonate
equivalent demand of approximately 1 million tonnes per annum by 2025, this equates to more than 20 new mines
with an average capacity of 25,000 tonnes per annum to be commissioned within the next 5 years to meet demand.
Sonora is well placed to become a new key supplier of battery-grade lithium to the Asian market.
Activities undertaken at Sonora were primarily focused on the advancement of the FEED work to update equipment
designs and cost estimates. Subsequent to their equity investment, Ganfeng commenced a technical review of the
hydrometallurgical circuit, with a view to potentially sourcing key sections of the lithium production equipment
from their current equipment suppliers in China. This work has been hampered by the ongoing Coronavirus outbreak
in China which has caused delays on testwork. FEED work on the concentrator, mechanical processing and
pyrometallurgical engineering are also ongoing. These works are expected to complete within the next 6 months.
As the situation develops, we will provide further updates.
Geotechnical engineering, survey and design work for the plant site location and permanent access road are
ongoing. Initial proposals for the construction of cogeneration energy facilities and LNG supply have been received
from several suppliers and these are being assessed. It is currently envisaged that LNG supplies will be initially
utilised at Sonora during the early stages of commissioning, whilst gas consumption is low. Once energy
consumption reaches steady state, pipeline supply to Sonora would be initiated.
Significant efforts continue to be made by the team at Bacanora to maintain a safe working environment for all
employees and contractors. The product of that work has been translated into zero lost time injuries for the
4
https://publications.industry.gov.au/publications/resourcesandenergyquarterlydecember2019/documents/Resourc
es-and-Energy-Quarterly-December-2019-
Lithium.pdfhttps://publications.industry.gov.au/publications/resourcesandenergyquarterlydecember2019/docume
nts/Resources-and-Energy-Quarterly-December-2019-Lithium.pdf
5 https://seekingalpha.com/article/4314058-lithium-miners-news-for-month-of-december-2019
6 https://www.bacanoralithium.com/cms/wp-content/uploads/2019/12/BCN-Presentation-Dec-2019-17.12.19-
FINAL.pdf
7 https://www.marklines.com/en/statistics/flash_prod/productionfig_china_2019
8 https://www.statista.com/statistics/715421/tesla-quarterly-vehicle-production/
27
Company in the reporting period and calendar year 2019. Whilst this is a great result, complacency cannot be
allowed to take hold, the team is constantly evaluating our policies and procedures to ensure our site practices
conform with international standards. This is particularly important as we approach the construction phase at
Sonora. We continue to work with local communities in the area to ensure that we have a beneficial impact and we
may continue to operate with their support. We have recently relocated our Community Liaison Manager to live in
the local town of Bacadehuachi and the community engagement programme will continue throughout 2020.
In February 2020, Bacanora successfully reached agreement with the administrators of Solarworld to maintain our
50% ownership of Zinnwald, with a right of first refusal to purchase the remaining 50%. Bacanora will continue to
fund and develop the engineering aspects of the project and remain focused on securing strategic partners to help
fund the €159 million capital cost to develop Zinnwald.
To date, we have identified, acquired and de-risked two high-quality lithium projects. The year ahead will see us
look to finalise the finance structure for Sonora with the support of our cornerstone investors and partners,
Ganfeng, M&G, RK Mine Finance and Hanwa. Their continued participation further de-risks the required funding for
the Project that continues to be progressed by our brokers, Canaccord and Citi, and which we are aiming to
complete in 2020, subject to market conditions. As a result, we continue to focus on the Company moving into the
24-month project construction phase in 2020. We will also seek external financing for Zinnwald and we are
encouraged by the conversations we are having with multiple interested parties. Our focus is to ensure Bacanora
shareholders benefit from the development of both projects and in turn, the considerable cash flows each are
forecast to create in the coming years.
Peter Secker
Chief Executive Officer
28 February 2020
28
Operational Review
a Corporate review
On 14 August 2019, Bacanora Lithium Plc transferred its shareholding in Bacanora Minerals Ltd to SLL in order to
create a single holding company for the Sonora Project. The resulting corporate structure showing all operational
subsidiaries, is shown in the chart below.
A full list of all Group companies is detailed in Note 3 of the Consolidated Financial Statements.
Group structure of operational entities at 31 December 2019
On 18 October 2019, the Company completed its investment agreement with Ganfeng whereby Ganfeng acquired
29.99% of Bacanora Lithium Plc and 22.5% of SLL with an option to increase its shareholding up to 50% in SLL within
two years. As part of the investment agreement, Ganfeng appointed a director to the Company’s Board and also to
SLL. In conjunction, the Company also entered into an offtake agreement for Ganfeng to purchase up to 50% of
Stage 1 production at the Sonora Lithium Project and up to 75% of production during Stage 2.
Sonora Lithium Project Developments
During the period, Sonora was primarily focused on the progressing the FEED. As part of completing this objective,
Ganfeng commenced a technical review of the hydrometallurgical circuit. Ganfeng may source key sections of the
lithium production equipment from their current equipment suppliers in China. Representative samples have been
sent to Ganfeng in China to facilitate test work. The review is expected to conclude within the next 6 months. In
parallel, work to finalise the FEED is ongoing with experienced engineering groups, as follows:
•
Front-end ore concentrator and mechanical processing with GR Engineering Services, an ASX listed
engineering, consulting and contracting company specialising in fixed priced engineering design and
construction services to the resources and mineral processing industry.
29
Deutsche Lithium joint ventureSonora lithium project entitiesMSB owns the La Ventana concessionMexilit owns the El Sauz and Fleur concessionsBacanora Lithium Plc (UK)Bacanora Finco Limited (UK) -100%Sonora Lithium Limited (UK)-77.5%Bacanora Chemco (Mexico)-100%Bacanora Treasury Limited (UK)-100%Bacanora Minerals Limited (Canada)-100%Mexilit (Mexico) -70%Mineramex (BVI)-100%MSB (Mexico)-100%OLB (Mexico)-100%Deutsche Lithium (Germany)-50%
• Pyrometallurgical engineering, primarily for the kiln designs, is being engineered by an international
manufacturer of industrial furnace, kilns and heating systems.
• 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.
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. At the time of reporting, these
measures may continue for some time to come. This in turn will have an impact of the completion of Ganfeng’s
review, which is now expected within the next 6 months.
Survey, geotechnical and hydrogeological work for the plant site location is being optimised as part of the work
with GR Engineering Services. 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 Q2 2020.
We are currently building the access roads for the borefield locations and the Company will commence borehole
drilling in Q1 2020, thereafter pump test and equipment installation will be performed. 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.
Our work with the community is ongoing to develop an integrated sustainability programme, that will encompass
the construction and operational phases of the Project.
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. In addition, a MIA for permanent road construction was
approved in October 2018.
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.
The lithium pilot plant in Sonora Mexico completed its initial objectives including production of bulk samples for
feasibility studies, final product samples for customers and proof of design. As such, the plant was operated on an
“as needs” basis in the reporting period. The pilot plant produced battery-grade lithium carbonate samples as well
as other lithium products such as lithium hydroxide, lithium sulphate and roasted concentrate, which were
distributed to potential customers in Asia as well as our FEED partners and consultants for detailed design and test
work. 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.
Zinnwald Lithium Project Developments
Bacanora acquired an initial 50% interest in Deutsche Lithium (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
30
(the “Bacanora Call Option”) was extended until 17 February 2020. In the event that the Company does 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 over the next
two years. The Company is in discussions with prospective investors with various options to fund the project.
b Lithium Market Update 2019
The world consumed approximately 315,000 tonnes of lithium carbonate equivalent in 2019, a 21% increase on
261,000 tonnes in 2018, according to the December 2019 Resources and Energy Report on Lithium from the
Australian government9. World lithium production is estimated to have grown to 470,000 tonnes in 2019, up 18% on
201810. In 2019, oversupply in the lithium market has caused a significant pull back on price. At the outturn of
2018, Fastmarkets reported 99.5% lithium carbonate battery-grade spot prices CIF China, Japan & Korea of
US$13,000-15,000 per tonne11. In 2019, prices declined throughout the year. In June 2019, Fastmarkets reported
99.5% lithium carbonate battery-grade spot prices CIF China, Japan & Korea of US$11,000-12,500 per tonne12, by
the end of December prices of US$8,000-9,500 per tonne were reported13. The 99.5% lithium carbonate battery-
grade spot prices Europe and US were reported at US$10,000-11,500 per tonne14.
The outlook for 2020 continues to be bearish with commentators such as Morgan Stanley expecting lithium prices to
fall further or to at least be stable in the next 1-2 years15. However, global lithium production and consumption is
expected to align by 202116. Consumption is forecast to grow by over 20 per cent a year to reach 485,000 tonnes by
202117, based on growing uptake of electric vehicles and improvements in battery capacity. The supply overhang
will narrow considerably as production is forecast to reach 489,000 tonnes in 2021 thereby rebalancing of the
supply and demand fundamentals over the next 2-3 years18. Given the lack of incentive pricing for the marginal cost
producers, it is our belief that new production will likely originate from existing low-cost producers and projects
that have attractive cost bases.
As mentioned, the reduction in lithium pricing has been attributed to an oversupply of lithium products. Oversupply
has been caused by a number of new spodumene mines ramping up in Australia. Tightening of credit in China has
forced lithium market players to reduce stock levels to secure cash, reducing demand and increasing supply.
Subsidies in China's New Energy Vehicles (NEV) market were reduced in June 2019, when the government cut
9
https://publications.industry.gov.au/publications/resourcesandenergyquarterlydecember2019/documents/Resourc
es-and-Energy-Quarterly-December-2019-Lithium.pdf
10
https://publications.industry.gov.au/publications/resourcesandenergyquarterlydecember2019/documents/Resourc
es-and-Energy-Quarterly-December-2019-Lithium.pdf
11 https://www.metalbulletin.com/Article/3851378/GLOBAL-LITHIUM-WRAP-Chinese-lithium-prices-stable-ahead-
of-year-end-other-regional-markets-flat.html
12 https://seekingalpha.com/article/4272099-lithium-miners-news-month-june-2019
13 https://www.metalbulletin.com/Article/3914427/GLOBAL-LITHIUM-WRAP-Lunar-New-Year-production-logistics-
halts-slow-Asian-market-activity.html
14 https://www.metalbulletin.com/Article/3914427/GLOBAL-LITHIUM-WRAP-Lunar-New-Year-production-logistics-
halts-slow-Asian-market-activity.html
15 https://www.spglobal.com/platts/en/market-insights/latest-news/metals/110819-lithium-producers-paint-
gloomy-picture-for-2020
16
https://publications.industry.gov.au/publications/resourcesandenergyquarterlydecember2019/documents/Resourc
es-and-Energy-Quarterly-December-2019-Lithium.pdf
17
https://publications.industry.gov.au/publications/resourcesandenergyquarterlydecember2019/documents/Resourc
es-and-Energy-Quarterly-December-2019-Lithium.pdf
18https://publications.industry.gov.au/publications/resourcesandenergyquarterlydecember2019/documents/Resour
ces-and-Energy-Quarterly-December-2019-Lithium.pdf
31
subsidies in half by as much as 25,000 yuan (US$3,600) per vehicle19. Chinese NEV sales then began falling in July
and led to a reduction in NEV sales by 47% in October compared with the same month last year20. These changes
caused lithium consumers to hold back on purchases. However, as prices have tightened, high cost, marginal
producers have begun to cut production and call a halt to expansion plans. In August 2019, Albemarle announced it
would delay construction plans for about 125,000 tons of additional lithium processing capacity due to the effect of
oversupply on prices21. Pilbara Minerals postponed stage two and three expansion projects that would have seen
the Pilgangoora lithium-tantalum project in Western Australia produce 7.5 million tonnes a year In September 2019,
Tianqi stopped work on a part-built US$300 million second stage of the lithium plant in Kwinana22. Tianqi and
Albemarle also postponed a planned US$516 million expansion of their jointly owned Greenbushes mine in Western
Australia as they reconsidered their investments in downstream processing capacity. In November 2019, Albemarle
and Mineral Resources put the Wodgina project into care and maintenance indefinitely. Albemarle said the Wodgina
mine would remain idle until demand for spodumene warranted a re-start23. The reduction in production from these
cutbacks will take time to work through the supply chain to reduce the stockpile levels. Nemaska Lithium
suspended operations in October 2019 at its Whabouchi lithium mine and applied for creditor protection in
December 2019, thus removing planned production of 37,000 tonnes of LiOH and 205,000 tonnes of concentrate
from the market24. 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%25.
Despite the obvious short-term weakness in the lithium market, the future is brighter and the long-term outlook
remain strong. In research by Signumbox in April 2019, which was commissioned by Deutsche Lithium for their
feasibility study, SignumBox anticipates a global annual demand for lithium chemicals to reach about 1,700
thousand tonnes of LCE by 2037, equating to an average annual growth rate of about 11.5% over the next 20
years26. A key theme at the Fastmarkets’ 11th Lithium Supply and Markets Conference (11 June 2019) was that
global lithium demand could outpace supply in the coming years27, with the number of new projects expected to
fall short of expected production amid doubts on capital availability and low prices. In research from Canaccord
Genuity in November 2019, the medium-term pricing for lithium carbonate will reach US$11,500 per tonne for
battery-grade by 2025 with lithium recovering more strongly thereafter as the demand gap is expected to widen,
US$15,000 per tonne by 202728.
Electric vehicles are the main driver for lithium demand, with forecasts varying widely, based on Chinese uptake.
Although China may not re-subsidise EVs, it is thought to be likely that China will maintain pressure on its internal
combustion engine automotive sector to incentivise the switch to EVs because cutting carbon pollution is a national
goal. Evidence of this came in January 2020, Miao Wei, China’s minister for industry and information technology
(MIIT), told the EV100 automotive conference in Beijing that the country would not cut subsidies for new energy
vehicles (NEV) again in July 202029. This move was seen as positive support for the EV sector. Nevertheless, EV
19 https://www.cnbc.com/2019/06/19/china-subsidy-cuts-for-electric-carmakers-could-lead-to-consolidation.html
https://www.bloomberg.com/news/articles/2019-11-08/china-is-considering-cutting-electric-car-subsidies-again
20 https://stockhead.com.au/resources/tim-treadgold-lithium-stocks-close-to-the-bottom-its-time-to-revisit-a-sold-
down-sector/
21 https://uk.reuters.com/article/us-albemarle-results/albemarle-to-delay-construction-plans-for-125000-tons-of-
lithium-processing-idUKKCN1UY1QS
22 https://www.afr.com/companies/mining/tianqi-puts-brakes-on-landmark-wa-lithium-plant-expansion-20190910-
p52ppp
23 https://www.afr.com/companies/mining/minres-reaps-us1-3-billion-for-stake-in-mothballed-lithium-mine-
20191101-p536h2
24 https://www.nemaskalithium.com/en/investors/press-releases/2019/53f0e3be-0d29-475e-b37f-7090e58ede31/
25 https://www.reuters.com/article/galaxy-rsrcs-output/australias-galaxy-resources-to-slash-output-at-flagship-
lithium-mine-in-2020-idUSL4N29S077
26 http://www.deutschelithium.de/wp-content/uploads/2019/06/NI43-101-Zinnwald_Feasibility-
Study_Summary.pdf
27https://www.indmin.com/Article/3878594/LITHIUM-CONF-Lithium-demand-could-outpace-supply-due-to-low-
prices-few-projects.html
28 https://www.bacanoralithium.com/cms/wp-content/uploads/2020/02/BCN-Presentation-Feb-2020.pdf
29 https://www.reuters.com/article/us-china-autos-
idUSKCN1ZA09Z?taid=5e19c3752f31770001c26e03&utm_campaign=trueAnthem:+Trending+Content&utm_medium=tr
ueAnthem&utm_source=twitter
32
makers are on the cusp of making vehicles that are cost competitive vs conventional vehicles (Circa US$20,000)30,
enabling mass market uptake. China’s population base, its siting of local manufacturers (Volkswagen, BYD, Tesla
etc.), developing infrastructure and its short commute distances make it well placed for larger scale electric
vehicle uptake31. Furthermore, there are currently plans for 103 Gigafactories to be in production by 203032, which
means that we are at the tipping point for affordable mass market production of EVs. For example, Volkswagen is
constructing two EV factories in China (at Foshan and Anting), with possible first production in 2020 33. Ultimate
capacity of these two factories is said to be 600,000 vehicles per annum. Additionally, Tesla has commenced trial
production in Shanghai with planned capacity of 150,000 vehicles that may benefit from subsidies for locally
produced vehicles having a range of over 400 kilometres34.
Despite the short-term softness in price caused by oversupply, investment in the development of battery
technology and the low cost-high quality battery materials supply chain continues apace. Deal flow and
announcements provided evidence of continued confidence in the underlying fundamentals of the lithium market.
In October 2019, Ganfeng Lithium completed its strategic investment in Bacanora obtaining 29.99% equity interest
in Bacanora Lithium Plc and 22.5% investment at the Sonora Project level. In November 2019, the Pallinghurst
group and Traxys announced a joint venture to invest US$2 billion in battery materials35. Construction continues on
Orocobre’s the Olaroz Stage 2 Lithium Carbonate expansion project (US$295 million) which is expected to
commission in H1 2021. Furthermore, Orocobre is investing US$90 million in the Naraha lithium hydroxide converter
plant (10 thousand tonnes per annum) commissioning expected in H1 202136.
With Sonora’s estimated cost of production of around US$4,000 per tonne, the 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 given
favourable production costs and the high-quality nature of our product.
Furthermore, the European lithium market is primed to grow significantly in the coming years. According to S&P
Global Platts Analytics monthly EV statistics, European EV sales in the first half of 2019 rose 40% year on year to
198,000, against an overall 2% decline for EU new car sales37. In a sign of growth in Europe’s EV market, Sweden’s
Northvolt said in June 2019, that it had raised US$1 billion from Volkswagen AG, BMW and others to build the
continent’s biggest lithium-ion battery plant38. In May 2019, France and Germany teamed up on a plan worth up to
€6 billion (US$6.8 billion) to jointly invest in the European production of EV batteries39. In November 2019, the
European Commission approved €3.2 billion euros (US$3.53 billion) of state aid from seven European Union
countries for research and innovation in battery technology40. As part of its expansion into EVs, the BMW Group is
deepening its existing relationship with Ganfeng Lithium. They have signed a 5-year (2020 - 2024) supply contract
for the Lithium Hydroxide. BMW estimated the value of the contract at €540 million41. Clearly, efforts are being
made by the European battery market to rival China’s existing dominance. We believe Zinnwald is strategically
positioned to take advantage of this burgeoning European EV market.
30 https://electrek.co/2019/05/23/skoda-citigo-iv-electric-car-cheap/
31 https://info.ornl.gov/sites/publications/files/Pub72210.pdf
32 https://seekingalpha.com/article/4314058-lithium-miners-news-for-month-of-december-2019
33 https://cleantechnica.com/2019/05/15/volkswagen-continues-to-ramp-up-its-electric-car-push/
34 https://insideevs.com/news/378294/tesla-production-sites-model-capacity/
35 https://www.ft.com/content/3723f12e-0549-11ea-a984-fbbacad9e7dd
36 https://www.orocobre.com/wp/?mdocs-file=6638
37 https://www.spglobal.com/platts/en/market-insights/latest-news/metals/110819-lithium-producers-paint-
gloomy-picture-for-2020
38 https://www.just-auto.com/news/volkswagen-leads-us1bn-northvolt-capital-raise_id189176.aspx
39 https://www.reuters.com/article/us-lithium-electric-europe/european-lithium-projects-gain-attention-amid-
push-toward-electric-vehicles-idUSKCN1TE34V
40 https://www.reuters.com/article/us-eu-batteries/eu-approves-3-2-billion-euro-state-aid-for-battery-research-
idUSKBN1YD0WJ
41 https://www.greencarcongress.com/2019/12/20191211-bmwganfeng.html
33
Financial Review
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 the six month period from 1 July to 31 December 2019, which may not be
directly comparable to the prior twelve month period of 1 July 2018 to 30 June 2019 previously reported.
The Group made an operating loss of US$4.9 million for the six month period ended 31 December 2019 compared
with a loss of US$11.1 million for the year ended 30 June 2019. This six month operating loss includes US$2.8
million general and administrative costs (year ending 30 June 2019: US$7.0 million) and share-based payment
compensation of US$0.3 million (year ending 30 June 2019: US$0.8 million). Overall, the operating loss reduced in
the six month period ended 31 December 2019 due to reduced corporate activities in the period compared to the
prior period.
During the six month period ended 31 December 2019, the Group incurred finance costs of US$2.4 million in
relation to the Group’s debt financing (year ended 30 June 2019: US$4.4 million). Finance income of US$0.9 million
(year ended 30 June 2019: US$1.9 million) comprised a revaluation of the Group’s financial warrants of US$0.7
million and interest on the Group’s cash reserves of US$0.2 million.
DL, which holds the Zinnwald Lithium Project, had a US$0.2 million loss during the six month period, of which,
Bacanora Lithium’s 50% share was US$0.1 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 does not exercise
the Bacanora Call Option, Solarworld has the right but not the obligation to purchase the Company’s 50% interest in
DL. The Bacanora Call Option was revalued to nil as at 31 December 2019 as a result of the unwinding of the time
value of the option using the Black-Scholes option pricing model, driving a US$0.2 million charge in the income
statement. On 14 February 2020, the Company has signed an agreement with the administrators of Solarworld to
remove both the Bacanora Call Option and Solarworld Option, consequently the option was derecognised, see note
6 for details. As part of the agreement, Bacanora retains its right of first refusal to purchase the remaining 50%
currently held by Solarworld. Bacanora has committed to providing additional financing of €1.35 million to fund the
DL operations over the next two years.
The total net assets of the Group increased to US$65.0 million at 31 December 2019 from US$32.4 million at 30
June 2019, due primarily to the issuance of share capital, net of issue costs, of US$27.7 million to Ganfeng and
M&G, plus an investment in SLL by Ganfeng of US$9.5 million, offset by the loss for the six month period of US$4.9
million. See below for further detail on the share issuances in the six month period.
The Group has a cash balance of US$48.9 million as at 31 December 2019, which increased by US$34.2 million from
US$14.8 million in the prior year. During the six month period, the Group received cashflows from the issues of
share capital of US$27.7 million, sale of non-controlling interest in subsidiaries of US$9.5 million and interest
income of US$0.2 million on the Group’s cash reserves. These cash inflows are partially offset by the cash used in
the operations which amounted to US$2.3 million, property, plant and equipment and exploration and evaluation
assets cash expenditures of US$0.6 million and funding DL of US$0.4 million.
Financing
In addition to the existing US$150 million debt facility with RK Mine Finance, of which US$125 million remains
undrawn, the following strategic investments were completed during the reporting period.
Strategic investment from Ganfeng Lithium Co., Ltd.
On 18 October 2019, the Bacanora Group completed investment and offtake agreements with Ganfeng where
Ganfeng:
•
•
subscribed for a 29.99% equity interest in Bacanora for a cash consideration of £14,400,091, being
57,600,364 new ordinary shares in the Company at a price of 25 pence per share, representing the volume
weighted average price ("VWAP") on AIM of the Company's shares over the previous 20 trading days at the
time of negotiation;
acquired an initial 22.5% interest in 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
34
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;
appointed Mr. Wang Xiaoshen as a Director to the boards of the Bacanora Lithium Plc and SLL;
acquired a long-term offtake at a market-based price per tonne for 50% of lithium production during Stage
1 and up to 75% of lithium production during Stage 2;
•
•
• would complete a review of the engineering design and capital costs of Sonora with a view to reducing
costs and accelerating the timetable, and;
provide a plant and process commissioning team to assist Bacanora in delivering first production in 2022.
•
Completion of 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.
Strategic investment from M&G Plc.
On 25 November 2019, Bacanora raised £7,729,150 via the placing of 30,916,601 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%. The net proceeds of
the placing will be used to support pre-construction works at the Sonora project.
These financing milestones bring us closer to completing the construction funding for Stage 1 development of
Sonora.
We continue to work towards full financing and development of our Projects and will update the market in the
future.
On behalf of the Board of Directors
Janet Blas
Chief Financial Officer
28 February 2020
The strategic report of Bacanora Lithium Plc, on pages 6 - 35, was approved and authorised for issue by the Board
of Directors on 28 February 2020 and were signed on its behalf by:
Mark Hohnen
28 February 2020
35
Governance
Directors and Senior Management
Board Composition
As at 31 December 2019, the Board comprised an Executive Chairman, an Executive Director, and five other Non-
Executive Directors. Details of the current Directors are set out within the list of Directors below. The Board will
continue to review its structure in order to provide what it considers to be an appropriate balance of executive and
non-executive experience and skills.
The Board considers the following Non-Executive Directors to be independent – Jamie Strauss, Eileen Carr and
Andres Antonius. None of these Directors have been employees, have a significant business relationship or close
family ties with related parties or represent significant shareholders, although they all hold options to acquire
ordinary shares in the Company.
In reviewing the independence criteria for Non-Executive Directors, the Board believes it important to note that
prior to the re-domicile in March 2018, Bacanora was a Canadian registered company listed on the TSX Exchange
under whose rules options granted to non-executive directors are not considered to impinge on their independence.
Under the QCA Code, non-executive directors should not have a significant interest in a company share option
scheme as it is considered that this may compromise their independence. The Board is aware that this issue should
be resolved according to UK best practice. To reflect the inherent conflict of interest in Non-executive Directors
approving their own remuneration, the Company’s Remuneration Committee will seek advice on their remuneration
from an independent external source and take soundings from significant shareholders on that matter.
Board Terms of Reference and Powers
The Board sets the Company’s strategic aims and ensures that necessary resources are in place in order for the
Company to meet its objectives. All members of the Board take collective responsibility for the performance of the
Company and all decisions are taken in the interests of the Company.
Whilst the Board has delegated the normal operational management of the Company to the Executive Directors and
other senior management, there are detailed specific matters subject to decision by the Board of Directors. These
include acquisitions and disposals, joint ventures and investments and projects of a capital nature.
The Non-Executive Directors have a particular responsibility to challenge constructively the strategy proposed by
the Chairman and Executive Director, to scrutinise and challenge performance, to ensure appropriate remuneration
and that succession planning arrangements are in place in relation to Executive Directors and other senior members
of the management team. The Lead Independent Director holds informal meetings with the Non-Executive Directors
without the Executives present. The Non-Executive Directors enjoy open access to the Executives and other senior
management with or without the Chairman being present.
Director Commitments
The two Executive Directors, Mark Hohnen and Peter Secker, are employed on full time contracts.
All Non-Executive Directors acknowledge in their letter of appointment that the nature of the role makes it
impossible to be specific on maximum time commitment and that at certain times of increased activity, then
preparation and attendance at meetings will increase. All Directors are expected to attend all Board meetings
(either in person or by phone), the AGM, one annual Board strategy meeting a year, committee meetings, meetings
with the Non-Executive Directors, meetings with shareholders, any meetings forming part of the Board evaluation
process and training meetings.
Board Meetings
The Board meets in a formal manner on a quarterly basis, with additional meetings held as required to review the
corporate and operational performance of the Group. Each Board Committee has compiled a schedule of work, to
ensure that all areas for which the Board has responsibility are addressed and reviewed during the course of the
year.
36
The Chairman, aided by the Company Secretary is responsible for ensuring that the Directors receive accurate and
timely information. The Company Secretary compiles the Board and Committee papers which are circulated to
Directors well in advance of all meetings. The Company Secretary provides minutes of each meeting and every
Director is aware of the right to have any concerns minuted.
A summary of attendance at Board meetings in the six months to 31 December 2019 is set out below:
Mark Hohnen
Peter Secker
Jamie Strauss
Eileen Carr
Andres Antonius
Junichi Tomono
Wang Xiaoshen
Derek Batorowski
24 July
✓
✓
✓
✓
✓
✓
n/a
✓
12 September
✓
✓
✓
✓
✓
✓
n/a
n/a
12 October
✓
✓
✓
✓
✓
✓
n/a
n/a
19 October
✓
✓
✓
✓
X
✓
✓
n/a
12 December
✓
✓
✓
✓
✓
✓
X
n/a
Board Committees
The Board has delegated specific responsibilities to the Audit, Remuneration and Corporate Governance
Committees, details of which are set out below. Each Committee has written terms of reference setting out its
duties, authority and reporting responsibilities. It is intended that these will be kept under continuous review to
ensure they remain appropriate and reflect any changes in legislation, regulation or best practice.
There is currently no internal audit function, given the size of the Group, although the Audit Committee keeps this
under annual review.
The Board considers that, at this stage in its development, it is not necessary to establish a formal nominations
committee and that this process shall be carried out by the Board. This decision will be kept under review by the
Directors on an on-going basis.
i
Audit Committee
The Audit Committee’s overall goal is to ensure that the Company adopts and follows a policy of proper and timely
disclosure of material financial information and reviews all material matters affecting the risks and financial
position of the Company. The Audit Committee, inter alia, meets with the Company’s external auditor and its
senior financial management to review the annual and interim Financial Statements of the Company, oversees the
Company’s accounting and financial reporting processes, the Company’s internal accounting controls and the
resolution of issues identified by the Company’s auditors. It also advises the Board on the appointment of the
Auditor, reviews their fees and discusses the nature, scope and results of the audit with the Auditor.
The Audit Committee is chaired by Eileen Carr and its other members, who are all considered independent during
the period were Jamie Strauss and Andres Antonius. The Committee has unrestricted access to the Group’s Auditor.
The CFO is invited to attend Committee meetings. The Committee meets at least bi-annually.
The Audit Committee Report contains more detailed information on the Committee’s role.
ii
Remuneration Committee
The Remuneration Committee assumes general responsibility for assisting the Board in respect of remuneration
policies for the Company and to review and recommend remuneration strategies for the Company and proposals
relating to compensation for the Company’s Officers, Directors and consultants. The Committee reviews the
performance of the Executive Directors and makes recommendations to the Board on matters relating to their
remuneration and terms of employment. It has the responsibility for, inter alia, administering share and cash
incentive plans and programmes for Directors and other senior management for approving (or making
recommendations to the Board on) share and cash awards for Directors and other senior management.
37
The Remuneration Committee is chaired by Jamie Strauss and its other members, who are all considered
independent, during the period were Andres Antonius and Eileen Carr. The Remuneration Report contains more
detailed information on the Committee’s role and the Directors’ remuneration and fees.
iii Corporate Governance Committee
The responsibility of the Corporate Governance Committee is to provide for the Board’s effectiveness and
continuing development. The Corporate Governance Committee will generally assist the Board in developing the
Company’s approach to its own governance by:
• Overseeing the Company’s corporate governance policies, including compliance with the 10 core principles
of good corporate governance identified in the QCA Guidelines 2018. This includes making policy
recommendations aimed at enhancing Board effectiveness and interaction with shareholders;
• Managing and overseeing the terms of reference for the Board, its Committees and key management and
ensuring effective communication between all parties, whilst maintaining their independence from each
other. This includes ongoing evaluation of Directors and the Board as a whole, identifying and
recommending potential new Directors; and overseeing succession planning for key individuals; and
Ensuring the Company maintains a robust two-way interaction with its shareholders and adopts disclosures
in the Company’s Annual Report to shareholders and on the corporate website in line with the requirements
set out in the QCA Guidelines.
•
The Corporate Governance Committee is comprised of three members of whom, one is an executive Director, Mark
Hohnen, and two are Non-Executive Directors, Eileen Carr and Jamie Strauss, the latter being Committee
Chairman. The Committee met during the period and all members attended the meeting.
iv Board as a whole
The skills and experience of the Board are set out in their biographical details below. The experience and
knowledge of each of the Directors gives them the ability to constructively challenge strategy and to scrutinise
performance. The Board believes it has the requisite blend of experience in financial and operational matters, as
well as improving gender balance, at a Board and Senior Management level to deliver on its strategy.
The Board do not believe that any of the Directors have too many Directorship roles at other listed companies and
hence at risk of “over-boarding” as defined by ISS voting guidelines but will continue to monitor this on an ongoing
basis. The Board is satisfied that the Chairman and each of the Non-Executive Directors are able to devote
sufficient time to the Group’s business.
During the six months to 31 December 2019, Mr. Wang Xiaoshen, the Deputy Chairman of Ganfeng Lithium was
appointed to the Board on 18 October 2019. Derek Batorowski resigned as Director on 12 September 2019.
New Directors receive a formal induction to the Company including a briefing memo on the Company from the
Company Secretary.
List of Directors
Mark Hohnen, Executive Chairman and Director
Mr Hohnen has experience in the Japanese, Chinese and Korean markets, all of which play a significant role in the
production of lithium-ion batteries and the development of electric vehicle technology. Mr. Hohnen has been
involved in the mineral resource sector since the late 1970s. He has had extensive international business
experience in a wide range of industries including mining and exploration, property, investment, software and
agriculture. He has held a number of directorships in both public and private companies, including Anglo Pacific
Resources Plc. Mr. Hohnen was also a director of Kalahari Minerals and Extract Resources, having successfully
negotiated the sale of both companies to Taurus (CGN). Mr Hohnen is currently a director of Pensana Metals Ltd,
the ASX listed rare earth metals explorer and Non-Executive Chairman of BOSS Resources Ltd, the ASX listed
Uranium mining company.
Peter Secker, Chief Executive Officer and Director
38
Mr Secker is a mining engineer with over 30 years of experience in the resources industry. During his career he has
built and operated a number of mines and metallurgical processing facilities in Africa, Australia, China and Canada.
His operating and project experience spans a number of commodities, including titanium, copper, iron ore, gold
and lithium. For the past fifteen years Mr. Secker has been Chief Executive of a number of publicly listed
companies in Canada, UK and Australia.
Jamie Strauss, Non-Executive Director
Mr Strauss has 30 years of experience within the stockbroking and mining finance sector. Currently he is founder
and director of Digbee Ltd, an Expert Network and Alternative Research Platform that is transforming due diligence
within the mining industry. He is also director of mining finance boutique, Strauss Partners Ltd, based in London,
UK. He was managing director at BMO Capital Markets from 2007 to 2009. He has raised in excess of US$1 billion for
projects spanning the globe in both energy and mineral world on behalf of leading institutions in UK, Europe, North
America and Australia. Mr. Strauss is an independent director of Altius Minerals and Gold Standard Ventures.
Eileen Carr, Non-Executive Director
Ms Carr has been a key member of teams behind the development of a number of successful mining operations
across the world, including the Freda Rebecca gold mine in Zimbabwe, the Ayanfuri gold mine in Ghana, the
Kalsaka gold mine in Burkina Faso and the Angovia gold mine in Ivory Coast. She has served as Finance Director/
CFO for both private and public companies starting with Cluff Resources in 1993. She has since gone on to hold
several executive directorships in the resource sector, including CFO at both AIM traded Monterrico Metals Plc and
Alexander Mining Plc, and director at European Goldfields Inc. Ms Carr has also held a number of non-executive
directorships and currently sits on the boards and the audit committees of the AIM listed companies Sylvania
Platinum Ltd and Firestone Diamonds Plc. Her first non-executive role was for Banro Corp in 1998 and more
recently she was a non-executive director for Talvivaara Mining Co, the Finnish nickel company, and Goldstar
Resources NL, an ASX listed gold company. Ms Carr is a Fellow of the Association of Certified Chartered
Accountants, holds an MSc in Management from London University and is a SLOAN fellow of London Business School.
Andres Antonius, Non-Executive Director
Dr Antonius is a Mexican national who has held positions in the Government of Mexico as well as in the private
sector and academia. Dr. Antonius previously served as undersecretary for Energy Policy and prior to that was a
staff member at the Agriculture Secretariat. Dr. Antonius is currently CEO of Plan B, a provider of strategic advice
to a range of clients. Prior to founding Plan B, he was the president of the Consulting Services Group at Kroll, a
world leader in risk management, business intelligence, and investigations. Dr. Antonius has also held the position
of director of strategic planning at the Instituto Tecnológico Autónomo de México (“ITAM”) and has taught
economic theory, game theory, and crisis management at both the ITAM and the Universidad Iberoamericana. He
received a B.A., Masters and PhD degree in Economics from Harvard University.
Junichi Tomono, Non-Executive Director
Mr Tomono has over 23 years of experience with Hanwa, during which time he has worked in the metals, chemicals,
alloys, scrap metals and mining divisions. Mr. Tomono has a special focus on the battery chemicals sector including
lithium. As head of the Primary Metal department and as a director of two of the companies Hanwa has invested in,
Mr. Tomono has played a key role in Hanwa adopting a more global focus in response to the rapid growth in the
lithium battery sector.
Wang Xiaoshen (Appointed – 18 October 2019)
Mr Wang Xiaoshen is the Vice President of Ganfeng and the vice-chairman of its board of directors. Mr. Wang
Xiaoshen is primarily responsible for the marketing, investment and overseas business of Ganfeng and has over 25
years of experience in sales and marketing of lithium products. He is a director of Ganfeng Lithium Co,. Ltd
International, Mariana Lithium, RIM and Lithium Americas. Mr. Wang obtained a bachelor’s degree in industrial
engineering management from North China University of Technology in the People’s Republic of China in 1990 and
an EMBA from the China Europe International Business School in the People’s Republic of China in 2002.
Derek Batorowski, Non-Executive Director (Resigned)
Mr Batorowski resigned effective 12 September 2019.
39
Board advice during the period
During the period, the Remuneration Committee of Board commissioned a third party review of remuneration of its
Board and Executive Management. The highlight recommendations from this review are included in the
Remuneration report on page 45.
Internal Advisory Roles
i
Lead Independent Director
Whilst Bacanora currently has an Executive Chairman, the Company has decided to have a Lead Independent
Director, Jamie Strauss. His primary role is to chair the (usually annual) meeting of the independent Directors, as
well as act as a sounding board and intermediary for the Chairman or other Board members, as necessary. The Lead
Independent Director also acts as an alternative route of access for shareholders and other Directors who have a
concern that cannot be raised through the normal channels of the Chairman or the Executive Directors. The Lead
Independent Director attends sufficient meetings with major shareholders and analysts to obtain a balanced
understanding of the issues and concerns of shareholders.
ii
Company Secretary
The Company Secretary, Cherif Rifaat, acts as a trusted adviser to the Chairman and the Board. He has been
heavily involved with Bacanora since its listing on AIM in 2014 and drove the corporate restructuring that led to the
re-domicile in 2018. He has a significant role in relation to the Company’s legal and regulatory compliance,
including being the MAR designee and plays a proactive and central role in ensuring good governance. The Company
Secretary assists the Chairman in preparing for and running effective Board meetings, including the timely
dissemination of appropriate information. The Company Secretary also acts as a conduit for all the Directors,
particularly the NEDs, into the workings of the Company, providing not only an induction programme but
information, advice and guidance. The Company Secretary often acts as one of the links between the Company and
shareholders on matters of governance and investor relations. The Company Secretary reports directly to the
Chairman on governance matters.
iii Annual Board Appraisal
In accordance with current best practice and the Code, the Board undertakes an annual formal evaluation of its
performance and effectiveness and that of each Director and its Committees. This evaluation was conducted by
way of a questionnaire from the Chairman, co-ordinated by the Company Secretary and concluded by Chairman
interviews where necessary. In addition, the Non-Executive Directors met, informally, without the Chairman
present and evaluated his performance. The Board currently considers that the use of external consultants to
facilitate the Board evaluation process is unlikely to be of significant benefit to the process, although the option of
doing so is kept under review.
The Chairman has stated that he values this annual evaluation opportunity and consider it key to his role in creating
an effective Board, is an effective assimilation of feedback received, and the development and effective
application of germane recommendations. He has reported that the Board was satisfied that the Board was
effective and well run.
Ongoing Board Development
Executive Directors are subject to the Company’s annual review process through which their performance against
predetermined objectives is reviewed and their personal and professional development needs considered.
Non-Executive Directors are encouraged to raise any personal development or training needs with the Chairman or
through the Board evaluation process.
The Company Secretary ensures that all Directors are kept abreast of changes in relevant legislation and
regulations, with the assistance of the Company’s advisers where appropriate.
40
i
Succession Planning
The Board has a minuted emergency succession plan for the Senior Management team. On an ongoing basis, Board
members maintain a watching brief to identify relevant internal and external candidates who may be suitable
additions to or backup for current Board members.
Corporate Governance Code
All members of the Board believe strongly in the value and importance of good corporate governance and in its
accountability to all of the stakeholders in Bacanora including our shareholders, advisers, regulators and other
suppliers. Robust corporate governance improves performance and mitigates risk and therefore is an important
factor in achieving the medium to long-term success of the Company. In the statement which follows, we explain
our approach to governance, and how the Board and its committees operate.
Changes to AIM rules on 30 March 2018 required AIM companies to apply a recognised corporate governance code
from 28 September 2018. Bacanora has chosen to adhere to the Quoted Company Alliance’s (“QCA”) Corporate
Governance Code for Small and Mid-Size Quoted Companies (revised in April 2018) to meet these requirements of
AIM Rule 26. The Company published its second annual QCA statement on 12 September 201942.
The QCA Code is constructed around ten broad principles and a set of disclosures. The QCA has stated what it
considers to be appropriate arrangements for growing companies and asks companies to provide an explanation
about how they are meeting the principles through the prescribed disclosures. We have considered how we apply
each principle to the extent that the Board judges these to be appropriate in the circumstances, and in our QCA
statement on our website we provide an explanation of the approach taken in relation to each. Like all aspects of
the QCA Code, addressing the disclosure requirements should not be approached as a compliance exercise; rather it
should be approached with the mindset of explaining and demonstrating the Company’s good governance to
external stakeholders
The Chair has the overall responsibility for implementing an appropriate corporate governance regime at the
Company.
At Bacanora, we view sustainability as a guiding principle of our development strategy and are dedicated to
delivering on the commitments to our shareholders, clients, employees, partners and other stakeholders with this
in mind.
We believe that transparency and ethical behaviour are central to any successful company and undertake all
development with respect to the environment and neighbouring communities. We seek to do this by:
Fulfilling legal requirements and other requirements applicable to the Group,
Identifying new ways to foster positive relationships in the local community,
Safeguarding our people’s health and wellbeing, as well as positive relationships in the work environment,
• Minimising our environmental impacts,
•
•
•
• Providing sustainability to the business for our shareholders and our partners, and
• We continuously review and improve our sustainability policy and productivity systems to ensure we meet
these objectives.
The Board believes that the promotion of a corporate culture based on sustainability, sound ethical values and
behaviours is essential to maximise shareholder value.
The Company maintains a Code of Conduct that includes clear guidance on what is expected of every employee and
officer of the Company. Adherence of these standards is a key factor in the evaluation of performance within the
Company, including during annual performance reviews. The Code of Conduct is included on the Company’s
website43 and has been translated into Spanish for use in our operations in Mexico.
42 https://www.bacanoralithium.com/cms/wp-content/uploads/2020/02/20190912-Bacanora-Lithium-QCA-
Statement-2019-1-1.pdf
43 https://www.bacanoralithium.com/investor-relations/csr-documents/
41
Audit Committee Report
Dear Shareholders,
I am pleased to present this report covering the activities of the Audit Committee for the six months ended 31
December 2019, which is in line with the decision taken to change our reporting period end to 31 December in
order to align our reporting with that of Mexican fiscal reporting and our other stakeholder reporting periods.
This report is prepared in accordance with the Quoted Companies Alliance (QCA) corporate governance code for
small and mid-sized quoted companies, revised in April 2018. A summary of the Audit Committee’s role,
membership and relevant qualifications can be found in the corporate governance section herein or the AIM Rule 26
disclosure on the website.
Committee meetings are held at least bi-annually, and the CFO is invited to attend together with the external
auditor. During the period, three meetings of the Committee were held, and the following significant issues were
considered:
Significant issue
Accounting for
Transactions - Accounting
Standards
Critical Judgement and
estimates - Impairment of
Mexican Assets
Critical Judgement and
estimates - Accounting
estimates relating to
Deutsche Lithium joint
venture and option
Going concern -
Accounting basis of
preparation
Summary of Significant Issue
Accounting for the corporate re-
organisation and the Ganfeng
transaction under IFRS 10 -
consolidated financial statements
and IAS 27 - separate financial
statements have been considered
in assessing the impact on Group,
Bacanora Lithium Plc. and SLL’s
financial statements.
Review of impairment indicators
under IAS 36 resulted in no
impairment required.
Review of impairment indicators
under IAS 36 resulted in no
impairment required.
The Deutsche Lithium option
concluded and was written to Nil
value.
Based on detailed cashflow
forecasts, whether it is prudent
to account on a going concern
basis.
Controls Processes –
Review of key controls
processes e.g. procurement
to pay, month end close &
reporting and cash and
treasury management.
Risk Management Process
Review of identification
and management process
of both strategic and
operational risks.
Upgrade of existing systems,
controls and procedures to
ensure compliance with
corporate governance
requirements.
Development of the control
framework for the management
and mitigation of risk.
Key Action Point
Committee action: Review of accounting
treatment.
Committee action: Review of estimates
prepared by management.
Committee action: Review of accounting
treatment.
Committee action: Detailed review and
interrogation of cashflow forecasts
prepared by management; consideration
of existing cash balances and review of
changes to debt covenants received
ensuring no going concern issues.
The review is ongoing and will continue
to be monitored as the Sonora Project
progresses into development to ensure
adequate controls are in place.
Strategic and operational risks were
identified and a control process is being
developed to manage/mitigate risk. This
process will be developed and monitored
over the coming period.
42
A detailed presentation of the results of the Audit Committee meetings is given at the board explaining the points
discussed as and when appropriate.
External auditor
The Company’s external auditor, BDO LLP (“BDO”) presented their detailed audit plan and final audit findings and
recommendations for the six months ended 31 December 2019. The Committee agreed with the audit approach at
the planning stage and agreed with the materiality thresholds, identification of the key risk areas and significant
judgements and estimates.
BDO has a significant presence in Mexico (BDO Castillo Miranda) and used their local team to undertake their field
work and substantive testing on the Company’s Mexican subsidiaries.
BDO was appointed to the role of Company auditor in May 2018 following the decision to re-domicile to the UK from
Canada. BDO’s strong presence in both Mexico and a good working relationship with our previous audit firm in
Canada was taken into consideration when deciding upon their appointment.
Substantive testing and technology
The Company recognises the efficiency offered through IT systems and technology and installed a new and
improved accounting system in Mexico in the previous accounting year. Implementation of the system has
continued throughout the period under review and further rollout will take place in 2020. This development will
greatly assist the reliance on controls going forward but in the short term, substantive procedures continue to
provide the most effective audit approach.
The audit team has visited the Mexican operations to undertake audit testing and to assess the controls and the
level of substantive testing.
The Audit Committee is satisfied that the audit engagement for the six months ended 31 December 2019 was both
effective and efficiently completed.
Fees
There was no significant non-audit work carried out by BDO during the period with the majority of tax advisory
work undertaken by PwC. Full details of fees paid during the period may be found in note 16 to the financial
statements.
Objectivity and Independence
The Audit Committee continues to monitor the auditor’s objectivity and independence and is satisfied that BDO and
the Group have appropriate policies and procedures in place to ensure that these requirements are not
compromised.
Re-appointment of External Auditor
The Audit Committee recommends to the Board the re-appointment of BDO as auditor at the forthcoming annual
general meeting (“AGM”) and BDO has expressed its willingness to continue in office as auditor.
Internal Auditor
The requirement for the appointment of an internal auditor is continually assessed by the Audit Committee; the
level of spend and complexity of the operations being taken into account when considering this decision. To date,
the Committee has decided that an internal audit function is not required but will continue to assess the situation
on a regular basis.
Going Concern
The Directors considered it appropriate to continue to adopt the going concern basis of accounting in preparing the
financial statements. The going concern statement is detailed in full in note 2c to the Financial Statements.
Conclusion
43
The Committee is satisfied with the quality of the external audit and believes that by virtue of this work, it is able
to take a measured and diligent view of the quality of financial and other systems of reporting and control within
the Company. In respect of its own performance, the Committee considers that it has directed the finance function
towards areas relevant to the risks facing the Company. It has constructively challenged and received a high level
of cooperation and support from all concerned. As a result of the work during the period, the Audit Committee
concluded that it has acted in accordance with its terms of reference and has ensured the independence and
objectivity of the external auditor.
For and on behalf of the Audit Committee of Bacanora Lithium Plc.
Eileen Carr
Chairman of the Audit Committee
28 February 2020
44
Remuneration Committee Report
Part 1 - Background Statement from the Chairman
On behalf of the Board, I am pleased to present the Directors’ Remuneration Report summarising the Company’s
remuneration policy and providing information on the Company’s remuneration approach and arrangements for
Executive Directors, Non-Executive Directors and senior executive management for the six months ended 31
December 2019.
This report is prepared in accordance with the Quoted Companies Alliance (QCA) Remuneration Committee Guide
for small and mid-sized quoted companies, revised in 2016. A summary of the Remuneration Committee’s role,
membership and relevant qualifications can be found in the corporate governance section herein or the QCA
statement on the website.
Remuneration Committee meetings are held at least twice a year with the primary focus of setting goals for the
coming period and then assessing results at the end of that period. During the six month period, the Remuneration
Committee met two times and;
• Reviewed salary levels of Executive Directors,
o
It was agreed that a full independent remuneration review for both Executives and Directors would
be carried out and completed in early 2020.
• Reviewed the suspended Option and RSU awards from the previous period,
• Reviewed, monitored and scored targets for FY 2019 period, and
• Determined new targets for the next financial period.
In the period the committee approached a number of independent remuneration consultants to tender for a
comprehensive review of its remuneration policies and structures. In December 2019, the committee formally
appointed Pearl Meyer to complete and report to the Company on the following key deliverables:
1. Defining the peer group for Bacanora;
2. Benchmarking remuneration for key executive roles, namely the Executive Chairman, CEO, CFO and Chief
Operating Officer. This will include Salary, Pensions, Other Benefits and Bonus schemes.
3. Reviewing policy for remuneration arrangements for the Non-Executive Directors and providing a
benchmark for NED pay including committee fees and the role of Senior Independent Director;
4. Update a Pay Philosophy for Bacanora;
5. Reviewing remuneration policy for Bacanora;
6. Designing pay packages, based on company requirements, underlying strategy and market norms
Part 2 – General Remuneration policy
In determining the remuneration of Executive Directors and senior management, the Remuneration Committee
seeks to enable the Company to attract, retain and motivate high calibre talent in order for the Company to pursue
its strategy and achieve its annual business plan and budgets as approved by the Board. In addition, it recommends
to the Board whether to grant share options and or Restricted Share Units in the Company and, if these are to be
granted who the recipients should be and how much they should receive.
The Committee has agreed with the Board a framework for the remuneration of the Executive Directors and senior
management of the Company, which is reviewed annually. The principal objectives of the Committee are to ensure
Management are provided with incentives to encourage enhanced performance and are, in a fair and responsible
manner, rewarded for their individual contributions to the ongoing success of the Company. We believe this is
essential to the Company achieving its strategic goals and generating shareholder value over the long term.
The remuneration policy is based on the following broad principles set by the Committee
• To provide a competitive remuneration package to attract and retain quality individuals
• To align remuneration to the overall objectives of the business
• To act in the interest of the Company by being financially responsible
• To align the interests of management with the interests of stakeholders, including its shareholders; and
45
• To set the pay of the Executive Directors and senior management with due account of Health, Safety,
Environment and Sustainability including alignment with its Overall Environmental and Social Governance
policies.
Part 3: Summary of existing pay structures
Remuneration policy for Executive Directors and Senior Management
For details of directors’ emoluments, please refer to note 19 to the Consolidated Financial Statements.
All Executive Directors and Senior Management are paid a fixed annual salary and, subject to meeting appropriate
targets within their scorecard, are included in the long-term incentive plans noted below. These contracts do not
currently include any short-term variable incentive elements in the form of cash bonuses. Through to the end of FY
June 2019, this incentive plan relates to a maximum number of options/RSUs for both the Executive Chairman and
CEO. In the case of all other members it relates to a percentage of salary.
Executive Director Service Contracts and Salaries:
Name
Role
Annual Salary as at 31 December 2019
Annual Salary as at 30 June 2019[1]
Annual Salary as at 30 June 2018[1]
Options and RSUs – Related to FY June 2019
Mark Hohnen
Executive Chairman
£240,000
£240,000
£240,000
151,439 Options
204,970 RSUs
Options and RSUs – Related to FY June 2018[2] Nil
Notice period[3]
3 months
Peter Secker
CEO
£300,000
£300,000
£300,000
205,800 Options
278,546 RSUs
Nil
12 months
[1] Please refer to note 19 for the dollarised total remuneration for the directors in the six month period to 31 December 2019
compared with the financial year to 30 June 2019. The salaries above represent the contractual annual base salaries.
[2] Due to the challenging financial circumstances at the end of the financial year 2018, the Committee reviewed the proposed
awards and concluded that the Executive Chairman and CEO would have their Option and RSU awards suspended until end of
calendar 2018. Consequently, the Options and RSUs awarded for the financial year 2018 are currently nil.
[3] In October 2018 Mr. Hohnen extended his contract until 31st December 2020 with a 3 month notice period.
Remuneration of Non-Executive Directors
The Non-Executive Directors have each entered into appointment letters as part of the redomicile process. The
table below shows key terms:
Annual Fees
Jamie Strauss
Eileen Carr
Andres Antonius
Junichi Tomono
Xiaoshen Wang
Basic Fee of £33,000, £7,000 as Chair of
Remuneration Committee, £7,000 as Chair of
Corporate Governance Committee, £6,000 for
Lead Independent Director
Basic Fee of £33,000, £7,000 as Chair of Audit
Committee
Basic Fee of US$50,000
Nil Fees
Nil Fees
Initial
Term
3 Years
Notice
1 Month
3 Years
1 Month
3 Years
3 Years
3 Years
1 Month
1 Month
1 Month
Junichi Tomono and Xiaoshen Wang are appointed as Non-Executive Directors subject to the investment agreements
in place between the Company and Hanwa and Ganfeng respectively.
For details of Non-Executive Directors emoluments, please refer to Note 19 for the dollarised total remuneration
for the Directors six month period to 31 December 2019 compared with the financial year to 30 June 2019. The
salaries above represent the contractual base salaries.
46
Scorecards
The Committee continues to use an annually reviewed scorecard system first introduced in 2017 to align
management with key Corporate goals. These strategic goals are established with the intention of generating
outstanding returns for shareholders while also prioritising key responsibilities for its multiple stakeholders. The
Committee continues to review its key remuneration policies against QCA guidelines, market best practice and a
review of the risk environment surrounding the Group’s remuneration arrangements.
All members of the scheme are aligned to ensuring Health, Safety, Environmental and Sustainability standards are
prioritised, in addition all scorecards have goals aligned to share price performance relative to the peer group and
adherence to approved corporate budget.
Long Term Incentive Schemes
The variable pay component is performance-related and currently comprises the long-term Option and Restricted
Share Units (RSU) schemes. The existing terms of these schemes, prior to the conclusion of the independent
review, are as follows:
• Option scheme:
o Options vest one third on date of grant, one third after 12 months from Grant Date, and one third
o
after 24 months from Grant Date;
In the event of a takeover or privatisation of the Company, all unvested Options shall vest
immediately;
o Options expire 90 days after recipient ceases to be a Director, office, employee or consultant,
unless the Board specifically agrees in writing otherwise; and
o Options expire on the third anniversary of the date of grant, if unexercised.
• RSU Scheme
o RSUs vest on the third anniversary of the date of grant;
o
In the event of a takeover or privatisation of the company, all unvested RSUs shall vest
immediately;
o The Participant receive on vesting, either Ordinary Shares in the Company, a Cash equivalent or a
combination thereof as determined by the Company. The value is subject to applicable UK
withholding taxes regardless of the domicile of the Participant; and
o RSUs expire 90 days after recipient ceases to be a Director, office, employee or consultant, unless
the Board specifically agrees in writing otherwise.
The Table below shows all existing Options Directors:
Date of
Grant
Name
Executive Directors
Mark Hohnen
Mark Hohnen
Mark Hohnen
Peter Secker
Peter Secker
Peter Secker
Non-Executive Directors
Jamie Strauss
Jamie Strauss
Andres Antonius
Andres Antonius
Eileen Carr
Junichi Tomono
Xiaoshen Wang
02-Mar-17
20-Sep-17
28-Oct-19
02-Mar-17
20-Sep-17
28-Oct-19
02-Mar-17
20-Sep-17
15-May-17
20-Sep-17
18-Apr-18
n/a
n/a
Expiry Date
Price
01-Mar-20
19-Sep-20
27-Oct-22
01-Mar-20
19-Sep-20
27-Oct-22
01-Mar-20
19-Sep-20
15-May-20
19-Sep-20
17-Apr-21
£0.8500
£0.8000
£0.3325
£0.8500
£0.8000
£0.3325
£0.8500
£0.8000
£0.8650
£0.8000
£0.8950
Vested
Options
249,900
224,910
50,480
300,000
240,000
68,600
750,000
750,000
500,000
750,000
208,333
Unvested
Options
0
0
100,959
0
0
137,200
0
0
0
0
104,167
47
The Table below shows all existing RSUs for Directors:
Name
Executive Directors
Mark Hohnen
Mark Hohnen
Peter Secker
Peter Secker
Date of Grant
RSUs Granted
Vesting Date
20-Sep-17
28-Oct-19
20-Sep-17
28-Oct-19
557,843
204,970
634,434
278,546
19-Sep-20
27-Oct-22
19-Sep-20
27-Oct-22
Part 4: Six Months to 31 December 2019 Review of Executive Directors and Senior Management
Due to the extended close periods during the financial year to 30 June 2019, Options and RSUs relating to the
financial year 2019 were awarded after the publication of the 2019 Annual Report and Financial Statements.
For the six month period to 31 December 2019, the Remuneration Committee acknowledged the completion of two
key corporate targets being the cornerstone investment and offtake agreement with Ganfeng Lithium and the
increased investment from the Company’s longest standing investor, M&G.
The Remuneration Committee met in July and September 2019 to set the scorecards for the Executive Team for the
six months to 31 December 2019. In February 2020, the Committee met to undertake its initial review of
performance against the scorecards. The final recommendations to the Board on percentage achievement together
with the actual number of Options and RSUs to be awarded will be determined after the Company exits its closed
period with the publication of these accounts.
Part 5: Initial recommendations from Independent Review
As noted in the last Annual Report, Bacanora has commissioned an independent review into its remuneration
structure, which is being conducted by Pearl Meyer and whose final recommendations for 2020 onwards will be laid
out once the work is complete. This review will include benchmarking remuneration for both the Executive
Management Team and also for Non-Executive Directors; as well as recommendations on revisions to the Company’s
Short-Term and Long-Term Incentive Plans.
In regard to Non-Executive Directors participation in the Company’s long-term incentive schemes. Pearl Meyer
recommended that going forward this should be discontinued in line with current best practice in the UK, whilst
acknowledging that this practice differs to companies listed in other countries and that the QCA Code is not explicit
on the subject. The Board believes it important to note that prior to the re-domicile in March 2018, Bacanora was
a Canadian registered company listed on the TSX Exchange under whose rules, options granted to Non-Executive
Directors are not considered to impinge on their independence. Accordingly, any unexercised Options already
granted to Non-Executive Directors shall remain in place subject to their existing terms.
For the purpose of share price performance, Bacanora has historically used a peer group, based on companies at a
similar “developer” stage to Bacanora within the Lithium space comprising Galaxy, Orocobre, Pilbara Minerals,
Nemaska Lithium, Lithium Americas and Critical Elements. Bacanora continues to use its existing comparator peer
group for price comparison and the following tables show relative share price performance against each of this peer
group and a consolidated index for the period since Bacanora first listed on AIM in July 2014. The second group of
charts excludes Pilbara Minerals, due to the distortive effect of its share price movement. Pearl Meyer will include
in their recommendations an updated peer group for the purposes of executive and director remuneration.
48
Indexed peer group, excluding Pilbara, for the period since Bacanora originally listed on AIM in 2014
Indexed peer group, for the period since Bacanora originally listed on AIM in 2014
For and on behalf of the Remuneration Committee
Jamie Strauss
Chairman of the Remuneration Committee
28 February 2020
49
Dialogue with Shareholders
All Investors
The Board attaches great importance to providing shareholders with clear and transparent information on the
Group's activities, strategy and financial position. General communication with shareholders is co-ordinated by the
Chairman, Chief Executive Officer and Chief Financial Officer. In addition, the Lead Independent Director provides
a further avenue for engagement with investors.
The Company publishes on its website the following information, which the Board believes play an important part
in presenting all shareholders with an assessment of the Group’s position and prospects:
• Updated investor presentations
• The Company’s most up to date technical reports on each of its projects;
• All Annual and Interim Financial Statements going back to the Company’s original inception as Bacanora
Minerals Ltd in 2008;
• All Company press releases issued under the RNS service going back to the Bacanora Minerals IPO on AIM in
2014;
• Details on the proxy voting results of all resolutions put to a vote at the most recent AGM;
• Contact details including a dedicated email address info@bacanoralithium.com through which investors can
contact the Company.
The Company’s AGM is held in London following the publication of its annual results and all shareholders are invited
to attend. Bacanora included in the 2019 AGM documents a “Deemed consent” letter to move to a default setting
that all statutory documents be supplied to shareholders in electronic form and via the website rather than in hard
copy. The Company believes that not only is this a more cost efficient and environmentally friendly option, but it
also better serves private shareholders who may hold their shares in nominee accounts and hence not be entitled to
direct receipt of these documents.
Institutional Investors
In general, the Board maintains a regular dialogue with its major institutional investors, providing them with such
information on the Company’s progress as is permitted within the guidelines of the AIM Rules, MAR and
requirements of the relevant legislation. The Company typically holds meetings with institutional investors and
other large shareholders following the release of interim and financial results.
The Company has had increased contact with both current and prospective institutional shareholders as part of the
fund-raise process for Sonora.
Private Investors
The Company acknowledges that the majority of its private investors hold their shares via nominee shareholders
and may not be able to fully exploit their shareholder rights effectively. Accordingly, the Company is committed to
engaging with all shareholders and not just institutional shareholders.
As the Company is too small to have a dedicated investor relations department, the CEO is responsible for
reviewing all communications received from shareholders and determining the most appropriate response. The CEO
works in conjunction with the Company’s PR advisers to facilitate engagement with its shareholders.
Following its move to the UK, the Company held shareholder conference calls by the CEO, whereby shareholders
were encouraged to submit questions in advance to the Company’s PR advisers. The Company also regularly
participates at investor shows offering smaller and private investors similar insight into the Company and access to
management.
Board review
The Board as a whole is kept informed of the views and concerns of major shareholders by briefings from the CEO,
Chairman and the Company’s Brokers. Any significant investment reports from analysts are also circulated to the
Board.
50
Directors Report
The Directors present their Annual Report and Financial Statements of the Company and Group for the six months
ended 31 December 2019.
Results and dividends
The results for the year are set out in the Consolidated Financial Statements.
No ordinary dividends were paid. The Directors do not recommend payment of a dividend.
Directors
The Directors who served during the period were:
• Mark Hohnen
• Peter Secker
Jamie Strauss
•
• Andres Antonius
Junichi Tomono
•
Eileen Carr
•
• Wang Xiaoshen (appointed 19 October 2019)
• Derek Batorowski (resigned 12 September 2019)
Directors' interests
The Directors' interests in the share capital of the Company as at 31 December 2019 are as follows:
Director
Mark Hohnen
Peter Secker
Jamie Strauss
Andres Antonius
Junichi Tomono
Eileen Carr
Wang Xiaoshen
Total
No of Shares
% of Issued Share Capital
2,514,951
-
102,857
-
-
-
-
2,617,808
1.1%
0.0%
0.1%
0.0%
0.0%
0.0%
0.0%
1.2%
Substantial shareholdings
The Directors are aware of the following substantial interests or holdings in 3% or more of the Company's ordinary
called up share capital as at 31 December 2019.
Major Shareholder
Ganfeng Lithium Co., Ltd(1)
M&G Plc
Hanwa Co Ltd
Igneous Capital Ltd (2)
D&A Income Ltd (2)
No of Shares
% of Issued Share Capital
57,600,364
44,373,385
12,333,261
9,883,774
4,738,030
25.8%
19.9%
5.5%
4.4%
2.1%
(1)The shareholding is legally owned by Ganfeng International Trading (Shanghai) Ltd, a 100% subsidiary of Ganfeng Lithium Co., Ltd
(2)Igneous Capital Ltd is a private corporation incorporated under the laws of the British Virgin Islands that is controlled by and ultimately
beneficially owned by Mr. Graham Edwards. Mr. Edwards is also one of the potential beneficiaries of a trust that owns D&A Income Ltd.
51
Directors’ and Officers’ insurance
The Company has made qualifying third-party indemnity provisions for the benefit of its Directors and Officers,
which were made during the period and remain in force at the reporting date.
Supplier payment policy
The Company's current policy concerning the payment of trade creditors is to follow the Confederation of British
Industry’s Prompt Payers Code (copies are available from the CBI, Centre Point, 103 New Oxford Street, London
WC1A 1DU).
Branches
Bacanora does not have any branches of the Company outside of the United Kingdom as defined in s1046(3) of the
Companies Act 2006.
Political donations
Bacanora and its subsidiaries have not made any political donations during the financial year.
Financial risks
Please refer to note 13 in the Consolidated Financial Statements for a detailed discussion on financial risk.
Post balance sheet events
Please refer to note 22 in the Consolidated Financial Statements for a detailed discussion on events that occurred
subsequent to 31 December 2019.
Future developments
The Company will continue to focus on its efforts to complete the fund-raising for Stage 1 of Sonora.
Auditor
BDO LLP were reappointed as auditor to the Company at the Annual General Meeting held on 12 December 2019.
Statement of disclosure to auditor
So far, as each person who was a Director at the date of approving this report is aware, there is no relevant audit
information of which the Company’s auditor is unaware. Additionally, the Directors individually have taken all the
necessary steps that they ought to have taken as Directors in order to make themselves aware of all relevant audit
information and to establish that the Company’s auditor is aware of that information.
On behalf of the Board of Directors
Mark Hohnen
28 February 2020
52
Directors Statement of Responsibilities
The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with
applicable law and regulations.
Company law requires the Directors to prepare Financial Statements for each financial year. Under that law the
Directors have elected to prepare the Group and Company Financial Statements in accordance with International
Financial Reporting Standards (IFRSs) as adopted by the European Union. Under company law the Directors must not
approve the Financial Statements unless they are satisfied that they give a true and fair view of the state of affairs
of the Group and Company and of the profit or loss of the Group for that period. The Directors are also required to
prepare financial statements in accordance with the rules of the London Stock Exchange for companies trading
securities on AIM.
In preparing these Financial Statements, the Directors are required to:
select suitable accounting policies and then apply them consistently;
•
• make judgements and accounting estimates that are reasonable and prudent;
•
state whether they have been prepared in accordance with IFRSs as adopted by the European Union,
subject to any material departures disclosed and explained in the Financial Statements; and,
• prepare the Financial Statements on the going concern basis unless it is inappropriate to presume that the
company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the
Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company
and enable them to ensure that the Financial Statements comply with the requirements of the Companies Act 2006.
They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
Website publication
The Directors are responsible for ensuring the Annual Report and the Financial Statements are made available on a
website. Financial Statements are published on the Company's website in accordance with legislation in the United
Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in
other jurisdictions. The maintenance and integrity of the Company's website is the responsibility of the Directors.
The Directors' responsibility also extends to the ongoing integrity of the Financial Statements contained therein.
53
Independent Auditor’s Report to the members of Bacanora Lithium Plc
Opinion
We have audited the financial statements of Bacanora Lithium Plc (the ‘parent company’) and its subsidiaries (the
‘group’) for the 6 month period ended 31 December 2019 which comprise the consolidated statement of
comprehensive income, the consolidated statement of financial position, the consolidated statement of changes in
equity, the consolidated statement of cash flows, the parent company statement of financial position, the parent
company statement of changes in equity, the parent company statement of cash flows and notes to the financial
statements, including a summary of significant accounting policies. The financial reporting framework that has
been applied in the preparation of the financial statements is applicable law and International Financial Reporting
Standards (IFRSs) as adopted by the European Union and, as regards the parent company financial statements, as
applied in accordance with the provisions of the Companies Act 2006.
In our opinion:
•
•
•
•
the financial statements give a true and fair view of the state of the group and of the parent company’s
affairs as at 31 December 2019 and of the group’s loss for the 6 month period then ended;
the group financial statements have been properly prepared in accordance with IFRSs as adopted by the
European Union;
the parent company financial statements have been properly prepared in accordance with IFRSs as adopted
by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and
the financial statements have been prepared in accordance with the requirements of the Companies Act
2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law.
Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the
financial statements section of our report. We are independent of the group and the parent company in accordance
with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the
FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in
accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report
to you where:
•
•
the directors’ use of the going concern basis of accounting in the preparation of the financial statements is
not appropriate; or
the directors have not disclosed in the financial statements any identified material uncertainties that may
cast significant doubt about the group’s or the parent company’s ability to continue to adopt the going
concern basis of accounting for a period of at least twelve months from the date when the financial
statements are authorised for issue.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of
the financial statements of the current period and include the most significant assessed risks of material
misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on: the
overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming
our opinion thereon, and we do not provide a separate opinion on these matters.
54
Key Audit
Matter
How we
addressed the
Key Audit
Matter in the
Audit
Carrying value of evaluated mineral property
As at 31 December 2019 the group’s evaluated mineral property totalled $26.1m. The details
of these assets are disclosed in note 7.
There are a large number of judgements and estimates used by management in assessing
these assets for impairment under the accounting standards. These are set out in note 4c,
and the subjectivity of the judgements and estimates together with the significant carrying
value of the assets make this a key area of focus for our audit.
We have assessed management’s impairment review and our procedures included the
following:
• We have reviewed the feasibility study prepared by managements independent
consultants for consistency with management’s representations and assessed the
competence and independence of the experts used by management.
• We have reviewed the projected cash flows prepared by management which assume
a 20 year life of mine. In our review of the forecasts we checked for consistency
against the feasibility study report.
• We have assessed the key inputs for reasonableness, namely lithium prices, costs and
overheads and production output, against market data and supporting
documentation.
We evaluated the adequacy of the disclosures provided within the financial statements in
relation to impairment assessment against the requirements of the accounting standards.
Key
observations
Based on our work we have no matters to communicate in respect of management’s
assessment of the carrying value of the group’s evaluated mineral property.
Key Audit
Matter
How we
addressed the
Key Audit
Matter in the
Audit
Carrying value of the investment in a joint venture
The group holds a 50% investment in Deutsche Lithium GmbH, an entity involved in the
exploration of a Lithium deposit in Germany. During the period the group have continued to
provide funding to the project. Its carrying value at 31 December 2019 is $9.5m and details
are provided in note 6.
Management have used judgements and estimates to assess the carrying value of the
investment and to determine whether any indicators of impairment exist. These are set out in
note 4f, and given the subjectivity of these judgements and estimates, this was assessed to be
a key area of focus for our audit work.
We have assessed management’s consideration of the carrying value of the investment and
have performed the following work:
• We have reviewed the feasibility study prepared by independent experts and
confirmed the inputs used by management in assessing the recoverability of the
investment.
• We have reviewed management’s assessment for impairment indicators as required by
accounting standards corroborated their assessment to supporting documentation,
including the project feasibility study.
• We have checked the group’s contributions to the project against the contractual
arrangements.
• We have considered the impact on the valuation of the amendment to the agreement
with the administrator of Solarworld AG which has been signed since the year end.
• We evaluated the adequacy of the disclosures provided within the financial statements
in relation to the carrying value of the investments.
Key
observations
Based on the work performed we have no matters to communicate in respect of management’s
assessment regarding the carrying value of the investment.
Our application of materiality
We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of
misstatements. We consider materiality to be the magnitude by which misstatements, including omissions, could
influence the economic decisions of reasonable users that are taken on the basis of the financial statements.
Importantly, misstatements below these levels will not necessarily be evaluated as immaterial, as we also take
account of the nature of identified misstatements, and the particular circumstances of their occurrence, when
evaluating their effect on the financial statements as a whole.
55
Group materiality was $860,000 (June 2019: $860,000) being 0.9% of total assets (June 2019: 1.5% of total assets).
The materiality for the period was set after taking into account the short reporting period and the high level of
cash held by the group.
Because the group is developing its main project and has no revenue, we consider assets to be one of the principal
considerations for the users of the financial statements. Each significant component of the group has had an
individual component materiality threshold set, with the parent materiality being set at 90% (June 2019: 80%) of
group materiality at $750,000 (June 2019: $690,000). Component materiality ranged from $320,000 to $750,000.
Performance materiality is the application of materiality at the individual account or balance level set at an
amount to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected
misstatements exceeds materiality for the financial statements as a whole. Performance materiality was set at
$645,000 (June 2019: $645,000) at a group level, and $560,000 (June 2019: $520,000) at a parent level, which
represents 75% of the above materiality level. The level of performance materiality was set after considering a
number of factors including the expected value of known and likely misstatements and management’s attitude
towards proposed adjustments.
We agreed with the audit committee that differences above $17,000 (June 2019: $17,000) will be reported to those
charged with governance. We also agreed to report differences below the above threshold which warranted
reporting on qualitative grounds.
An overview of the scope of our audit
The group comprises of the UK parent company and a number of subsidiaries which are incorporated in Mexico and
Canada. We have performed a full scope audit over the group’s significant components comprising Bacanora
Lithium Plc and Minera Sonora Borax, S.A de CV, and Bacanora Finco Ltd. Each of the audits were conducted by
BDO LLP with members of the group audit team visiting the Mexican operations. In respect of the other components
which were deemed to be non-significant, these components were principally subject to analytical review
procedures together with certain substantive tests over areas relating to group risks by BDO LLP.
Other information
The directors are responsible for the other information and financial statements. The other information comprises
the information included in the annual report other than the financial statements and our auditor’s report thereon.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise
explicitly stated in our report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in
doing so, consider whether the other information is materially inconsistent with the financial statements or our
knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material
inconsistencies or apparent material misstatements, we are required to determine whether there is a material
misstatement in the financial statements or a material misstatement of the other information. If, based on the
work we have performed, we conclude that there is a material misstatement of this other information, we are
required to report that fact. We have nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
•
•
the information given in the strategic report and the directors’ report for the financial period for which the
financial statements are prepared is consistent with the financial statements; and
the strategic report and the directors’ report have been prepared in accordance with applicable legal
requirements.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the group and the parent company and its environment obtained
in the course of the audit, we have not identified material misstatements in the strategic report or the directors’
report.
56
BACANORA
lithiurn
xN
We have nothing to report in respect of the foltowing matters in relation to which the Companies Act 2006 requires
us to report to you if, in our opinion:
have not been received from branches not visited by us; or
. adequate accounting records have not been kept by the parent company, or returns adequate for our audit
o the parent company financial statements are not in agreement with the accounting records and returns; or
o certain disctosures of directors' remuneration specified by law are not made; or
. we have not received a[[ the information and explanations we require for our audit.
Responsibi tities of directors
As exptained more futty in the directors' responsibilities statement, the directors are responsible for the
preparation of the financial statements and for being satisfied that they give a true and fair view, and for such
internal contro[ as the directors determine is necessary to enabte the preparation of financiat statements that are
free from material misstatement, whether due to fraud or error.
ln preparing the financial statements, the directors are responsibte for assessing the group's and the parent
company's abitity to continue as a going concern, disclosing, as appticable, matters retated to going concern and
using the going concern basis of accounting untess the directors either intend to liquidate the group or the parent
company or to cease operations, or have no reatistic atternative but to do so.
Auditor's responsibilities for the audit of the financial statements
Our objectives are to obtain reasonabte assurance about whether the financial statements as a whole are free from
materia[ misstatement, whether due to fraud or error, and to issue an auditor's report that inctudes our opinion.
Reasonable assurance is a high [eve[ of assurance, but is not a guarantee that an audit conducted in accordance
with lSAs (UK) witt always detect a materia[ misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individuatty or in the aggregate, they
could reasonably be expected to influence the economic decisions of users taken on the basis of these financial
statements.
A further description of our responsibitities for the audit of the financial statements is [ocated on the Financial
Reporting Councit's website at: www.frc.orq.uk/auditorsresponsibilities. This description forms part of our
auditor's report.
Use of our report
This report is made sotety to the parent company's members, as a body, in accordance with Chapter 3 of Part 16 of
the Companies Act 2006. Our audit work has been undertaken so that we might state to the parent company's
members those matters we are required to state to them in an auditor's report and for no other purpose. To the
futtest extent permitted by [aw, we do not accept or assume responsibitity to anyone other than the parent
company and the parent company's members as a body, for our audit work, for this report, or for the opinions we
have formed.
flo
uc,P
Stuart Barnsdatl (Senior Statutory Auditor)
For and on behalf of BDO LLP Statutory Auditor
London, UK
28 February 2020
BDO LLP is a timited tiabitity partnership registered in Engtand and Wales (with registered number OC305127)
57
Consolidated Statement of Financial Position
As at 31 December 2019
In US$
Assets
Current assets
Cash and cash equivalents
Other receivables and prepayments
Derivative asset
Total current assets
Non-current assets
Investment in joint venture
Property, plant and equipment
Exploration and evaluation assets
Total non-current assets
Total assets
Liabilities and shareholders’ equity
Current liabilities
Accounts payable and accrued liabilities
Joint venture obligation
Total current liabilities
Non-current liabilities
Borrowings
Warrant liability
Total non-current liabilities
Total liabilities
Shareholders’ equity
Share capital
Share premium
Merger reserve
Share-based payment reserve
Foreign currency translation reserve
Retained earnings
Equity attributable to equity shareholders of Bacanora Lithium Plc
Non-controlling interest
Total shareholders’ equity
Note
31 December 2019
30 June 2019
5
6c
6a
7
8
9
6b
10
11
14
14
14
14
23
48,903,551
1,777,421
–
50,680,972
9,545,993
30,443,640
534,588
40,524,221
14,763,706
2,404,304
193,902
17,361,912
9,347,086
29,806,113
523,947
39,677,146
91,205,193
57,039,058
1,451,346
113,697
1,565,043
24,051,610
587,315
24,638,925
1,474,543
237,105
1,711,648
21,622,167
1,259,923
22,882,090
26,203,968
24,593,738
30,240,469
16,646,060
53,557,251
3,807,562
3,568,358
18,996,790
153,366
53,557,251
5,417,193
3,568,358
(55,464,190)
(48,539,746)
52,355,510
33,153,212
12,645,715
65,001,225
(707,892)
32,445,320
Total liabilities and shareholders’ equity
91,205,193
57,039,058
The accompanying notes on pages 62 - 95 are an integral part of these Consolidated Financial Statements.
The Consolidated Financial Statements of Bacanora Lithium Plc, registered number 11189628, were approved and authorised for
issue by the Board of Directors on 28 February 2020 and were signed on its behalf by:
Mark Hohnen
28 February 2020
58
Consolidated Statement of Comprehensive Income
For the six month period ended 31 December 2019
In US$
Expenses
General and administrative
Depreciation
Share-based payment expense
Foreign exchange (loss)/gain
Operating loss
Finance and other income
Finance costs
Joint venture investment loss
Revaluation of derivative asset
Loss on fixed asset disposals
Loss before tax
Tax charge
Loss after tax
Other comprehensive income
Total comprehensive loss
Note
Six months ended
Twelve months ended
31 December 2019
30 June 2019
16
7
14
17
17
6a
6c
15
(2,763,202)
(7,041,319)
(101,549)
(290,391)
(18,307)
(163,581)
(800,846)
17,581
(3,173,449)
(7,988,165)
928,796
(2,429,443)
(80,887)
(191,066)
–
1,919,124
(4,423,032)
(168,679)
(421,698)
28,702
(4,946,049)
(11,053,748)
–
(5,012)
(4,946,049)
(11,058,760)
-
-
(4,946,049)
(11,058,760)
Loss attributable to shareholders of Bacanora
Lithium Plc
(4,864,910)
(11,048,969)
Loss attributable to non-controlling interests
(81,139)
(9,791)
Loss after tax
(4,946,049)
(11,058,760)
Total comprehensive loss attributable to
shareholders of Bacanora Lithium Plc
Total comprehensive loss attributable to non-
controlling interests
(4,864,910)
(11,048,969)
(81,139)
(9,791)
Total comprehensive loss
(4,946,049)
(11,058,760)
Net loss per share (basic and diluted)
14
(0.03)
(0.08)
The accompanying notes on pages 62 - 95 are an integral part of these Consolidated Financial Statements.
59
Consolidated Statement of Changes in Equity
For the six month period ended 31 December 2019
Share capital
In US$
30 June 2018
Comprehensive income for the year:
Loss for the year
Total comprehensive loss
Contributions by and distributions to owners:
Shares issued on exercise of options
Lapsed option charge
Share-based payment expense
30 June 2019
Comprehensive income for the period:
Loss for the period
Total comprehensive loss
Contributions by and distributions to owners:
Issue of share capital - Ganfeng investment
Issue of share capital - M&G investment
Share issue costs
Adjustment arising from change in non-controlling
interest
Lapsed option charge
Share-based payment expense
Note
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
134,164,872
18,958,033
140,592
53,557,251
6,138,085
3,568,358
(39,029,014)
43,333,305
(698,101)
42,635,204
–
–
–
–
–
–
300,000
38,757
12,774
–
–
–
-
–
-
–
–
–
–
-
–
–
(60,950)
(1,460,788)
800,846
–
–
-
–
-
(11,048,969)
(11,048,969)
(9,791)
(11,058,760)
(11,048,969)
(11,048,969)
(9,791)
(11,058,760)
77,449
1,460,788
68,030
–
–
800,846
–
–
–
68,030
–
800,846
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
–
–
–
–
–
–
57,600,364
7,251,886
10,877,829
30,916,601
3,991,793
5,987,690
–
–
–
–
–
–
–
–
(372,825)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1,900,022)
290,391
–
–
–
–
–
–
–
(4,864,910)
(4,864,910)
(81,139)
(4,946,049)
(4,864,910)
(4,864,910)
(81,139)
(4,946,049)
–
–
18,129,715
–
18,129,715
9,979,483
(372,825)
9,979,483
(372,825)
(3,959,556)
(3,959,556)
13,434,746
9,475,190
1,900,022
–
–
–
290,391
–
290,391
14
14
14
14
14
14
14
14
14
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
The accompanying notes on pages 62 - 95 are an integral part of these Consolidated Financial Statements.
60
Consolidated Statement of Cash Flows
For the six month period ended 31 December 2019
In US$
Cash flows from operating activities
Loss for the period before tax
Adjustments for:
Depreciation of property, plant and equipment
Share-based payment expense
Foreign exchange
Finance and other income
Finance costs
Joint venture investment loss
Revaluation of derivative asset
Gain on disposal of property, plant and equipment
Changes in working capital items:
Other receivables
Accounts payable and accrued liabilities
Income tax paid
Net cash used in operating activities
Cash flows from investing activities:
Interest received
Purchase of property, plant and equipment
Purchase of exploration & evaluation assets
Proceeds on disposal of property, plant and equipment
Proceeds on sale of subsidiaries
Payments to the joint venture
Net cash from/(used) in investing activities
Cash flows from financing activities
Issues of share capital, net of share costs
Proceeds from borrowing, net of fees
Exercise of options
Net cash flows from financing activities
Change in cash and cash equivalents during the period
Exchange rate effects
Cash and cash equivalents, beginning of the period
Cash and cash equivalents, end of the period
Note Six months ended
Twelve months ended
31 December 2019
30 June 2019
(4,946,049)
(11,053,748)
7
14
17
17
6a
6c
6b
14
10
14
101,549
290,391
58,755
(928,796)
2,429,443
80,887
191,066
–
525,594
(82,356)
–
(2,279,516)
214,408
(560,950)
(10,641)
–
9,475,190
(401,972)
8,716,035
27,736,373
–
–
27,736,373
34,172,892
(33,047)
14,763,706
48,903,551
163,581
800,846
66,931
(1,919,124)
4,423,032
168,679
421,698
(28,702)
(844,708)
(1,108,972)
(5,012)
(8,915,499)
249,422
(8,262,991)
(21,000)
119,759
–
(2,421,090)
(10,335,900)
–
20,875,000
68,501
20,943,501
1,692,102
(131,448)
13,203,052
14,763,706
The accompanying notes on pages 62 - 95 are an integral part of these Consolidated Financial Statements.
61
Notes to the 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 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,
effective from 12 December 2017. 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.
In June 2019, Deutsche Lithium published the results of the feasibility study for the Zinnwald Lithium Project in
Germany, which confirmed the positive economics and favourable operating costs for the production of 5,112 tpa
(~7,285 tpa LCE) of battery-grade lithium fluoride, a high value, downstream product used in the manufacture of
lithium battery electrolytes for the European electric vehicle industry. With a long life of project of 30 years, the
feasibility estimates a pre-tax project net present value of €428 million at an 8% discount rate, an internal rate of
return of 27.4%, and a 46% EBITDA operating profit margin.
For assets outside of the feasibility studies, the Group has not yet determined whether its mineral properties
contain economically recoverable reserves. The recoverability of amounts capitalised is dependent upon the
discovery of economically recoverable reserves, maintaining title in the properties and obtaining the necessary
financing to complete the exploration and development of these projects and upon attainment of future profitable
production. The amounts capitalised as exploration and evaluation assets represent costs incurred to date, and do
not necessarily represent present or future values.
2 Basis of preparation
a Statement of compliance
These Consolidated Financial Statements have been prepared in accordance with International Financial Reporting
Standards, International Accounting Standards and Interpretations (collectively "IFRS") as adopted by the European
Union (“EU”) applied in accordance with the provisions of the Companies Act 2006.
IFRS is subject to amendment and interpretation by the International Accounting Standards Board (“IASB”) and the
IFRS Interpretations Committee, and there is an ongoing process of review and endorsement by the European
Commission.
They have been prepared for the short period of six months from 1 July 2019 to 31 December 2019. The Company
changed its accounting period end from 30 June to 31 December to align its reporting period with Mexican financial
and tax reporting and other stakeholders reporting period.
The Consolidated Financial Statements were authorised for issue by the Board of Directors on 28 February 2020.
b Basis of measurement
These Consolidated Financial Statements have been prepared on a historical cost basis, except for certain financial
instruments that have been measured at fair value.
These Consolidated Financial Statements are presented in United States dollars (“US$”). The functional currency of
the Company and its subsidiaries is the United States dollar.
62
c Going Concern
The Directors have, at the time of approving the Consolidated Financial Statements, a reasonable expectation that
the Company has adequate resources to continue in operational existence for the foreseeable future. The Group
has not entered into commitments to develop the Sonora Lithium Project. In relation to Deutsche Lithium, the total
commitments entered into by the Company amounts to US$1.58 million. Thus, the going concern basis of
accounting in preparing the Financial Statements continues to be adopted.
3 Significant accounting polices
The preparation of 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. Below are the significant accounting policies applied by management. The areas involving a
higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the
Consolidated Financial Statements are disclosed in note 4.
Basis of consolidation
The Consolidated Financial Statements comprise the Financial Statements of the Company and following
subsidiaries at 31 December 2019:
Name of subsidiary
Country of
incorporation
Bacanora Finco Ltd
Bacanora Treasury Ltd
Sonora Lithium Ltd
UK
UK
UK
UK
Zinnwald Lithium Ltd
Jersey
Battery Finance (Jersey) Ltd
Bacanora Chemco S.A. de C.V.* Mexico
Canada
Bacanora Minerals Ltd*
Mexilit S.A. de C.V**
Minera Megalit S.A. de C.V**
Mineramex Ltd**
Minera Sonora Borax, S.A. de
C.V***.
Operador Lithium Bacanora
S.A. de C.V.***
Minerales Industriales
Tubutama, S.A. de C.V***
Mexico
Mexico
BVI
Mexico
Mexico
Mexico
Shareholding on
31 December
2019
100%
100%
77.5%
100%
100%
77.5%
77.5%
Shareholding
on 30 June
2019
100%
100%
100%
100%
100%
100%
100%
54.25%
54.25%
77.5%
77.5%
77.5%
46.5%
70%
70%
100%
100%
100%
60%
Nature of business
Financing company
Financing company
Holding company
Dormant
Dormant
Lithium processing
Holding company
Lithium
mining/exploration
Mineral exploration
Holding company
Lithium
mining/exploration
Mexican service
organisation
Dormant
*Held indirectly through Sonora Lithium Ltd
** Held indirectly though Sonora Lithium Ltd and Bacanora Minerals Ltd
***Held indirectly though Sonora Lithium Ltd, Bacanora Minerals Ltd and Mineramex Ltd
Subsidiaries are controlled by the Company where the Company is exposed to, or has rights to, variable returns
from its involvement with the subsidiary and has the ability to affect those returns through its application of this
power. Subsidiaries are consolidated from the date of acquisition, being the date on which the Company obtains
control, and continue to be consolidated until the date when such control ceases. The financial statements of the
subsidiaries are prepared for the same reporting period as the Parent Company, using consistent accounting
policies. All intercompany balances and transactions are eliminated in full. Losses within a subsidiary are attributed
to the non-controlling interest even if that results in a deficit balance. A change in ownership interest of a
subsidiary, without a loss of control, is accounted for as an equity transaction.
In August 2019, Bacanora Lithium Plc’s 100% ownership of Bacanora Minerals Ltd and all its subsidiaries were
transferred to Sonora Lithium Ltd (a 100% subsidiary of Bacanora Lithium Plc at that time). In October 2019,
Ganfeng Lithium Co., Ltd purchased 22.5% of the shareholding of Sonora Lithium Ltd and its subsidiaries. In
63
addition, Ganfeng Lithium Co., Ltd were issued an option to purchase a further 27.5% to reach a shareholding of
50% within 2 years of the initial investment (the “Ganfeng Option”). See Note 14 for further details.
The Group considers that it has the rights to the variable returns from Sonora Lithium Ltd and its subsidiaries and
has the ability to affect those returns through the application of its power from its controlling members of the
Board and its shareholder voting rights. In assessing control, the Group has considered future voting rights and note
that in the event of exercise of the Ganfeng Option, a joint venture agreement must be agreed, and a number of
key stakeholders including the Board and shareholders of Bacanora Lithium Plc may need to provide consent to the
transaction, for these reasons the Board does not consider these potential voting rights to be substantive and the
Group believes that it has control of the Project and does not have available reliable information to conclude that
it does not have control. At the event of an exercise of the Ganfeng Option and successful completion of the
transaction, the Group will be required to make an assessment, in accordance with IFRS, of whether it continues to
have power over the project, rights to the variable returns of the Project and has the ability to affect those
returns. This assessment will be subject to, among others, the terms of the new joint venture agreement. The
Group notes the completion of such a transaction could potentially have significant impact on the consolidation
procedures of the Group Consolidated Financial Statements.
Standards, amendments and interpretations adopted
During the period, the following standards and amendments have been implemented.
Standard
IFRS 16
IFRS 11
IAS 19
IAS 23
IAS 28
IFRIC 23
Detail
Leases
Amendment – annual improvements 2015-2017 cycle
Amendment – regarding plan amendments, curtailments or settlements
Amendment – annual improvements 2015-2017 cycle
Amendment – regarding long-term interests in associates and joint ventures
Uncertainty over income tax treatments
Effective date
1 January 2019
1 January 2019
1 January 2019
1 January 2019
1 January 2019
1 January 2019
i
IFRS 16, Leases
IFRS 16, which supersedes IAS 17, sets out principles for the recognition, measurement, presentation and disclosure
of leases for both parties to a contract, i.e. the customer (“lessee”) and the supplier (“lessor”). Lessee accounting
has changed substantially under this new standard while there is little change for the lessor. IFRS 16 has removed
the classification of leases as either operating leases or financing leases and, instead, introduced a single lessee
accounting model. A lessee is required to recognise assets and liabilities for all leases with a term of more than 12
months (unless the underlying asset is of low value) and is required to present depreciation of leased assets
separately from interest on lease liabilities in the Consolidated Statement of Comprehensive Income. A lessor
continues to classify its leases as operating leases or financing leases, and to account for those two types of leases
separately.
On 1 July 2019, the Group adopted IFRS 16. The Group has reviewed its contracts and agreements and have not
identified any leases. The impact of IFRS 16 is nil on both current and prior periods.
Standards, amendments and interpretations effective in future periods
At the date of authorisation of these 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
IFRS 17
IAS 1
IAS 1
Detail
Insurance contracts
Amendment – regarding the definition of material
Amendment – regarding the classification of liabilities
Effective date
1 January 2021
1 January 2020
1 January 2022
Management anticipates that all the pronouncements will be adopted in the Group’s accounting policies for the
first period beginning after the effective date of the pronouncement.
64
Foreign currency transactions and translations
In preparing the financial statements of each individual Group entity, transactions in currencies other than the
entity’s functional currency (foreign currencies) are recognised at the rates of exchange prevailing at the dates of
the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are
retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in
foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Non-
monetary items that are measured in terms of historical cost in a foreign currency are not retranslated at the end
of each reporting period.
Exchange differences on monetary items are recognised in profit or loss in the period in which they arise. Foreign
exchange differences which arise on differences in functional currencies between entities and the Group reporting
currency are recognised initially in other comprehensive income and reclassified from equity to profit or loss on
repayment of the monetary items.
The results and financial position of a foreign operation are translated into the presentational currency, assets and
liabilities are translated at the balance sheet date; income statements are translated at average rates. All resulting
exchange differences are recognised directly, through other comprehensive income, in a separate component of
equity.
Cash and cash equivalents
Cash and cash equivalents are comprised of cash held on deposit and other short-term, highly liquid investments
with original maturities of three months or less. These deposits and investments are readily convertible to known
amounts of cash and subject to an insignificant risk of change in value.
Other receivables
All receivables are held at amortised cost less any provision for impairment. A loss allowance for expected credit
losses is made to reflect changes in credit risk since the initial recognition.
Joint arrangements
Certain Group activities are conducted through joint arrangements in which two or more parties have joint control.
A joint arrangement is classified as either a joint operation or a joint venture, depending on the rights and
obligations of the parties to the arrangement.
Joint operations arise when the Group has a direct ownership interest in jointly controlled assets and obligations
for liabilities. The Group does not currently hold this type of arrangement.
Joint ventures arise when the Group has rights to the net assets of the arrangement. For these arrangements, the
Group uses equity accounting and recognises initial and subsequent investments at cost, adjusting for the Group’s
share of the joint venture’s income or loss, dividends received and other comprehensive income thereafter. When
the Group’s share of losses in a joint venture equals or exceeds its interest in a joint venture it does not recognise
further losses. The transactions between the Group and the joint venture are assessed for recognition in
accordance with IFRS.
Joint ventures are tested for impairment whenever objective evidence indicates that the carrying amount of the
investment may not be recoverable under the equity method of accounting. The impairment amount is measured as
the difference between the carrying amount of the investment and the higher of its fair value less costs of disposal
and its value in use. Impairment losses are reversed in subsequent periods if the amount of the loss decreases and
the decrease can be related objectively to an event occurring after the impairment was recognised.
Exploration and evaluation assets
Costs incurred prior to acquiring the right to explore an area of interest are expensed as incurred.
Exploration and evaluation assets are intangible assets. Exploration and evaluation assets represent the costs
incurred on the exploration and evaluation of potential mineral resources, and include costs such as exploratory
drilling, sample testing, activities in relation to the evaluation of technical feasibility and commercial viability of
65
extracting a mineral resource, and general & administrative costs directly relating to the support of exploration
and evaluation activities.
The Group assesses exploration and evaluation assets for impairment when facts and circumstances suggest that
the carrying amount may exceed its recoverable amount. The recoverable amount is the higher of the assets fair
value less costs to sell and value in use. Assets are allocated to cash generating units not larger than operating
segments for impairment testing.
Purchased exploration and evaluation assets are recognised as assets at their cost of acquisition or at fair value if
purchased as part of a business combination. They are subsequently stated at cost less accumulated impairment.
Exploration and evaluation assets are not amortised. Where the Group’s exploration commitments for a mineral
property are performed under option agreements with a third party, the proceeds of option payments under such
agreements are applied to the mineral property to the extent costs are incurred. The excess, if any, is recorded to
the Statements of Comprehensive Loss. Asset swaps are recognised at the carrying amount of the asset being
swapped when the fair value of the assets cannot be determined.
Once the work completed to date on an area of interest is sufficient such that the technical feasibility and
commercial viability of extracting the mineral resource has been determined, the property is considered to be an
evaluated mineral property. Exploration and evaluation assets are tested for impairment before the assets are
transferred to “Evaluated mineral property”.
Property, plant and equipment
i
Evaluated mineral property
Following determination of the technical feasibility and commercial viability of a mineral resource, the relevant
expenditure is transferred from exploration and evaluation assets to evaluated mineral property.
Further development costs are capitalised to evaluated mineral properties, if and only if, it is probable that future
economic benefits associated with the item will flow to the entity and the cost can be measured reliably. Cost is
defined as the purchase price and directly attributable costs. Once the asset is considered to be capable of
operating in a manner intended by management, commercial production is declared, and the relevant costs are
depreciated. Evaluated mineral property is carried at cost less accumulated depreciation and accumulated
impairment losses.
ii
Land
Land is held at cost less accumulated impairment losses.
iii
Short lived property, plant and equipment
Short lived property, plant and equipment consists of buildings, plant and machinery, office furniture and
equipment, transportation assets and computer equipment. Short lived property, plant and equipment are carried
at cost less accumulated depreciation and accumulated impairment losses. The cost of an item of short lived
property, plant and equipment consists of the purchase price and any costs directly attributable to bringing the
asset to the location and condition necessary for its intended use and an estimate of the costs of dismantling and
removing the item and restoring the site on which it is located.
iv Depreciation and amortisation
Evaluated mineral property is not depreciated prior to commercial production but is reviewed for impairment
annually (see “Impairment of assets” section below). Upon commencement of commercial production, evaluated
mineral property is transferred to a mining property and is depreciated on a units-of-production basis. Only proven
and probable reserves are used in the tonnes mined units of production depreciation calculation.
Land is not depreciated. All other short-lived property, plant and equipment depreciation is provided at rates
calculated to expense the cost of property, plant and equipment, less their estimated residual value, using the
straight-line method over their estimated useful life of the asset as follows:
66
Buildings
Plant and machinery
Office furniture and equipment
Transportation assets
20 years
1 – 10 years
1 – 10 years
1 - 5 years
The assets’ residual values, useful lives and methods of depreciation are reviewed at each financial year-end and
adjusted prospectively if appropriate.
Borrowings costs
The Group only capitalises borrowing costs which are directly attributable to the acquisition, construction or
production of an asset, that necessarily takes a substantial period to get ready for its intended use, as part of the
cost of that asset. Borrowing costs that are eligible to be capitalised are those which would have been avoided if
the expenditure on the qualifying asset had not been made. The Group has not capitalised any borrowing costs in
the six month period ended 31 December 2019.
Rehabilitation provision
The Group recognises provisions for contractual, constructive or legal obligations, including those associated with
the reclamation of mineral interests and property, plant and equipment, when those obligations result from the
acquisition, construction, development or normal operation of the assets. Initially, a provision for the rehabilitation
is recognised at its present value in the period in which it is incurred. Upon initial recognition of the liability, the
corresponding provision is added to the carrying amount of the related asset and the cost is amortised as an
expense over the economic life of the asset. Following the initial recognition of the rehabilitation provision, the
carrying amount of the liability is increased for the passage of time and adjusted for changes to the current
market-based discount rate, and amount or timing of the underlying cash flows needed to settle the obligation.
Currently the Group has not done any significant mining or earth moving at the Sonora Lithium Project and thus
management have assessed that no rehabilitation provision is necessary.
Provisions
Provisions are recognised when the Group has a present obligation, legal or constructive, that has arisen as a result
of a past event and it is probable that a future outflow of resources will be required to settle the obligation,
provided that a reliable estimate can be made of the amount of the obligation.
Provisions are measured at management’s best estimate of the present value of the expenditures expected to be
required to settle the obligation using a pre-tax discount rate that reflects current market assessments of the time
value of money and the risk specific to the obligation. The increase in any provision due to passage of time is
recognised as an accretion expense.
Interest income
Interest income is recorded on an accrual basis using the effective interest method.
Financial instruments
Financial assets and liabilities are recognised when the Group becomes a party to the contractual provisions of the
financial instrument. Financial assets are derecognised when the contractual rights to the cash flows from the
financial asset expire, or when the financial asset and all substantial risks and rewards are transferred. A financial
liability is derecognised when it is extinguished, discharged, cancelled or expired.
Except for trade and other receivables which do not contain a significant financing component, financial assets and
financial liabilities are measured initially at fair value plus or minus, in the case of a financial asset or financial
liability not at fair value through profit or loss, transactions costs that are directly attributable to the acquisition or
issue of the financial instrument. Trade receivables which do not contain a significant financing component are
recognised at their transaction price. Financial assets and financial liabilities are subsequently measured as
described below.
67
i
Financial assets
Financial assets are subsequently recognised at amortised cost under IFRS 9 if it meets both the hold to collect and
contractual cash flow characteristics tests. A financial asset is measured at fair value through other comprehensive
income if the financial asset is held within a business model whose objective is achieved by both collecting
contractual cash flows and selling financial assets and the contractual terms of the financial asset give rise on
specified dates to cash flows that are solely payments of principal and interest on the principal amount
outstanding.
If neither of the above classification are met the asset is classified as fair value through the profit and loss or unless
management elect to do so provided the classification eliminates or significantly reduces a measurement or
recognition inconsistency.
(a)
Cash and cash equivalents and trade and other receivables
Cash and cash equivalents and trade and other receivables are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market. After initial recognition these are measured at
amortised cost using the effective interest method, less provision for impairment, if any.
(b)
Fair value through profit or loss
Financial assets measured at fair value through profit or loss are subsequently measured at fair value with changes
in those fair values recognised in the profit and loss statement.
Assets held at fair value through profit or loss comprise of the derivative asset.
ii
Financial liabilities
Financial liabilities are subsequently measured at amortised cost using the effective interest method, except for
financial liabilities designated at fair value through profit or loss, that are carried subsequently at fair value with
gains and losses recognised in the profit and loss statement.
The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating
interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated
future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period.
The Group’s financial liabilities initially measured at fair value and subsequently recognised at amortised cost
include accounts payables and accrued liabilities, the joint venture obligation and the Group’s primary and
secondary Eurobonds. The Group accounts for the financial warrants at fair value through profit or loss.
(a)
Warrant liabilities
The warrants granted to RK Mine Finance can be settled in cash at the Company’s option or equity at either party’s
option. As a result, the warrants have been classified as financial liability. The financial warrants issued with the
primary and secondary Eurobonds are detachable instruments meeting the criteria to be separated from the host
contract and thus recognised as a separate financial instrument. Management have classified the financial warrants
at fair value through profit and loss. The initial and subsequent fair values are measured using the Black-Scholes
valuation method.
(b)
Borrowings
The Group’s primary and secondary Eurobonds have been initially recognised at fair value less directly attributable
transaction costs, using the present value of future cash flows. Given the warrant liabilities and Eurobonds were
issued as a package of financial instruments the warrants have been accounted for at their known fair value and
the remaining fair value has been allocated to the Eurobonds based on the ratio of the purchase price of the
Eurobonds. Subsequently the Eurobonds are measured at amortised cost using the effective interest rate method.
68
Impairment of assets
i
Financial assets
A financial asset that is not carried at fair value through profit or loss is assessed at each reporting date to
determine a loss allowance for expected credit losses. If the credit risk on a financial instrument has increased
significantly since initial recognition, the loss allowance is equal to the lifetime expected credit losses. If the credit
risk has not increased significantly, the loss allowance is equal to the twelve month expected credit losses.
The expected credit losses are measured in a way that reflects the unbiased and probability weighted amount that
is determined by evaluating a range of possible outcomes; the time value of money and reasonable and supportable
information that is available about past events, current conditions and forecasts of future economic conditions.
ii
Non-financial assets
At the end of each reporting period, the Group reviews the carrying amounts of its tangible and intangible assets to
determine whether there is an indication that the assets are impaired. If any such indication exists, the recoverable
amount of the asset is estimated in order to determine the extent of the impairment, if any. Where the asset does
not generate largely independent cash inflows, the Group estimates the recoverable amount of the cash-generating
unit to which the asset belongs. A cash-generating unit is the smallest identifiable group of assets that generates
cash inflows that are largely independent of the cash inflows from other assets or groups of assets.
The recoverable amount is the higher of fair value less costs to sell, and value in use. In assessing value in use, the
estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current
market assessment of the time value of money and the risks specific to the asset.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than the carrying amount,
the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss
is recognised in the profit and loss statement.
With the exception of goodwill, all assets are subsequently reassessed for indications that an impairment loss
previously recognised may no longer exist. Where an impairment loss is subsequently reversed, the carrying amount
of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but to an
amount that does not exceed the carrying amount that would have been determined had no impairment loss been
recognised for the asset (or cash-generating unit) in prior periods. A reversal of an impairment loss is recognised in
the profit and loss statement.
Income taxes
Current income tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax
rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable or receivable in
respect of previous years.
Deferred income taxes are calculated based on temporary differences between the carrying amounts of assets and
liabilities and their tax bases. However, deferred tax is not recognised on the initial recognition of goodwill, on the
initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither
accounting nor taxable profit or loss at the time of the transaction, and on temporary differences relating to
investments in subsidiaries and jointly controlled entities where the reversal of these temporary differences can be
controlled by the Group and it is probable that reversal will not occur in the foreseeable future.
Deferred income tax assets and liabilities are measured, without discounting, at the tax rates that are expected to
apply when the assets are recovered, and the liabilities settled, based on tax rates that have been enacted or
substantively enacted by the reporting date.
A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences, to the
extent that it is probable that future taxable profits will be available against which they can be utilised.
Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable
that sufficient taxable profit will be available to allow the related tax benefit to be utilised.
69
Deferred tax assets and liabilities are offset if there is a legally enforceable right to set off current tax assets
against current tax liabilities, and they relate to income taxes levied by the same tax authority on the same
taxable entity, or on different taxable entities which intend either to settle current tax liabilities and assets on a
net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant
amounts of deferred tax liabilities and assets are expected to be settled or recovered.
The Group has no deferred tax assets or liabilities.
Earnings/loss per share
Basic loss per share is calculated by dividing the loss attributable to the common shareholders of the Group by the
weighted average number of common shares outstanding during the reporting period. Diluted earnings per share is
calculated by adjusting the loss attributable to common shareholders and the weighted average number of common
shares outstanding for the effects of all dilutive potential common shares, which comprise share options and
warrants granted.
Share premium
Share premium represents the excess of proceeds received over the nominal value of new shares issued.
Share-based payments
i
Share-based payment transactions
The Company grants share options and restricted share units to acquire common shares to Directors, Officers and
employees (“equity-settled transactions”). The Board of Directors determines the specific grant terms within the
limits set by the Company’s share option plan and restricted share unit plan.
ii
Equity-settled transactions
The costs of equity-settled transactions are measured by reference to the fair value at the grant date and are
recognised, together with a corresponding increase in equity, over the period in which the performance and/or
service conditions are fulfilled, ending on the date on which the relevant persons become fully entitled to the
award (the “vesting date”). The cumulative expense recognised for equity-settled transactions at each reporting
date until the vesting date reflects the Company’s best estimate of the number of equity instruments that will
ultimately vest. The profit or loss charge or credit for a period represents the movement in cumulative expense
recognised as at the beginning and end of that period and the corresponding amount is represented in share option
reserve. No expense is recognised for awards that do not ultimately vest.
Where the terms of an equity-settled award are modified, the minimum expense recognised is the expense as if the
terms had not been modified. An additional expense is recognised for any modification which increases the total
fair value of the share-based payment arrangement or is otherwise beneficial to the employee as measured at the
date of modification.
Where equity-settled transactions are awarded to employees, the fair value of the options at the date of grant is
charged to the profit and loss statement over the vesting period. Performance vesting conditions are taken into
account by adjusting the number of equity instruments expected to vest at each reporting date so that, ultimately,
the cumulative amount recognised over the vesting period is based on the number of the options that will
eventually vest.
Where equity-settled transactions are entered into with non-employees and some or all of the goods or services
received by the entity as consideration cannot be specifically identified, they are measured at the fair value of the
equity instruments issued. Otherwise, share-based payments to non-employees are measured at the fair value of
the goods or services received.
Upon exercise of share options, the proceeds received are allocated to share capital and premium if applicable,
with any value previously recorded in share-based payment reserve relating to those options being transferred to
retained earnings. When options expire any value previously recorded in share-based payment reserve relating to
70
those options is transferred to retained earnings. The dilutive effect of outstanding options is reflected as
additional dilution in the computation of diluted earnings per share.
Segmental reporting
The reportable segments identified make up all of the Group’s activities. The reportable segments are an
aggregation of the operating segments within the Group as prescribed by IFRS 8. The reportable segments are based
on the Group’s management structures and the consequent reporting to the Chief Operating Decision Maker, the
Board of Directors. These reportable segments also correspond to geographical locations such that each reportable
segment is in a separate geographic location. Income and expenses included in profit or loss for the period are
allocated directly or indirectly to the reportable segments.
Non-current segment assets comprise the non-current assets used directly for segment operations, including
intangible assets and property, plant and equipment. Current segment assets comprise the current assets used
directly for segment operations, including other receivables and deferred costs. Inter-company balances comprise
transactions between operating segments making up the reportable segments. These balances are eliminated to
arrive at the figures in the Consolidated Financial Statements.
Non-controlling interests
The total comprehensive income of non-wholly owned subsidiaries is attributed to the owners of the Parent
Company and to the non-controlling interests in proportion to their relative ownership of the subsidiary.
4 Critical accounting estimates and judgements
The preparation of the Consolidated Financial Statements in accordance with IFRS 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. Information about the significant
judgements, estimates, and assumptions that have the most significant effect on the recognition and measurement
of assets, liabilities, income and expenses are discussed below.
Basis of consolidation
In October 2019, Ganfeng Lithium Co., Ltd were issued an option to purchase a further 27.5% to reach a
shareholding of 50% within 2 years of the initial investment. The Group considers that it has the rights to the
variable returns from Sonora Lithium Ltd and its subsidiaries and has the ability to affect those returns through the
application of its power from its controlling members of the Board and its shareholder voting rights. In assessing
control, the Group has considered future voting rights and note that in the event of exercise of the Ganfeng
Option, a joint venture agreement must be agreed, and a number of key stakeholders including the Board and
shareholders of Bacanora Lithium Plc may need to provide consent to the transaction, for these reasons the Board
does not consider these potential voting rights to be substantive and the Group believes that it has control of SLL
and does not have available reliable information to conclude that it does not have control. At the event of an
exercise of the Ganfeng Option and successful completion of the transaction, the Group will be required to make
an assessment, in accordance with IFRS, of whether it continues to have power over SLL, rights to the variable
returns of SLL and has the ability to affect those returns. This assessment will be subject to, among others, the
terms of the new joint venture agreement. The Group notes the completion of such a transaction could potentially
have significant impact on the consolidation procedures of the Consolidated Financial Statements.
Exploration and evaluation assets
The application of the Group’s accounting policy for exploration and evaluated assets requires judgement in
determining the potential for commercially viable quantities of mineral resource and whether it is likely that costs
incurred will be recovered through successful development or sale of the asset under review when assessing
impairment. Estimates and assumptions made may change if new information becomes available. If, after
expenditures are capitalised, information becomes available suggesting that the recovery of expenditures is
unlikely, the amount capitalised is written off in net profit or loss in the period when the new information becomes
available. In situations where indicators of impairment are present for the Group’s exploration and evaluation
71
assets, estimates of recoverable amount must be determined as the higher of the estimated value in use or the
estimated fair value less costs to sell.
Evaluated mineral property
The recoverability of carrying values for evaluated mineral property is dependent upon the ability of the Group to
obtain the financing necessary to complete development and the success of future operations.
The application of the Group’s accounting policy for evaluated mineral properties assets requires judgement in
determining whether it is likely that costs incurred will be recovered through successful development or sale of the
asset under review when assessing impairment. Furthermore, the assessment as to whether economically
recoverable reserves exist is itself an estimation process. Estimates and assumptions made may change if new
information becomes available. If, after expenditures are capitalised, information becomes available suggesting
that the recovery of expenditures is unlikely, the amount capitalised is written off in the profit or loss in the period
when the new information becomes available. In situations where indicators of impairment are present for the
Group’s evaluated mineral properties, estimates of recoverable amount must be determined as the higher of the
estimated value in use or the estimated fair value less costs to sell.
Costs are capitalised to evaluated mineral properties which are directly attributable to the development of the
mineral asset. Estimates and judgements are made when determining whether costs are directly attributable.
Employee costs are capitalised based on their job role and time spent developing the project.
Functional currency
The Group transacts in multiple currencies. The assessment of the functional currency of each entity within the
consolidated Group involves the use of judgement in determining the primary economic environment each entity
operates in. The Group first considers the currency that mainly influences sales prices for goods and services, and
the currency that mainly influences labour, material and other costs of providing goods or services. In determining
functional currency, the Group also considers the currency from which funds from financing activities are
generated, and the currency in which receipts from operating activities are usually retained. When there is a
change in functional currency, the Group exercises judgement in determining the date of change.
All Group companies have a functional currency of US$, this is driven by the primary economic environment of each
entity ultimately relating to the lithium market. The lithium market, being sales of lithium products, labour,
materials and professional services, is primarily transacted in US$.
Share-based payments
The Group utilises the Black-Scholes Option Pricing Model to estimate the fair value of share options and restricted
share units granted to Directors, Officers and employees. The use of the Black-Scholes Option Pricing Model
requires management to make various estimates and assumptions that impact the value assigned to the share
options and restricted share units including the forecast future volatility of the share price, the risk-free interest
rate, dividend yield, the expected life of the share options and restricted share units and the expected number of
share which will vest. See note 14 for further details regarding these inputs.
The same estimates are required for transactions with non-employees where the fair value of the goods or services
received cannot be reliably determined.
Joint venture investment
The Group applies IFRS 11 to all joint arrangements and classifies them as either joint operations or joint ventures,
depending on the contractual rights and obligations of each investor. The Group holds 50% of the voting rights of its
joint arrangement with SolarWorld AG. The Group has determined to have joint control over this arrangement as
under the contractual agreements, unanimous consent is required from all parties to the agreements for certain
key strategic, operating, investing and financing policies. The Group’s joint arrangement is structured through a
limited liability entity, Deutsche Lithium GmbH, and provides the Group and SolarWorld AG (parties to the joint
venture agreement) with rights to the net assets of Deutsche Lithium under the arrangements. Therefore, this
arrangement has been classified as a joint venture.
72
The investment is assessed at each reporting period date for impairment in accordance with IFRS 28. An
impairment is recognised if there is objective evidence that events after the recognition of the investment have
had an impact on the estimated future cash flows which can be reliably estimated. In addition, the assessment as
to whether economically recoverable reserves exist is itself an estimation process.
5 Other receivables and prepayments
Trade and other receivables contain amounts receivable for VAT and other indirect taxes, prepaid expenses and
deposits paid. All receivables are due within one year.
In US$
31 December 2019
30 June 2019
Other receivables
Prepayments and deposits
Total
973,217
804,204
1,777,421
1,375,886
1,028,418
2,404,304
6
Investments in jointly controlled entities
Investment in Deutsche Lithium
On 17 February 2017, the Group acquired a 50% interest in a jointly controlled entity, Deutsche Lithium GmbH
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 Deutsche Lithium as a joint venture was based on Deutsche Lithium’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 Deutsche Lithium for a cash consideration of €5.1 million from SolarWorld AG and
an obligation to contribute €5 million toward the costs of completion of a feasibility study. Additionally, legal fees
of US$0.2 million were paid in connection to this transaction.
The following table summarises the purchase price allocation for the joint venture acquisition:
In US$
Working capital
Exploration and evaluation assets
Property, plant and equipment
Less deferred tax liability
Enterprise value
17 February 2017
136,578
10,486,400
83,270
(2,485,090)
8,221,158
Consideration for the joint venture acquisition consisted of the following:
In US$
Cash (including transaction costs)
Joint venture obligation
Less derivative asset
Total consideration
17 February 2017
5,616,886
4,595,457
(1,991,185)
8,221,158
The value of Deutsche Lithium is substantially attributed to the exploration and evaluation assets, and therefore,
on recognition, the contribution paid in excess of the carrying value of net assets was attributed to the exploration
and evaluation assets.
73
On 28 May 2019 a supplemental agreement was signed between the Bacanora Lithium Plc, Bacanora Minerals Ltd
and the nominated administration of Solarworld. As a result:
1) Bacanora Minerals Ltd’s 50% share in Deutsche Lithium was novated to Bacanora Lithium Plc
2) The Deutsche Lithium 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.
Reconciliation of the carrying amount of net investment in joint venture is as follows:
In US$
30 June 2018
Joint venture investment loss
Additional investment
30 June 2019
Joint venture investment loss
Additional investment
31 December 2019
Joint venture investment
8,426,134
(168,679)
1,089,631
9,347,086
(80,887)
279,794
9,545,993
Summarised financial information in respect of the Group’s joint venture in Deutsche Lithium is set out below on a
stand-alone basis. The summarised information represents amounts shown in Deutsche Lithium’s financial
statements, as adjusted for differences in accounting policies and fair value adjustments required related to the
Group’s investment in the joint venture. Amounts have been translated in accordance with the Group’s accounting
policy on foreign currency translation.
In US$
Cash and cash equivalents
Current assets including cash and cash
equivalents
Non-current assets
Current liabilities
Depreciation
Loss from continuing operations
Total comprehensive income
Deutsche Lithium obligation
31 December 2019
30 June 2019
189,671
132,071
208,594
184,095
28,470,901
27,291,419
(4,440,433)
(4,438,664)
10,124
(161,773)
(161,773)
22,069
(493,639)
(493,639)
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. Of this amount €101,400
74
(US$113,697) was payable at 31 December 2019, of which €nil was paid post period end. The remaining €80,421 is
committed until 17 February 2020. As part of the second supplemental agreement, a further €1.35 million was
committed prior to 28 February 2022, of which €30,000 was paid post period end.
The movement in the obligation is detailed below:
In US$
30 June 2018
Payments of joint venture obligation
Foreign exchange gain
First supplemental agreement obligation
30 June 2019
Payments of joint venture obligation
Foreign exchange gain
First supplemental agreement obligation
31 December 2019
Joint venture liability
(1,591,652)
1,568,565
23,087
(237,105)
(237,105)
401,972
1,230
(279,794)
(113,697)
Derivative asset - Deutsche Lithium option
The Group’s joint venture arrangement with SolarWorld AG stated above gave it the right, either alone or together
with another party, to purchase the remaining 50% of the voting rights of Deutsche Lithium 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. As at 31 December 2019, the Option was revalued at its fair
value using the following inputs to the Black-Scholes option pricing model. The fair value of the Option at 31
December 2019 was US$nil (30 June 2019: US$193,902)
31 December 2019
30 June 2019
Term
Share Price (€)
Exercise Price (€)
Volatility
Risk Free rate
0.13
8,541,182
30,000,000
87.83%
1.92%
0.64
8,614,053
30,000,000
87.97%
2.00%
On 14 February 2020, Bacanora Lithium Plc and the nominated administrator of Solarworld, signed a second
supplemental agreement which agreed that the above option was cancelled.
7 Property, plant and equipment
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
MSB
MSB
Mexilit
Mexilit
Mexilit
Mexilit
Mexilit
Concession name
La Ventana
La Ventana 1
El Sauz
El Sauz 1
El Sauz 2
Fleur
Fleur 1
Group ownership
77.5%
77.5%
54.25%
54.25%
54.25%
54.25%
54.25%
75
On 25 January 2018, the Group published a technical Feasibility Study for the Sonora Lithium Project in accordance
with NI 43-101. Under IFRS 6 — Exploration for and Evaluation of Mineral Resources, an impairment test is required
when the technical feasibility and commercial viability of extracting a mineral resource become demonstrable, at
which point the asset falls outside the scope of IFRS 6 and was reclassified in the Financial Statements. The
Feasibility Study financial assessment performed by independent mining specialists, IMC, SRK and Ausenco, gave a
post-tax discounted cash flow valuation of US$802 million at 8% discount factor based on a long-term price of
US$11,000 per tonne Li2CO3. Thus, there was no impairment for these mining assets as the combined value of the
exploration and evaluation assets totalled US$16,918,190, at the point of transfer, giving significant headroom. As a
result, these costs were transferred to evaluated mining property on 25 January 2018.
As previously reported to shareholders, Bacanora is challenging the validity of the previously reported 3% royalty
over the MSB concessions within the Sonora Lithium Project, payable to the Orr-Ewing Estate, and is seeking a
judgment of the Court in Alberta declaring such royalty invalid. Bacanora Minerals Ltd is currently challenging the
validity of such royalty. The basis of Bacanora Minerals Ltd claim is that the royalty was originally granted based on
a negligent or fraudulent misrepresentation by Mr. Orr-Ewing that he held a pre-existing royalty granted prior to
the acquisition of the MSB concessions by Bacanora Minerals Ltd. The Company engaged in voluntary, independent
mediation in early 2019, but was unable to reach an agreement with the Estate’s advisers. The Estate applied for a
Summary Trial of the action in December 2019. At this time, the Alberta Court has decided to hear only the
preliminary issue of whether the action is limitation barred in May 2020. Otherwise, both sides continue to provide
evidence as part of the process. The Company has at all times taken a conservative approach to the treatment of
the purported royalty and included it fully in the financial model for the Feasibility Study published in 2018, as well
as all financial projections to investors and debt funding partners
76
Cost (US$)
Evaluated mineral
property
Land
Buildings
Plant and
machinery
Office furniture
and equipment
Transportation
Total
30 June 2018
21,935,716
2,995,614
974,249
737,266
272,176
120,734
27,035,755
Additions
Disposals
3,465,438
39,386
–
–
–
(133,777)
–
-
164,505
(984)
–
–
3,669,329
(134,761)
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
31 December 2019
26,140,230
3,035,000
840,472
737,266
435,697
120,734
31,309,399
Depreciation
30 June 2018
Charge for the period
Disposals
30 June 2019
Charge for the period
31 December 2019
Net Book Value
30 June 2018
30 June 2019
–
–
–
–
–
–
–
–
–
–
–
–
185,496
261,560
91,060
106,217
644,333
46,733
70,427
(42,693)
–
36,782
(1,011)
9,639
–
189,536
331,987
126,831
115,856
163,581
(43,704)
764,210
18,665
46,417
34,049
2,418
101,549
208,201
378,404
160,880
118,274
865,759
21,935,716
2,995,614
788,753
475,706
181,116
14,517
26,391,422
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
77
8 Exploration and evaluation assets
The balance of investment in exploration and evaluation assets as at 31 December 2019 relate to concession taxes
on exploration licenses and costs of exploration on the Group’s Megalit lithium concessions. Movements in the
periods are as follows:
In US$
30 June 2018
Additions
30 June 2019
Additions
31 December 2019
Megalit Lithium
502,947
21,000
523,947
10,641
534,588
Specific descriptions of the Group’s exploration properties are as follows:
Magdalena Borate property
The Magdalena Borate project consists of seven concessions, with a total area of 7,095 hectares. The concessions
are 100% owned by MSB. The Magdalena Borate property is subject to a 3% gross overriding royalty payable to
Minera Santa Margarita S.A. de C.V., a subsidiary of Rio Tinto Plc, and a 3% gross overriding royalty payable to the
estate of the Colin Orr-Ewing on sales of borate produced from this property.
Based on the Group’s decision to not further explore borates or be able to find a buyer for the asset, the Group, in
prior periods fully impaired the carrying value to nil. During the period ended 31 December 2019, management
have no evidence to write back any of the impairments to date.
Megalit Lithium property
Three concessions, in Sonora Mexico, Buenavista, Megalit and San Gabriel, fall outside of the scope of the Sonora
Lithium Project Feasibility Study. They cover 89,235 hectares and are subject to a separate agreement between
the Group and Cadence Minerals Plc. As at 31 December 2019, Buenavista, Megalit and San Gabriel concessions
were owned by Megalit. Megalit is owned 70% by the Sonora Lithium Ltd and 30% by Cadence Minerals Plc.
9 Accounts payable and accrued liabilities
The Group’s other payables relate to Mexican and withholding taxes and social security taxes.
In US$
Trade payables
Accrued liabilities
Other payables
Total
10 Borrowings
31 December 2019
563,457
578,754
309,135
1,451,346
30 June 2019
602,708
774,574
97,261
1,474,543
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. Interest will be capitalised every three months for the
first 24 months and thereafter interest will be paid every three months in cash;
78
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 increases 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$200 million, the
completion of certain operational permits and entering into direct agreement in relation to the offtake
agreements.
The effective interest rate of the primary and secondary Eurobonds is 21.2% and 23.5% respectively.
The carrying value of the Group’s borrowings at 31 December 2019 is as follows:
In US$
Interest rate
Maturity
31 December 2019
30 June 2019
Primary Eurobond
Secondary Eurobond
LIBOR + 8%
Zero interest
bearing
Total non-current borrowings
2024
2038
21,607,156
19,418,800
2,444,454
2,203,367
24,051,610
21,622,167
The movement in the Group’s borrowings in the six month period ended 31 December 2019 is as follows:
In US$
Opening balance
Initial recognition
Transaction fees
Primary Eurobond finance cost
Eurobond unwinding
30 June 2019
Primary Eurobond finance cost
Eurobond unwinding
31 December 2019
Primary Eurobond
Secondary Eurobond
Total
–
20,304,746
(4,871,235)
2,768,480
1,216,809
19,418,800
1,466,824
721,532
–
–
1,765,630
22,070,376
–
–
(4,871,235)
2,768,480
437,737
1,654,546
2,203,367
21,622,167
–
1,466,824
241,087
962,619
21,607,156
2,444,454 24,051,610
79
11 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$2.9 million and subsequently revalued at each reporting period, determined using the Black-Scholes pricing
model with the following inputs.
The expected volatility has been determined by calculating the historical volatility of the Company’s share price
since listing. The term used in the model has been adjusted to reflect the period in which the warrants can be
exercised.
Term
Share Price (£)
Exercise Price (£)
Volatility
Risk Free rate
Valuation ($)
31 December 2019
30 June 2019
3.50
0.35
0.99
65.06%
1.92%
4.01
0.50
0.99
64.95%
2.05%
587,315
1,259,923
A 10% increase in volatility equates to an increase in value of US$132,680 to US$719,995. A 10% decrease in
volatility equates to a decrease in value of US$117,539 to US$469,779
A 10% increase in share price equates to an increase in value of US$120,912 to US$708,227. A 10% decrease in share
price equates to a decrease in value of US$102,251 to US$485,064.
12 Financial instruments
The Group’s financial instruments are classified as follows:
As at 31 December 2019 (In $US)
At amortised cost
At fair value
through profit or
loss
Total
Financial assets
Cash and cash equivalents
Other receivables
Total financial assets
Financial liabilities
Accounts payable and accrued liabilities
Joint venture obligation
Borrowings
Warrant liability
48,903,551
973,217
49,876,768
1,451,346
113,697
24,051,610
–
–
–
–
–
–
48,903,551
973,217
49,876,768
1,451,346
113,697
24,051,610
–
587,315
587,315
Total financial liabilities
25,616,653
587,315
26,203,968
Net financial assets/(liabilities)
24,260,115
(587,315)
23,672,800
80
As at 30 June 2019 (In US$)
At amortised cost
At fair value through
profit or loss
Total
Financial assets
Derivative asset
Cash and cash equivalents
Other receivables and prepayments
Total financial assets
Financial liabilities
Accounts payable and accrued liabilities
Joint venture obligation
Borrowings
Warrant liability
–
193,902
193,902
14,763,706
1,375,886
16,139,592
1,474,543
237,105
21,622,167
–
–
14,763,706
1,375,886
193,902
16,333,494
–
–
–
1,474,543
237,105
21,622,167
–
1,259,923
1,259,923
Total financial liabilities
23,333,815
1,259,923
24,593,738
Net financial assets/(liabilities)
(7,194,223)
(1,066,021)
(8,260,244)
13 Financial risk management
Credit risk
Credit risk arises from the risk that a counter party will fail to perform its obligations. Financial instruments that
potentially subject the Group to concentrations of credit risk consist of cash and cash equivalents and other
receivables.
The Group’s cash is held in major UK, Canadian and Mexican banks, and as such the Group is exposed to the risks of
those financial institutions. Under Standard & Poor’s short term credit ratings, the Group’s cash balance is held in
institutions with the following ratings:
Credit rating
Cash held at 31 December 2019
A-1+
A-1
A-2
Not rated
Total
48,053,137
662,745
186,119
1,550
48,903,551
The Group’s other receivables relate to input tax receivables in the UK and value added tax receivables in Mexico.
Substantially all of the receivables represent amounts due from the UK and Mexican governments and accordingly
the Group believes them to have minimal credit risk. Any changes in management’s estimate of the recoverability
of the amount due will be recognised in the period of determination and any adjustment may be significant.
The total carrying amount of cash and cash equivalents and other receivables represents the Group’s maximum
credit exposure.
The Board of Directors monitors the exposure to credit risk on an ongoing basis and does not consider such risk
significant at this time. The Group considers all its accounts receivables fully collectible.
81
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they become due. The
Group's approach to managing liquidity risk is to ensure, as far as possible, that it will have sufficient liquidity to
meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses.
As at 31 December 2019, US$964,005 (30 June 2019: US$975,293) of the Group’s cash is ring fenced to be spent on
drilling and exploration activities in Megalit’s concessions.
The following table illustrates the contractual maturity analysis of the Group’s gross financial liabilities based on
exchange rates on the reporting date. Contractual gross financial liabilities, shown below, are undiscounted
estimated cash outflows which were applicable includes estimated future interest payments.
As at 31 December 2019 (In US$)
Within 30
days
30 days to
6 months
6 to 12
months
Over 12
months
Accounts payable and accrued
liabilities
Joint venture obligation
Borrowings
Warrant liability*
As at 30 June 2019 (In US$)
Accounts payable and accrued
liabilities
Joint venture obligation
Borrowings
Warrant liability*
1,451,346
113,697
–
–
–
–
–
–
Within 30
days
30 days to 6
months
6 to 12
months
1,474,543
237,105
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
50,936,306
Over 12
months
–
–
–
51,918,845
–
*No gross cash financial liability is present as the Company has the option to settle the warrants in equity or cash.
Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, commodity prices, and
interest rates will affect the value of the Group’s financial instruments. The objective of market risk management
is to manage and control market risk exposures within acceptable limits, while maximising long-term returns.
The Group conducts development and exploration projects in Mexico and Germany. As a result, a portion of the
Group’s expenditures, other receivables, accounts payables and accrued liabilities are denominated in the United
States dollar, Great British pound, euros and Mexican pesos and are therefore subject to fluctuation in exchange
rates.
As at 31 December 2019, a 10% change in the exchange rate between the United States dollar and Mexican peso,
euro or Great British pound, which is a reasonable estimation of volatility in exchange rates, would have an
approximate US$0.1 million change to the Group’s total comprehensive loss.
Fair values
The fair value of cash, other receivables, accounts payable and accrued liabilities and the joint venture obligation
approximate their carrying values due to the short-term nature of the instruments.
Fair value measurements recognised in the statement of financial position subsequent to initial fair value
recognition can be classified into Levels 1 to 3 based on the degree to which fair value is observable.
Level 1 – Fair value measurements are those derived from quoted prices in active markets for identical assets and
liabilities.
82
Level 2 – Fair value measurements are those derived from inputs other than quoted prices included within Level 1
that are observable for the asset or liability, either directly, or indirectly.
Level 3 – Fair value measurements are those derived from valuation techniques that include inputs for the asset or
liability that are not based on observable market data.
The level 3 fair value for the warrant liability is disclosed in notes 11.
There were no transfers between any levels of the fair value hierarchy in the current or prior years.
Capital management
The Group's objectives in managing capital are to safeguard its ability to operate as a going concern while pursuing
exploration and development and opportunities for growth through identifying and evaluating potential acquisitions
or businesses. The Company defines capital as the equity attributable to equity shareholders of the Company
excluding the share-based payment reserve. At 31 December 2019 the Group held US$48,560,292 (30 June 2019 -
US$27,736,019) of capital. The Group sets the amount of capital in proportion to risk and corporate growth
objectives. The Group manages its capital structure and adjusts it in light of changes in economic conditions and
the risk characteristics of the underlying assets.
14 Equity
Authorised share capital
The authorised share capital of the Company consists of an unlimited number of voting common shares of par value
£0.10.
Common shares issued
Shares
Share Capital
(In US$)
Share Premium
(In US$)
30 June 2018
134,164,872
18,958,033
Shares issued on exercise of options
300,000
38,757
30 June 2019
134,464,872
18,996,790
140,592
12,774
153,366
Issue of share capital - Ganfeng investment1
57,600,364
7,251,886
10,877,829
Issue of share capital - M&G investment2
30,916,601
3,991,793
5,987,690
Share issue costs
31 December 2019
–
–
(372,825)
222,981,837
30,240,469
16,646,060
1 Ganfeng Lithium Co., Ltd agreed a cornerstone strategic investment of 29.99% in Bacanora Lithium Plc for
£14,400,091 (US$18,129,715). Ganfeng has been granted pre-emption rights proportionate to its shareholding in
Bacanora and shall appoint one Director to the Board of Bacanora. In addition, Ganfeng made a project level
investment of 22.5% in Sonora Lithium Ltd ("SLL"), the holding company for the Sonora Lithium Project, for
£7,563,649 (US$9,522,634). Ganfeng were granted an option to increase its interest in SLL to 50% within 24 months
at a valuation based on the share price of Bacanora Lithium Plc at the time of subsequent investment, see Note 3a
for further details. Ganfeng have appointed one Director to the Board of Sonora Lithium Ltd. An additional long-
term offtake at a market-based price per tonne for 50% of Stage 1 lithium production and up to 75% during Stage 2
lithium production was also agreed.
2 M&G Plc, a long-standing cornerstone shareholder, purchased £7,729,150 (US$9,979,483) via an ordinary placing of
30,916,601 new ordinary shares at a price of 25 pence per Placing Share.
83
Share options
All share options are issued under the Group’s share option plan. Options generally vest as to one third on the date
of grant and an additional one third on each of the first and second anniversaries of the date of grant. All options
expire after three months of an employee leaving the Company. The options have no other vesting conditions. The
following tables summarise the activities and status of the Company’s share option plan as at and during the six
month period ended 31 December 2019:
30 June 2018
Exercised
Expired
Issued
30 June 2019
Granted
Expired
31 December 2019
Grant date
02 December 2015
01 March 2017
01 March 2017
15 May 2017
20 September 2017
18 April 2018
06 September 2018
28 October 2019
Number of
options
Weighted average
exercise price (£)
8,552,310
(300,000)
(1,475,000)
432,729
7,210,039
1,300,862
(1,900,000)
6,610,901
0.83
0.18
0.91
0.39
0.82
0.33
(0.89)
0.70
Number
outstanding at
31 December
2019
Exercise
price (£)
Weighted
average
remaining
contractual life
(Years)
Expiry date
200,000
175,000
1,562,400
500,000
2,127,410
312,500
432,729
1,300,862
6,610,901
0.78
0.85
0.85
0.87
0.80
0.90
0.39
0.33
0.92 02 December 2020
2.17 01 March 2022
0.17 01 March 2020
0.37 15 May 2020
0.72 19 September 2020
1.30 17 April 2021
1.68 05 September 2021
2.82 27 October 2022
Number
exercisable at
31 December
2019
200,000
175,000
1,562,400
500,000
2,127,410
208,333
288,486
433,621
5,495,250
Options granted in the six month period on 28 October 2019 were valued using the Black-Scholes method with a
volatility of 57.53%, calculated using Bacanora’s historic share price, an option term of 3 years, a risk-free interest
rate of 1.85% and no expected dividends.
Restricted share units
On 20 September 2017, the Company implemented a Restricted Share Unit (“RSU”) Plan. The RSU Plan is
administered by the Remuneration Committee under the supervision of the Board of Directors. The Remuneration
Committee determines the terms and conditions upon which a grant is made, including any performance criteria or
vesting period.
Upon vesting, each RSU entitles the participant to receive one common share, provided that the participant is
continuously employed with or providing services to the Company. RSUs track the value of the underlying common
shares, but do not entitle the recipient to the underlying common shares until such RSUs vest, nor do they entitle a
84
holder to exercise voting rights or any other rights attached to ownership or control of the common shares, until
the RSU vests and the RSU participant receives common shares.
The maximum number of RSUs issuable under the RSU Plan is fixed at 13,190,653, provided however that at no time
may the number of RSUs issuable under the RSU Plan, together with the number of common shares issuable under
options that are outstanding under the Company's Share Option Plan, exceed 10% of the issued and outstanding
common shares as at the date of a grant under the RSU Plan or the Share Option Plan, as the case may be.
The following tables summarise the activities and status of the Company’s restricted share unit plan as at and
during the period ended 31 December 2019:
30 June 2018
Issued
31 December 2019
Issued
31 December 2019
Grant date
20 September 2017
06 September 2018
28 October 2019
Number of units
Weighted average
exercise price (£)
1,192,277
205,491
1,397,768
1,075,832
2,473,600
0.80
0.39
0.74
0.33
0.56
Number outstanding
at 31 December
2019
205,491
205,491
Weighted
average
remaining
vesting period
(Years)
0.72
19 September 2020
1.68
05 September 2021
1,075,832
2.82
27 October 2022
Vesting date
Number exercisable at
31 December 2019
–
–
–
Share-based payment reserve
The following table presents changes in the Group’s share-based payment reserve during the six month period
ended 31 December 2019:
In US$
30 June 2018
Exercise of share options
Expired options
Share-based payment expense
30 June 2019
Expired options
Share-based payment expense
31 December 2019
Share-based
payment reserve
6,138,085
(60,950)
(1,460,788)
800,846
5,417,193
(1,900,022)
290,391
3,807,562
85
Share-based payment expense
During the six month period ended 31 December 2019; the Group recognised US$290,391 (30 June 2019:
US$800,846) of share-based compensation expense. The fair value of the share-based compensation was
estimated on the dates of grant using the Black-Scholes option pricing model with the following weighted average
assumptions:
For the period ended
31 December 2019
30 June 2019
Risk-free interest rate
Expected volatility(1)
Expected life (years)
0.77% - 3.0%
0.77% - 3.0%
54.73% - 91.07%
54.73% - 91.07%
3 – 5
3 – 5
Fair value per option
(1) Expected volatility is derived from the Company’s historical share price volatility.
17.0c - 85.7c
18.9c - 85.7c
Merger reserve
On 23 March 2018, the Plan of Arrangement to re-domicile the Bacanora Group from Canada to the UK became
effective resulting in Bacanora Lithium Plc becoming the new holding company for Bacanora Minerals Ltd. Under
the Company’s Act 06 Section 612, a merger reserve has been utilised to account for the difference between the
share capital and net asset investment in Bacanora Minerals Ltd. In addition, on consolidation the difference
between the net investment in Bacanora Lithium Plc and share capital in Bacanora Minerals Ltd is accounted for in
the merger reserve.
Per share amounts
Basic and diluted loss per share is calculated using the weighted average number of shares of 163,679,136 for the
six month period ended 31 December 2019 (year ended 30 June 2019: 134,406,516). Options and warrants were
excluded from the dilution calculation as they were anti-dilutive however at a time in the future, they may have an
impact on earnings per share.
For the period ended
Six months ended
Twelve months ended
Loss for the period attributable to owners of
equity (US$)
Weighted average number of common shares
for the purposes of basic and diluted loss per
share
31 December 2019
30 June 2019
(4,864,910)
(11,048,969)
163,679,136
134,406,516
Basic and diluted loss per share (US$)
(0.03)
(0.08)
15 Taxation
Current taxation
The tax charge for the period comprises:
For the period ended (In US$)
Six months ended
Twelve months ended
31 December 2019
30 June 2019
Current tax expense
Overseas tax - Mexico
Deferred tax expense
Adjustments to deferred tax liability
Total tax expense
–
–
–
86
5,012
–
5,012
The reasons for the difference between the actual tax charge for the period and the standard rate of corporation in
the United Kingdom applied to loss for the six month period is as follows:
For the period ended (In US$)
Six months ended
Twelve months ended
31 December 2019
30 June 2019
Loss before tax
(4,946,049)
(11,053,748)
Expected income tax recovery at 19% (2018 - 19%)
Expenses not deductible for tax purposes
Different tax rates applied in overseas jurisdictions
Unrecognised taxable losses and timing differences
Adjustment for under/(over) provision in previous
periods
Total income taxes
Deferred tax
(939,749)
312,340
354,546
272,863
–
–
(2,100,212)
353,810
(144,070)
1,895,484
–
5,012
The Group has no recognised deferred tax balance or gain/loss for the six month period ended 31 December 2019.
As at 31 December 2019, the Group has, for tax purposes, non-capital losses available to carry forward to future
years as follows:
For the period ended (In US$)
31 December 2019
30 June 2019
Expiry Date
UK
Canada
Mexico
As at 30 June
9,583,031
7,035,229
18,008,582
14,676,479
14,132,701
14,800,305
41,724,314
36,512,013
N/A
2028-2039
2020-2029
16 General and administrative expenses
The Group’s general and administrative expenses include the following:
For the period ended
Six months ended
Twelve months ended
(In US$)
Management fees
Legal and accounting fees
Travel and other expenses
Investor relations
Office expenses
Audit fee
Audit related services
Total
31 December 2019
30 June 2019
1,184,934
992,063
208,669
147,696
138,844
90,996
–
2,708,967
2,758,577
715,369
332,759
358,721
141,046
25,880
2,763,202
7,041,319
87
17 Finance income and costs
The Group’s finance income and costs are as follows:
For the period ended (In US$)
Six months ended
31 December 2019
Twelve months ended
30 June 2019
Interest and other income
Warrant liability revaluation
Finance income
Primary Eurobond interest expense
Other finance costs(1)
214,408
714,388
928,796
(1,466,824)
(962,619)
249,422
1,669,702
1,919,124
(2,768,480)
(1,654,552)
Finance costs
(1) Other finance costs include unwinding of transaction costs and discounts.
(2,429,443)
(4,423,032)
18 Segmental information
The Group currently operates in three operating segments which includes the exploration and development of
mineral properties in Mexico through the development of the Sonora mining concessions and the exploration and
development of mineral properties in Germany through its interest in the Deutsche Lithium joint venture. The
Group’s head office is located in London, UK. 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:
31 December 2019 (In US$)
Mexico
Germany
Head Office
Consolidated
Current assets
1,840,652
–
48,840,320
50,680,972
Investment in jointly controlled entity
–
9,545,993
Property, plant and equipment
Exploration and evaluation assets
30,443,640
534,588
–
–
–
–
–
9,545,993
30,443,640
534,588
Total assets
Current liabilities
Borrowings
Warrant liability
Total liabilities
32,818,880
9,545,993
48,840,320
91,205,193
417,864
113,697
1,033,482
1,565,043
–
–
–
–
24,051,610
24,051,610
587,315
587,315
417,864
113,697
25,672,407
26,203,968
Property, plant and equipment additions
739,076
Exploration and evaluation asset
additions
10,641
–
–
–
–
739,076
10,641
88
For the period ended
31 December 2019 (In US$)
General and administrative expense
Depreciation
Share-based payment expense
Foreign exchange gain/(loss)
Operating loss
Finance income
Finance costs
Joint venture investment loss
Revaluation of derivative asset
Segment loss for the period
Mexico
Germany
Head Office
Consolidated
(432,753)
(101,549)
–
345
(533,957)
18,962
–
–
–
(514,995)
–
–
–
–
–
–
–
(80,887)
(191,066)
(271,953)
(2,330,449)
–
(290,391)
(18,652)
(2,639,492)
909,834
(2,429,443)
–
–
(4,159,101)
(2,763,202)
(101,549)
(290,391)
(18,307)
(3,173,449)
928,796
(2,429,443)
(80,887)
(191,066)
(4,946,049)
30 June 2019 (In US$)
Current assets
Investment in jointly controlled entity
Property, plant and equipment
Exploration and evaluation assets
Total assets
Current liabilities
Borrowings
Warrant liability
Total liabilities
Property, plant and equipment additions
Exploration and evaluation asset
additions
Mexico
Germany
Head Office
Consolidated
2,489,568
–
29,806,113
523,947
32,819,628
436,613
–
–
436,613
3,669,329
21,000
193,902
9,347,086
–
–
9,540,988
237,105
–
–
237,105
–
–
14,678,442
–
–
–
14,678,442
1,037,930
21,622,167
1,259,923
23,920,020
–
–
17,361,912
9,347,086
29,806,113
523,947
57,039,058
1,711,648
21,622,167
1,259,923
24,593,738
3,669,329
21,000
For the year ended
30 June 2019 (In US$)
General and administrative expense
Depreciation
Share-based payment expense
Foreign exchange gain/(loss)
Operating loss
Finance income
Finance costs
Joint venture investment loss
Revaluation of derivative asset
Gain/loss on fixed asset disposals
Tax charge
Segment loss for the year
19 Related party disclosures
Related party transactions
Mexico
Germany
Head Office
Consolidated
(1,188,846)
(163,581)
–
67,928
(1,284,499)
784
–
–
–
28,702
(5,012)
(1,260,025)
–
–
–
–
–
–
–
(168,679)
(421,698)
–
–
(590,377)
(5,852,473)
–
(800,846)
(50,347)
(6,703,666)
1,918,340
(4,423,032)
–
–
–
–
(9,208,358)
(7,041,319)
(163,581)
(800,846)
17,581
(7,988,165)
1,919,124
(4,423,032)
(168,679)
(421,698)
28,702
(5,012)
(11,058,760)
The Group’s related parties include key management personnel, companies which have directors in common, its
subsidiaries and entities who share an interest in Group subsidiaries, Ganfeng Lithium Co., Ltd and Cadence
Minerals Plc.
89
Transactions with key management personnel have been disclosed below. There were no transactions with
companies which have directors in common in the period to 31 December 2019 (30 June 2019: None). There were
no transactions with Cadence Minerals Plc in the period to 31 December 2019 (30 June 2019: None). In the period to
31 December 2019, Ganfeng Lithium Co., Ltd, made a project level investment of 22.5% in Sonora Lithium Ltd, see
Note 14 for further details.
90
Key management personnel compensation
During the six month period ended 31 December 2019, Directors remuneration totalled US$803,469 (year ended 30 June 2019: US$2,104,373). Of the total amount
incurred as Directors fees, US$nil (30 June 2019: US$5,826) remains in accounts payables and accrued liabilities on 31 December 2019.
Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Group. Key management
personnel are considered to be the Directors of the Company and the CFO, their remuneration for the period is presented below:
In US$
Six months ended
31 December 2019
Twelve months ended
30 June 2019
Fees
Gross Salary
Share-based
payment
remuneration
Total
Fees
Gross
Salary
Consultancy
Share-based
payment
remuneration
Total
Mark Hohnen
Eileen Carr
Raymond Hodgkinson (1)
Jamie Strauss
Andres Antonius
Derek Batorowski (2)
Peter Secker
Janet Blas
Total Director's and
management’s
remuneration
1 Resigned – 13 December 2018
2 Resigned – 12 September 2019
208,329
–
310,380
–
151,637
25,273
–
30,257
25,000
16,000
–
–
–
–
–
56,692
8,171
–
11,628
11,628
33,444
51,742
–
21,908
41,885
71,145
36,628
50,000
–
16,000
96,000
–
–
–
–
–
156,789
467,169
54,584
106,326
–
21,908
148,305
219,450
143,914
193,914
38,263
8,538
142,801
–
–
–
–
–
–
–
217,160
145,319
66,474
38,230
283,634
183,549
–
–
442,453
297,431
–
–
177,351
619,804
35,570
333,001
96,530
514,116
192,823
803,469 290,795
1,050,264
38,263
725,051
2,104,373
91
As at 31 December 2019, the following options were held by Directors of the Company:
Date of grant Exercise price (£)
Mark Hohnen
Eileen Carr
Andres Antonius
Jamie Strauss
Peter Secker
02 March 2017
20 September 2017
28 October 2019
18 April 2018
15 May 2017
20 September 2017
02 March 2017
20 September 2017
02 March 2017
20 September 2017
28 October 2019
0.85
0.80
0.33
0.90
0.87
0.80
0.85
0.80
0.85
0.80
0.33
Number of
options
249,900
224,910
151,439
312,500
500,000
750,000
750,000
750,000
300,000
240,000
205,800
As at 31 December 2019, the following restricted share units were held by Directors of the Company:
Mark Hohnen
Peter Secker
Date of grant
Number of RSUs
20 September 2017
28 October 2019
20 September 2017
28 October 2019
557,843
204,970
634,434
278,546
20 Directors and employees
Employees of the Company are all employees including key management personnel. The below information relates
to all employees:
In US$
Gross salaries
Share-based payments
Social security costs
Pension costs
Total cost
Average number of
employees
Six months ended
31 December 2019
Twelve months ended
30 June 2019
Corporate
Mexico
Total
Corporate
Mexico
Total
733,823
163,677
897,500
1,640,350
448,101
2,088,451
192,823
102,505
–
192,823
725,051
-
725,051
20,961
123,466
177,136
67,776
244,912
6,717
11,165
17,882
7,881
19,903
27,784
1,035,868
195,803
1,231,671
2,550,418
535,780
3,086,198
11
22
34
12
32
44
92
Directors’ remuneration totalled the following:
In US$
Directors' salaries
Share-based payment expense
Total remuneration
Average number of Directors
Six months ended
Twelve months ended
31 December 2019
30 June 2019
465,327
154,593
619,920
7
1,081,891
689,481
1,771,372
8
The highest paid Director in the six month period ended 31 December 2019 received remuneration, excluding
notional gains on share options, of US$283,634 (year ended 30 June 2019: US$619,804).
21 Commitments
The Group has the following commitments:
-
-
land purchases totalling US$0.4 million due on the clearance of liens expected in the next twelve months,
concession taxes on the license properties, which are expected to total US$182,765 in the following twelve
months,
short term funding of Deutsche Lithium until the end of the option period in February 2020, totalling
US$88,616 under the first supplemental agreement.
- UK office rent of US$50,077 until the end of June 2020.
-
Post year end, the Group has made the following additional commitments:
-
-
long term funding of Deutsche Lithium totalling €1.35 million (US$1.5 million) under the second
supplemental agreement prior to 28 February 2022.
rental payments totalling US$47,718 in Hermosillo, Sonora over the next 12 months.
22 Subsequent events
On 14 February 2020, Bacanora Lithium Plc and the nominated administrator of Solarworld, signed a second
supplemental agreement. It was agreed that:
1) Bacanora Lithium Plc would provide a further €1.35 million prior to 28 February 2022, the first payment
paid on 21 February 2020 for €30,000 and subsequently, €55,000 per month for a further 24 months.
2) The call option which gives Bacanora Lithium Plc the option to purchase the remaining 50% of the joint
venture for €30 million was cancelled
3) The call option which gives Solarworld the right to purchase the remaining 50% of the joint venture for €1,
if Bacanora Lithium Plc did not exercise the above option, was cancelled.
4) Bacanora retains its right of first refusal to purchase the remaining 50% currently held by Solarworld.
23 Non-controlling interests
The following are summaries of the Group’s entities with non-controlling interests for the six months ended 31
December 2019 and twelve months ended 30 June 2019:
Minerales Industriales Tubutama, S.A. de C.V.
In US$
Non-current assets
Accumulated non-controlling interest loss
Loss for the period
Loss attributed to the NCI
31 December 2019
30 June 2019
30,619
(633,022)
–
–
30,619
(633,022)
(13,173)
(5,270)
93
Mexilit S.A. de C.V.
In US$
Current assets
Non-current assets
Non-current liabilities
Accumulated non-controlling interest loss
Loss for the period
Loss attributed to the NCI
Net cash flow from operating activities
Net cash flow from investing activities
Net cash flow from financing activities
Net change in cash
Cash beginning of the period
Cash end of the period
Minera Megalit S.A de C.V.
In US$
Current assets
Non-current assets
Non-current liabilities
Accumulated non-controlling interest loss
Loss for the period
Loss attributed to the NCI
Net cash flow from operating activities
Net cash flow from investing activities
Net cash flow from financing activities
Net change in cash
Cash beginning of the period
Cash end of the period
Sonora Lithium Ltd
In US$
Non-current assets
Non-current liabilities
Accumulated non-controlling interest loss
Loss attributed to the NCI
31 December 2019
30 June 2019
100,678
2,953,739
1,909,860
(43,109)
(3,940)
(1,182)
(104)
(11,611)
–
(11,716)
89,093
77,377
115,341
2,943,016
1,909,860
(41,927)
(2,790)
(837)
(3,015)
(22,742)
(5,846)
(28,563)
117,656
89,093
31 December 2019
30 June 2019
67,952
625,015
368,994
(34,222)
(4,263)
(1,279)
(648)
(10,641)
–
(11,289)
50,431
39,142
79,798
617,433
368,994
(32,943)
(12,280)
(3,684)
(3,028)
(20,852)
23,273
453
49,978
50,431
31 December 2019
59,712,689
50,152
13,356,068
(78,678)
94
24 Note to the statement of cash flows
Below is a reconciliation of borrowings from financing transactions:
In US$
Opening balance
Cashflows
Non cash flows:
Fair value attributed to Financial warrants
Transaction costs
Primary Eurobond finance cost
Eurobond unwinding
Total non-current borrowings
25 Exemptions for a dormant subsidiary
31 December 2019
30 June 2019
21,622,167
–
–
–
–
1,466,824
962,619
20,875,000
(2,929,624)
(746,235)
2,768,480
1,654,546
24,051,610
21,622,167
On the date of the Consolidated Financial Statements, Bacanora Lithium Plc, incorporated in the United Kingdom,
company number 11189628, gives a guarantee over all outstanding liabilities, that Bacanora Treasury Ltd, company
number 11413519, may be subject to at the end of the financial period ended 31 December 2019 until they are
satisfied in full. This guarantee is enforceable against Bacanora Lithium Plc by any person to whom Bacanora
Lithium Plc company is liable in respect of those liabilities.
95
Parent Company Statement of Financial Position
As at 31 December 2019
In US$
Assets
Current assets
Cash and cash equivalents
Other receivables and prepayments
Derivative asset
Total current assets
Non-current assets
Intercompany receivables
Investment in subsidiaries
Investment in joint venture
Total non-current assets
Total assets
Liabilities and shareholders’ equity
Current liabilities
Accounts payable and accrued liabilities
Joint venture obligation
Total current liabilities
Non-current liabilities
Intercompany payables
Warrant liability
Total non-current liabilities
Total liabilities
Shareholders’ equity
Share capital
Share premium
Merger reserve
Share-based payment reserve
Retained earnings
Total shareholders’ equity
Note
31 December 2019
30 June 2019
6
8
7
8
9
8
14
10
13
13
13
13
47,986,997
12,994,188
121,554
–
248,004
193,902
48,108,551
13,436,094
47,459
46,275,266
8,542,529
54,865,254
–
59,709,985
8,343,621
68,053,606
102,973,805
81,489,700
653,770
113,697
767,467
697,929
237,105
935,034
32,264,513
587,315
32,851,828
29,893,379
1,259,923
31,153,302
33,619,295
32,088,336
30,240,469
16,646,060
40,708,662
1,454,591
18,996,790
153,366
40,708,662
1,177,722
(19,695,272)
(11,635,176)
69,354,510
49,401,364
Total liabilities and shareholders’ equity
102,973,805
81,489,700
The accompanying notes on pages 99 - 108 are an integral part of these Parent Company Financial Statements.
The Company’s loss after tax for the six month period ended 31 December 2019 was US$8,073,618 (year ended 30 June 2019:
US$8,894,553).
The Parent Company Financial Statements of Bacanora Lithium Plc, registered number 11189628, were approved and authorised
for issue by the Board of Directors on 28 February 2020 and were signed on its behalf by:
Mark Hohnen
28 February 2020
96
Parent Company Statement of Changes in Equity
For the six month period ended 31 December 2019
Share capital
In US$
30 June 2018
Note
Number of
shares
Value
Share
premium
Merger
reserve
Share-based
payment reserve
Retained
earnings
Total equity
134,164,872
18,958,033
140,592
40,708,662
391,962
(2,833,158)
57,366,091
Comprehensive income for the year:
Loss for the year
Contributions by and distributions to owners:
Shares issued on exercise of options
Lapsed options charge
Share-based payment expense
13
13
13
–
–
–
300,000
38,757
12,774
–
–
–
–
–
–
–
–
–
–
–
–
(15,086)
800,846
(8,894,553)
(8,894,553)
77,449
15,086
128,980
–
–
800,846
30 June 2019
134,464,872
18,996,790
153,366
40,708,662
1,177,722
(11,635,176)
49,401,364
Comprehensive income for the period:
Loss for the period
–
–
–
Contributions by and distributions to owners:
Issue of share capital - Ganfeng
investment
Issue of share capital - M&G investment
13
13
57,600,364
7,251,886
10,877,829
30,916,601
3,991,793
5,987,690
Share issue costs
Lapsed option charge
Share-based payment expense
13
13
13
–
–
–
–
–
–
(372,825)
–
–
–
–
–
–
–
–
–
–
–
–
(8,073,618)
(8,073,618)
–
–
–
18,129,715
9,979,483
(372,825)
(13,522)
290,391
13,522
–
–
290,391
31 December 2019
222,981,837
30,240,469
16,646,060
40,708,662
1,454,591
(19,695,272)
69,354,510
The accompanying notes on pages 99 - 108 are an integral part of these Parent Company Financial Statements.
97
Parent Company Statement of Cash Flows
For the six month period ended 31 December 2019
In US$
Cash flows from operating activities
Loss for the year before tax
Adjustments for:
Share-based payment expense
Foreign exchange
Finance and other income
Finance costs
Share of loss on investment in joint venture
Revaluation of derivative asset
Loss on sale of investment
Changes in working capital items:
Other receivables
Accounts payable and accrued liabilities
Net cash flows used in operating activities
Cash flows from investing activities:
Interest received
Proceeds from sale of subsidiaries, net of share costs
Payments to joint venture
Net cash flows from investing activities
Cash flows from financing activities
Issues of share capital, net of share costs
Exercise of options
Note 31 December 2019
30 June 2019
6 months
12 months
(8,073,618)
(8,894,553)
290,391
77,764
(909,834)
2,633,848
80,887
191,066
3,912,112
800,846
46,888
(1,885,993)
4,423,027
12,741
78,324
–
126,373
(45,313)
(1,716,324)
(98,327)
(1,363,005)
(6,880,052)
195,447
9,475,190
(401,972)
9,268,665
216,291
–
–
216,291
27,736,373
–
–
68,501
(Repayment of)/proceeds from intercompany borrowing
18
(262,756)
19,628,312
Net cash flows from financing activities
27,473,617
19,696,813
Change in cash during the period
Exchange rate effects
Cash, beginning of period
Cash, end of period
35,025,958
13,033,052
(33,149)
12,994,188
47,986,997
(52,067)
13,203
12,994,188
The accompanying notes on pages 99 - 108 are an integral part of these Parent Company Financial Statements.
98
Notes to the Parent Company Financial Statements
1 Corporate information
These Financial Statements represent the individual financial statements of Bacanora Lithium Plc (the “Parent
Company”), the parent company of the Bacanora Group.
The Parent Company was incorporated under the Companies Act 2006 of England and Wales on 6 February 2018.
The Parent 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 Parent Company is 4 More London Riverside, London, SE1
2AU.
2 Basis of preparation
Statement of compliance
These Parent Company Financial Statements have been prepared in accordance with International Financial
Reporting Standards, International Accounting Standards and Interpretations (collectively "IFRS") as adopted by the
European Union (“EU”) applied in accordance with the provisions of the Companies Act 2006.
IFRS is subject to amendment and interpretation by the International Accounting Standards Board (“IASB”) and the
IFRS Interpretations Committee, and there is an ongoing process of review and endorsement by the European
Commission.
They have been prepared for the short period of six months from 1 July 2019 to 31 December 2019. The Company
changed its accounting period end from 30 June to 31 December to align its reporting period with Mexican financial
and tax reporting and other stakeholders reporting period. This resulted to a shortened financial period of six
months ended 31 December 2019 for the current reporting period.
The Parent Company Financial Statements were authorised for issue by the Board of Directors on 28 February 2020.
The Board of Directors has the power and authority to amend these Financial Statements after they have been
issued.
Basis of measurement
These Financial Statements have been prepared on a historical cost basis, except for certain financial instruments
that have been measured at fair value.
The presentation currency of these Financial Statements is United States dollars (“US$”). The functional currency
of the Company is deemed to be the US$ under IAS 21.
Going concern
The Directors have, at the time of approving the Financial Statements, a reasonable expectation that the Parent
Company has adequate resources to continue in operational existence for the foreseeable future. Thus, the going
concern basis of accounting in preparing the Financial Statements is adopted.
3 Accounting polices
In addition to the accounting policies in note 3 of the Consolidated Financial Statements, the following accounting
policies are relevant only to the Parent Company Financial Statements.
Investments in subsidiaries
Unlisted investments are carried at cost, being the purchase price, less provisions for impairment except for the
investment in Bacanora Minerals Ltd as a result of the 2018 corporate reorganisation.
In August 2019 the Sonora Lithium Ltd purchased 100% of the share capital of Bacanora Minerals Ltd from the
Parent Company in return for a 100% investment in Sonora Lithium Ltd. The Parent Company’s investment in Sonora
99
Lithium Ltd is measured at cost being defined as the cost of the Parent Company’s original investment in Bacanora
Minerals Ltd.
In October 2019, Ganfeng Lithium Co., Ltd purchased 22.5% of the shareholding of Sonora Lithium Ltd and its
subsidiaries. In addition, Ganfeng Lithium Co., Ltd were issued an option to purchase a further 27.5% to reach a
shareholding of 50% within 2 years of the initial investment.
4 Critical accounting estimates and judgements
The preparation of the Parent Company’s Financial Statements in accordance with IFRS 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. In addition to the critical
accounting estimates and judgements in note 4 of the Consolidated Financial Statements, the following information
about the significant judgements, estimates, and assumptions that have the most significant effect on the
recognition and measurement of assets, liabilities, income and expenses that are relevant only to the Parent
Company Financial Statements are discussed below.
Value of investments in subsidiaries
Investments in subsidiaries are reviewed for impairment if events or changes indicate that the carrying amount may
not be recoverable. When a review for impairment is conducted, the recoverable amount is assessed by reference
to the net present value of expected future cash flows of the relevant generating unit, which may span multiple
trading entities, or disposal value, if higher. No impairment indicators were identified in the period ended 31
December 2019.
5 Loss for the period
The Parent Company has taken advantage of the exemption under section 408 (3) of the Companies Act 2006 and
thus has not presented its statement of comprehensive income in these Parent Company Financial Statements. The
Parent Company’s loss after tax for the six month period is US$8,073,618 (Year ended 30 June 2019 -
US$8,894,553).
6 Other receivables and prepayments
Other receivables contain amounts receivable for VAT, prepaid expenses and deposits paid. All receivables are held
at cost less any provision for impairment. A provision for impairment is made where there is objective evidence
that the receivable is irrecoverable. All receivables are due within one year.
In US$
Other receivables
Prepayments and deposits
Total
31 December 2019 30 June 2019
66,282
55,272
121,554
113,272
134,732
248,004
7
Investments in subsidiaries
The Parent Company has the following subsidiaries, held at cost, at 31 December 2019:
100
Name of subsidiary
Country of
incorporation
UK
Bacanora Finco Ltd
UK
Bacanora Treasury Ltd
UK
Sonora Lithium Ltd
UK
Zinnwald Lithium Ltd
Battery Finance (Jersey) Ltd
Jersey
Bacanora Chemco S.A. de C.V.* Mexico
Canada
Bacanora Minerals Ltd*
Mexico
Mexilit S.A. de C.V**
Mexico
Minera Megalit S.A. de C.V**
BVI
Mineramex Ltd**
Minera Sonora Borax, S.A. de
C.V***.
Operador Lithium Bacanora S.A.
de C.V.***
Minerales Industriales
Tubutama, S.A. de C.V***
Mexico
Mexico
Mexico
Shareholding on
31 December
2019
100%
100%
77.5%
100%
100%
77.5%
77.5%
54.25%
54.25%
77.5%
Shareholding
on 30 June
2019
100%
100%
100%
100%
100%
100%
100%
70%
70%
100%
Nature of business
Financing company
Financing company
Holding company
Dormant
Dormant
Lithium processing
Holding company
Lithium mining/exploration
Mineral exploration
Holding company
77.5%
77.5%
46.5%
100%
Lithium mining/exploration
100%
60%
Mexican service
organisation
Dormant
*Held indirectly through Sonora Lithium Ltd
** Held indirectly though Sonora Lithium Ltd and Bacanora Minerals Ltd
***Held indirectly though Sonora Lithium Ltd, Bacanora Minerals Ltd and Mineramex Ltd
In August 2019, Bacanora Lithium Plc’s 100% ownership of Bacanora Minerals Ltd and all its subsidiaries were
transferred to Sonora Lithium Ltd (a 100% subsidiary of Bacanora Lithium Plc at that time). In October 2019,
Ganfeng Lithium Co., Ltd purchased 22.5% of the shareholding of Sonora Lithium Ltd and its subsidiaries. In
addition, Ganfeng Lithium Co., Ltd were issued an option to purchase a further 27.5% to reach a maximum
shareholding of 50% within 2 years of the initial investment. See Note 13 for further details.
For UK registered subsidiaries, the registered address for each subsidiary is 4 More London Riverside, London, SE1
2AU. For Jersey registered subsidiaries, the registered address for each subsidiary is 47 Esplanade St Helier Jersey
JE1 0BD. For Canadian registered subsidiaries, the registered address for each subsidiary is 1250, 639 – 5th Av SW,
Calgary, AB, T2P 0M9. For Mexican registered subsidiaries, the registered address for each subsidiary is Calle Uno
No. 312, Colonia Bugambillas, Hermosillo, Sonora, Mexico.
8
Investments in jointly controlled entities
Investment in Deutsche Lithium GmbH
Bacanora Lithium Plc owns 50% of the ordinary share capital of Deutsche Lithium GmbH whose registered address is
Trident Chambers, Wickhams Cay, PO Box 146, Road Town, Tortola, BVI.
On 28 May 2019 a supplemental agreement was signed between the Bacanora Lithium Plc, Bacanora Minerals Ltd
and the nominated administration of Solarworld. As a result:
1) Bacanora Minerals Ltd’s 50% share in Deutsche Lithium was novated to Bacanora Lithium Plc
2) The Deutsche Lithium option exercise period extended for six months until February 2020, see note 6 of the
Consolidated Financial Statements for further details.
3) Additional funding will be provided by Bacanora Lithium Plc, totalling €543,221, becoming payable
progressively throughout the option period.
Bacanora Lithium Plc and Bacanora Minerals Ltd agreed a total purchase consideration of €7,500,000
(US$8,386,776), of which US$267,519 was attributed to the derivative asset, valued using a Black-Scholes valuation
method, see note 8c below for further details, and the remaining US$8,119,257 was attributed to the investment.
On 14 February 2020, Bacanora Lithium Plc and the nominated administrator of Solarworld, signed a second
supplemental agreement. As a result:
101
1) Bacanora Lithium Plc will provide a further €1.35 million prior to 28 February 2022, the first payment
became payable 18 February 2020 for €30,000 and subsequently, €55,000 per month for a further 24
months.
2) The call option which gives Bacanora Lithium Plc the option to purchase the remaining 50% of the joint
venture for €30 million was cancelled.
3) The call option which gives Solarworld the right to purchase the remaining 50% of the joint venture for €1,
if Bacanora Lithium Plc did not exercise the above option, was cancelled.
4) Bacanora retains its right of first refusal to purchase the remaining 50% currently held by Solarworld.
Reconciliation of the carrying amount of net investment in joint venture is as follows:
In US$
28 May 2019
Purchase consideration
Joint venture investment loss
Additional investment
30 June 2019
Joint venture investment loss
Additional investment
31 December 2019
Deutsche Lithium obligation
Joint venture
investment
–
8,119,257
(12,740)
237,105
8,343,622
(80,887)
279,794
8,542,529
The Company holds an obligation to fund Deutsche Lithium until February 2022. This obligation has been disclosed
in note 6 of the Consolidated Financial Statements.
Derivative asset – Deutsche Lithium option
The Company’s option relating to Deutsche Lithium has been disclosed in note 6 of the Consolidated Financial
Statements.
9 Accounts payable and accrued liabilities
At 31 December 2019, the Parent Company held accounts payable and accrued liabilities of US$653,770 (30 June
2019: US$697,929) mainly in respect of legal, accounting and professional services.
10 Financial warrants
The Parent Company’s warrant liability has been disclosed in note 11 of the Consolidated Financial Statements. All
such warrants, and only those, disclosed are held by the Parent Company.
11 Financial Instruments
The Company’s financial assets and liabilities are classified as follows:
102
As at 31 December 2019 (In US$)
At amortised cost
At fair value through
profit or loss
Total
Financial assets
Cash and cash equivalents
Other receivables
Intercompany receivables
Total financial assets:
Financial liabilities
Accounts payable and accrued liabilities
Joint venture obligation
Intercompany payables
Warrant liability
Total financial liabilities:
47,986,997
973,220
47,459
49,007,676
653,770
113,697
32,264,513
–
–
–
–
–
–
–
47,986,997
973,220
47,459
49,007,676
653,770
113,697
32,264,513
–
587,315
587,315
33,031,980
587,315
33,619,295
Net financial assets/(liabilities):
15,975,696
(587,315)
15,388,381
As at 30 June 2019 (In US$)
At amortised cost
At fair value through
profit or loss
Total
Financial assets
Derivative asset
Cash and cash equivalents
Other receivables
Total financial assets:
Financial liabilities
Accounts payable and accrued liabilities
Joint venture obligation
Intercompany payables
Warrant liability
Total financial liabilities:
–
193,902
193,902
12,994,188
113,272
13,107,460
697,929
237,105
29,893,379
–
–
12,994,188
113,272
193,902
13,301,362
–
–
–
697,929
237,105
29,893,379
–
1,259,923
1,259,923
30,828,413
1,259,923
32,088,336
Net financial liabilities:
(17,720,953)
(1,066,021)
(18,786,974)
12 Financial Risk Management
The Company is exposed to risks that arise from its use of financial instruments. The principle financial instruments
used by the Company, from which financial risk arises, are set out in note 11. The types of risk exposure the
Company is subjected to in the financial period are as follows:
103
Credit risk
Credit risk arises from the risk that a counter party will fail to perform its obligations. Financial instruments that
potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents, other
receivables and intercompany receivables.
The Company’s cash is held in major UK banks, and as such the Company is exposed to the risks of those financial
institutions. Under Standard & Poor’s short term credit ratings, the Company’s total cash balance is held in
institutions with a A-1+ rating.
The Company’s other receivables relate to input tax receivables due from the UK government and accordingly the
Company believes them to have minimal credit risk. Any changes in management’s estimate of the recoverability of
the amount due will be recognised in the period of determination.
The total carrying amount of cash and cash equivalents and other receivables represents the Company’s maximum
credit exposure.
The Board of Directors monitors the exposure to credit risk on an ongoing basis and does not consider such risk
significant at this time. The Company considers all its accounts receivables fully collectible.
Liquidity Risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due.
The Company 's approach to managing liquidity risk is to ensure, as far as possible, that it will have sufficient
liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring
unacceptable losses.
The following table illustrates the contractual maturity analysis of the Company’s gross financial liabilities based on
exchange rates on the reporting date.
As at 31 December 2019 (In US$)
Accounts payable and accrued liabilities
Joint venture obligation
Intercompany payables
Warrant liability*
As at 30 June 2019 (In US$)
Accounts payable and accrued liabilities
Joint venture obligation
Intercompany payables
Warrant liability*
Within 30
days
30 days to
6 months
6 to 12
months
Over 12
months
653,770
113,697
–
–
–
–
–
–
Within 30
days
30 days to 6
months
6 to 12
months
697,929
237,105
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
32,264,513
Over 12
months
–
–
–
29,893,379
–
*No gross cash financial liability is present as the Company has the option to settle the warrants in equity or cash.
Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, commodity prices, and
interest rates will affect the value of the Company’s financial instruments. The objective of market risk
management is to manage and control market risk exposures within acceptable limits, while maximising long-term
returns.
A portion of the Company’s expenditures, other receivables, accounts payables and accrued liabilities are
denominated in US dollars, Great British pounds and euros and are therefore subject to fluctuation in exchange
rates.
104
As at 31 December 2019, a 10% change in the exchange rate between the United States dollar and euro or Great
British pound, which is a reasonable estimation of volatility in exchange rates, would have an approximate US$0.1
million change to the Parent Company’s total comprehensive loss.
Fair values
The fair value of cash, other receivables, and accounts payable and accrued liabilities and joint venture obligation
approximate their carrying values due to the short-term nature of the instruments.
Fair value measurements recognised in the Statement of Financial Position subsequent to initial fair value
recognition can be classified into Levels 1 to 3 based on the degree to which fair value is observable.
Level 1 – Fair value measurements are those derived from quoted prices in active markets for identical assets and
liabilities.
Level 2 – Fair value measurements are those derived from inputs other than quoted prices included within Level 1
that are observable for the asset or liability, either directly, or indirectly.
Level 3 – Fair value measurements are those derived from valuation techniques that include inputs for the asset or
liability that are not based on observable market data.
The level 3 fair value for the warrant liability are disclosed in note 11 of the Consolidated Financial Statements,.
There were no transfers between any levels of the fair value hierarchy in the current period or prior years.
13 Equity
Authorised share capital
The authorised share capital of the Parent Company consists of an unlimited number of voting common shares of
par value £0.10.
Common shares issued
The Parent Company has the following shares in issue:
30 June 2018
Shares
Share Capital
(US$)
Share Premium
(US$)
134,164,872
18,958,033
140,592
Shares issued on exercise of options
300,000
38,757
30 June 2019
134,464,872
18,996,790
12,774
153,366
Issue of share capital - Ganfeng investment1
57,600,364
7,251,886
10,877,829
Issue of share capital - M&G investment2
30,916,601
3,991,793
5,987,690
Share issue costs
31 December 2019
–
–
(372,825)
222,981,837
30,240,469
16,646,060
1 Ganfeng Lithium Co., Ltd agreed a cornerstone strategic investment of 29.99% in Bacanora Lithium Plc for
£14,400,091. Ganfeng has been granted pre-emption rights proportionate to its shareholding in Bacanora and shall
appoint one Director to the Board of Bacanora. In addition, Ganfeng made a project level investment of 22.5% in
Sonora Lithium Ltd ("SLL"), the holding company for the Sonora Lithium Project, for £7,563,649. Ganfeng were
granted an option to increase its interest in SLL to 50% within 24 months at a valuation based on the share price of
Bacanora Lithium Plc at the time of subsequent investment. Ganfeng have appointed one Director to the Board of
Sonora Lithium Ltd. An additional long-term offtake at a market-based price per tonne for 50% of Stage 1 lithium
production and up to 75% during Stage 2 lithium production was also agreed.
105
2 M&G Plc, a long-standing cornerstone shareholder, purchased £7,729,150 via an ordinary placing of 30,916,601
new ordinary shares at a price of 25 pence per Placing Share.
Share options
The Parent Company’s share option plan has been disclosed in note 14 of the Consolidated Financial Statements. All
such options, and only those, disclosed are held by the Parent Company.
Restricted share units
The Parent Company’s restricted share unit plan has been disclosed in note 14 of the Consolidated Financial
Statements. All such units, and only those, disclosed are held by the Parent Company.
Share-based payment reserve
The following table presents changes in the Parent Company’s share-based payment reserve.
In US$
30 June 2018
Lapsed options charge
Share-based payment expense
30 June 2019
Lapsed options charge
Share-based payment expense
31 December 2019
Share-based payment expense
Share-based payment
reserve
391,962
(15,086)
800,846
1,177,722
(13,522)
290,391
1,454,591
During the six month period ended 31 December 2019, the Parent Company recognised US$290,391 (year ended 30
June 2019: US$800,846) of share-based payment expense. The fair value of share-based compensation was
estimated on the dates of grant using the Black-Scholes option pricing model with the assumptions contained within
note 14 of the Consolidated Financial Statements.
Merger reserve
On 23 March 2018, the Plan of Arrangement to re-domicile the Bacanora Group from Canada to the UK became
effective resulting in Bacanora Lithium Plc becoming the new holding company for Bacanora Minerals Ltd. Under
the Company’s Act 06 Section 612, a merger reserve has been utilised to account for the difference between the
share capital and net asset investment in Bacanora Minerals Ltd.
Per share amounts
Basic and diluted loss per share is calculated using the weighted average number of shares of 163,679,136 for the
six month period ended 31 December 2019 (year ended 30 June 2019: 134,406,516). Options and warrants were
excluded from the dilution calculation as they were anti-dilutive however at a time in the future they may have an
impact on earnings per share.
106
For the period ended
31 December 2019
30 June 2019
Loss for the period attributable to owners of
equity
Weighted average number of common shares for
the purposes of basic and diluted loss per share
(8,073,618)
(8,894,553)
163,679,136
134,406,516
Basic and diluted loss per share ($)
(0.05)
(0.07)
14 Related party disclosures
The Parent Company’s related parties include key management personnel, companies which have directors in
common, its subsidiaries and entities who share an interest the Company’s subsidiaries, Ganfeng Lithium Co., Ltd
and Cadence Minerals Plc.
Transactions with its Directors and key management personnel have been disclosed in note 19 of the Consolidated
Financial Statements.
There were no transactions with companies which have directors in common in the period to 31 December 2019 (30
June 2019: None). There were no transactions with Cadence Minerals Plc in the period to 31 December 2019 (30
June 2019: None).In the period to 31 December 2019, Ganfeng Lithium Co., Ltd, made a project level investment of
22.5% in Sonora Lithium Ltd, see Note 13 for further details.
The Parent Company traded with undertakings within the same Group during the six month period ended 31
December 2019. A summary of the sum of absolute transactions and outstanding balances at the period end with
each is set out below:
Name of related party
Nature of
relationship
Commercial terms
Absolute
transaction
value
Balance owed by /
(owed to) related
parties
Bacanora Finco Ltd
Subsidiary
Interest bearing - Interest
rate 21%
Bacanora Minerals Ltd
Subsidiary
Non-interest bearing
Sonora Lithium Ltd
Subsidiary
Non-interest bearing
Bacanora Treasury Ltd
Subsidiary
Non-interest bearing
3,169,795
(24,020,603)
152,189
47,444
–
(8,243,910)
47,444
15
15 Directors and employees of the Parent Company
Employees of the Company are all employees including key management personnel. Key management personnel are
those persons having authority and responsibility for planning, directing and controlling the activities of the
Company. Key management personnel are considered to be the Directors of the Parent Company and the CFO.
Details of key management personnel are disclosed in note 19 of the Consolidated Financial Statements. The below
information relates to employees of the Parent Company:
In US$
Six months ended
Twelve months ended
31 December 2019
30 June 2019
Gross salaries
Share-based payments
Social security costs
Pension costs
Total cost
1,640,350
725,051
177,136
7,881
2,550,418
733,823
192,823
102,505
6,717
1,035,868
107
Directors’ remuneration totalled the following:
In US$
Six months ended
Twelve months ended
31 December 2019
30 June 2019
Directors' salaries
Share-based payment expense
Total remuneration
Number of Directors
465,327
154,593
619,920
7
1,081,891
689,481
1,771,372
8
16 Commitments
The Company has the following commitments:
-
short term funding of Deutsche Lithium until the end of the option period in February 2020, totalling
US$88,616.
- UK office rent of US$50,077 until the end of June 2020.
Post year end, the Company has made the following additional commitments:
-
long term funding of Deutsche Lithium totalling €1.35 million (US$1.5 million) under the second
supplemental agreement prior to 28 February 2022.
17 Subsequent events
Subsequent events relating to the Parent Company have been disclosed in note 22 of the Consolidated Financial
Statements.
18 Note to the statement of cash flows
Below is a reconciliation of intercompany financing from financing transactions:
In US$
Opening balance
Cash flows
Non cash flows
Deutsche Lithium novation
Transaction costs
Intercompany recharges
Intercompany
payables
Intercompany
payables
31 December 2019
30 June 2019
29,893,379
(262,756)
1,131,175
19,674,324
–
–
204,447
8,386,776
(746,286)
(46,018)
4,423,032
(2,929,624)
29,893,379
Intercompany recharge of interest costs
2,429,443
Warrant liability
Total
–
32,264,513
108