Bacanora Lithium Plc
Annual Report and Financial Statements
31 December 2021
Company Directory
Board of Directors
Wang Xiaoshen (Appointed Chairman 27 January 2022)
Peter Secker (CEO)
Junichi Tomono
Mark Hohnen (Former Chairman, Resigned 17 December 2021)
Eileen Carr (Resigned 17 December 2021)
Jamie Strauss (Resigned 17 December 2021)
Andres Antonius (Resigned 17 December 2021)
Graeme Purdy (Resigned 17 December 2021)
Chief Financial Officer
Janet Blas
Company Secretary
Cherif Rifaat
Registered Office
Website
Lawyers
Auditors
4 More London
Riverside
London
SE1 2AU
www.bacanoralithium.com
Gowling WLG (UK) LLP
4 More London
Riverside
London
SE1 2AU
BDO LLP
55 Baker St
London
W1U 7EU
Registered Number
11189628
Contents
Business Review ........................................................................................................................ 1
Strategic Report ........................................................................................................................ 5
Governance ............................................................................................................................ 37
Independent Auditor’s Report to the members of Bacanora Lithium Plc .................................................... 58
Consolidated Statement of Financial Position .................................................................................... 65
Consolidated Statement of Comprehensive Income ............................................................................. 66
Consolidated Statement of Changes in Equity .................................................................................... 67
Consolidated Statement of Cash Flows ............................................................................................ 68
Notes to the Consolidated Financial Statements ................................................................................. 69
Parent Company Statement of Financial Position .............................................................................. 102
Parent Company Statement of Changes in Equity .............................................................................. 103
Parent Company Statement of Cash Flows ...................................................................................... 104
Notes to the Parent Company Financial Statements .......................................................................... 105
Business Review
Highlights – for the twelve months ended 31 December 2021 and subsequent events:
Completion of cash offer by Ganfeng International Trading (Shanghai) Ltd, a 100% subsidiary of Ganfeng Lithium
Co., Ltd (collectively “Ganfeng”) for Bacanora Lithium Plc (“Bacanora” or the “Company”) share capital
• On 6 May 2021, Bacanora and Ganfeng announced that they had entered into an agreement regarding the
terms of a possible cash offer for the entire issued and to be issued share capital of Bacanora that Ganfeng
does not already own.
• On 25 August 2021, the Bacanora Independent Directors and the Ganfeng Board reached an agreement on the
terms of a recommended conditional cash offer to be made by Ganfeng for the entire issued and to be issued
ordinary share capital of Bacanora not already owned by Ganfeng (the “Offer”). The Bacanora Board also
intend to make a conditional distribution in specie, comprising the shares in Zinnwald Lithium Plc (AIM:ZNWD)
(“Zinnwald”) currently owned by Bacanora (the “Zinnwald Distribution”), to all Bacanora shareholders
(including Ganfeng) on the record date, being the date the Offer becomes or is declared unconditional. The
Zinnwald distribution is subject to various conditions. Subject to the conditions being met, Bacanora
shareholders were entitled to receive for each Bacanora share 67.5 pence in cash from Ganfeng pursuant to
the Offer and 0.23589 Zinnwald shares to be distributed by Bacanora.
• On 17 December 2021, Ganfeng announced that the final condition relating to the Mexican Antitrust clearance
was satisfied, and therefore that the offer was unconditional. Furthermore, on 23 December 2021, Ganfeng
had received acceptances in excess of 75 percent of Bacanora's issued ordinary share capital and made an
application to the London Stock Exchange for the cancellation of the admission of Bacanora shares to trading
on AIM. The cancellation took effect at 7.00 am (GMT) on 26 January 2022.
• As at 31 December 2021, Ganfeng have had acceptances or already controlled 333,342,270 Bacanora shares
of the 387,136,502 shares in issue, representing 86.1% of Bacanora's issued ordinary share capital. The Offer
will remain open for acceptance until further notice, full details are available on the Company’s website1.
Corporate financing for Bacanora’s 50% share of the funding requirements of the Sonora Lithium Project
(“Sonora Project” or “Project”), Mexico
•
• On 8 February 2021, Bacanora completed a successful placing and retail offer which raised gross proceeds of
£48.1 million (US$66.3 million) through the issue of a total of 106,995,885 new ordinary shares at a price of
45 pence per placing share.
In addition to the placing and retail offer, Ganfeng, Bacanora's cornerstone investor and offtake partner,
exercised its pre-emption right at the placing price and increased its holding in the Company on 26 May 2021.
Ganfeng subscribed for a total of 53,333,333 new ordinary shares at the placing price of 45 pence per share,
representing gross proceeds of £24.0 million (US$33.9 million). On completion of Ganfeng’s investment in
May 2021, Bacanora had 384,144,901 shares in issue and Ganfeng had an ownership stake of 28.88%.
• Ganfeng completed its option to increase its stake in Sonora Lithium Ltd ("SLL") from 22.5% to 50% (the
"Option") on 26 February 2021. SLL is the operational holding company for the Sonora Project. Consequently,
Ganfeng have subscribed for 73,955,680 new ordinary shares in SLL at 29.59 pence per share at a total value
of £21.9 million (US$30.4 million). On completion of the transaction, a revised 50:50 Joint Venture Agreement
(“JVA”) came into force, whereby each party is responsible for their portion of the Project capex.
• After review of the provisions of the revised JVA, the Company has assessed that Bacanora now has joint
control over SLL and its subsidiaries (the “Sonora Lithium Group”). Therefore, in the Group financial
statements, the Group no longer consolidates the Sonora Lithium Group and instead recognises its investment
in the Sonora Lithium Group.
• Bacanora has repaid the Company’s outstanding debt notes and associated warrants held by RK Mine Finance
("RK"), in full and early, in line with the terms of the RK loan facility on 7 January 2022, with payments
totalling US$42.3 million including warrants, early redemption fees, accrued interest and principal
repayment.
1 www.bacanoralithium.com/investor-relations/ganfeng/
1
• Bacanora and its subsidiaries (the “Group”) had a strong consolidated cash balance of US$122.1 million as at
31 December 2021. Together with the cash in Sonora Lithium Group of US$26.6 million, the total aggregated
cash balance amounted to US$148.7 million as at 31 December 2021.
Sonora Project – focused on finalising engineering processes and early site works
• Whilst COVID-19 has impacted the Company and its partners, work to complete the front-end engineering
design (“FEED”) has continued throughout the period. Ganfeng is currently appointing a Chinese Design
Institute to complete the FEED with initial site layouts scheduled for Q2 2022.
• Ganfeng is continuing to work with its equipment suppliers and, along with the Company, is maintaining its
previously advised project delivery schedule with first lithium production in H2 2024.
• Rescue and removal of surface vegetation and topsoil in the area required for the construction of the lithium
processing plant have been completed. Plant site location survey, geotechnical, and hydrogeological works
have also been completed.
• Works to build the construction road and early work camp have commenced. Site works for bulk earthworks
are expected to commence in late 2022.
Zinnwald Lithium Project, Germany (“Zinnwald Project”) – acquisition of the remaining 50% of Deutsche Lithium
and distribution to shareholders of Bacanora
•
•
In June 2021, Zinnwald, Bacanora’s associate company, acquired the remaining 50% of Deutsche Lithium
GmbH (“DL”) that it did not already own for a total consideration of €8.8 million consisting of a cash payment
of €1.5 million and the issue of approximately 50 million new shares in Zinnwald (the "DL Acquisition").
The DL Acquisition gives Zinnwald full ownership and operational control of the Zinnwald Project and is in
line with its corporate objective to become a key supplier to the European lithium market.
In order to provide additional value to Bacanora shareholders, Ganfeng agreed as part of the Offer, that
Bacanora could propose a distribution in specie of Zinnwald shares to Bacanora shareholders, so that for each
Bacanora share a Bacanora shareholder would receive 0.23589 Zinnwald shares. The making of this
distribution was subject to various conditions, the last of which is the Offer becoming or being declared
unconditional, which was met on the record date of 17 December 2021. The distribution of the Zinnwald
shares was made to Bacanora shareholders on 22 December 2021.
2
CEO Statement
Dear Stakeholders,
This year saw many milestones achieved in progressing our flagship Sonora lithium asset from green field asset to the
initial stages of construction. This year has been extremely busy both from an operational and corporate perspective
beginning with a successful equity placing and retail offer which raised gross proceeds of £48.1 million (US$66.3
million). This marked a pivotal moment in the Company’s history and demonstrated the appetite for new lithium
assets globally. The fundraising provided the financing to meet the Company’s share of the initial development of
the Sonora Project and allowed the Project to commence the early site works.
Furthermore, the Company secured an additional US$33.9 million from Ganfeng’s exercise of pre-emption rights, the
Company’s largest shareholder. Ganfeng also completed a US$30.4 million investment in SLL, increasing its stake
from 22.5% to 50%.
Subsequent to the aforementioned corporate activities, the Company received a cash offer from Ganfeng. Ganfeng’s
cash offer for Bacanora, which with the inclusion of the Zinnwald distribution, valued the Company at a premium to
the pre-offer share price of 59.4% and delivered an immediate liquidity opportunity for all shareholders. The Offer
completed on 17 December 2021 and Ganfeng, as of the date of release, owned a controlling stake of over 90% of
the issued shares in the Company.
On the ground and within our in-country teams, Ganfeng’s commitment has helped secure the future of the Sonora
Project, undoubtedly a world-class asset that is expected to cornerstone their globally significant plans. Under
Ganfeng, this Project will continue to empower the area with investment, employment, and tax revenues to the
benefit of Mexico. Ganfeng’s history and expertise in the lithium battery space cannot be over-emphasised, and their
commitment to Sonora will help the asset weather any headway in construction or in the ramp-up stages.
As a result of Ganfeng having control of in excess of 75% of our share capital, Bacanora was recently delisted from
the London Stock Exchange. As part of the Offer, the Board of Bacanora successfully negotiated for its Zinnwald
shares to be added to the cash offer. This distribution was approved by shareholders and enables shareholders to
retain their exposure in this exciting commodity market. Once the transaction went unconditional, Bacanora’s
independent directors, Jamie Strauss, Eileen Carr, Andres Antonius, and Graeme Purdy, resigned. Furthermore, Mark
Hohnen, our longstanding Chairman, who has held executive and non-executive positions at the Company also
resigned. I thank them for all their contributions on the Board in guiding the Company through to the successful
financing stage.
More recently, the Company also fully repaid the RK loan facility relating to the first tranche drawdown of US$25
million from 2018 and settled the six million warrants issued at the time. Clearing Bacanora’s debt allows the removal
of all securities and covenants registered under this facility in preparation for constructing our production plant.
The safety of our staff and communities stays at the forefront of our operations. During the year, we continued to
work closely with the authorities in Mexico to maintain an appropriate response to the COVID-19 pandemic and the
Company remains committed to doing so moving forward. On-site, it has now been over three years with zero lost-
time injuries, a record we are incredibly proud of and aim to continue to extend. These achievements would not be
possible without the commitment of our staff and managers at site and at the pilot plant.
A global shift towards green energy and a more sustainable future has buoyed the lithium market. COP 26 in Glasgow
shone a bright light on reducing our dependence on fossil fuels and limiting global warming. The green transition
requires battery technology in our electricity grid and to power electric vehicles. Ganfeng has supply agreements
with some of the world’s largest car manufacturers, Tesla, VW and BMW, to name a few. They are all committed to
driving the global fleet towards a greener future. With booming demand and new assets struggling to come online
fast enough, we expect the lithium market to remain buoyant in the foreseeable future.
Despite the current optimism in lithium market forecasts, some lithium producers are facing increased uncertainty
in a number of areas, including an increased focus on resource nationalism and increasing cost pressures. In Mexico,
on 30 September 2021, politicians from the MORENA party tabled a draft bill to reform Mexico’s energy sector
including statements that lithium would be included among the minerals considered strategic for the energy transition
and indicated that no new concessions could be granted for lithium exploitation by private companies. We are
continually reviewing any proposed changes in legislation and continue to meet all obligations to maintain the validity
3
of all of our mineral concessions. Elsewhere, the lithium industry is feeling the effects of global commodity cost
inflation, with supply chain disruptions, consumer inflation and significant fluctuations in energy costs. This has been
recently demonstrated in the US where natural gas consumers experienced a 39% increase in gas prices in 2021 due
to the global economic recovery, cold weather, and supply disruptions, according to the World Bank. Whilst increased
energy costs and inflation have the potential to impact operating costs in Sonora, this will also impact the cost curve
for all other global lithium producers.
I would also like to take this opportunity to express my sincere thanks to the Board, including those who have recently
departed, our management team and employees for their dedication and hard work developing the Sonora Project
to the start of construction. I would also like to thank all our stakeholders for their continued support.
Detailed design work continues apace, and I look forward to seeing the Sonora Project develop to production enabling
a greener future.
Peter Secker, Chief executive officer
28 February 2022
4
Strategic Report
Business Model
Our business model is to create shareholder value through the investment in the Sonora Project in Mexico via the 50%
holding in SLL and by extension the Sonora Lithium Group.
To capitalise on the fast-growing lithium market, our main focus is to monetise the resources and reserves held in
the Sonora Lithium Group, 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 offtake
partners Ganfeng and Hanwa Co., Ltd (“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 assuming a long-term price of US$11,000 per tonne. Given the cost profile, the Project remains attractive,
even in a low price market, please see market review section on page 33 for more details on the dynamics of the
market. Bacanora has ten licences covering almost 100,000 hectares in Sonora, of which seven licences form part of
the SFS.
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 LCE.
2. An experienced Board and operational leadership team.
3. Access to strong technical skills either from the Sonora Lithium team, our major shareholder and joint venture
partner Ganfeng and our global network of advisers.
4. Over six years of pilot plant operations in Mexico.
5. Emphasis on building strong local organisations and skill sets.
6. Commitment to excellence in Environment, Social and Corporate Governance matters.
7. Long-term lithium offtake agreements with Ganfeng and Hanwa.
8. Disciplined capital management and careful handling of Company resources.
Strategy
Bacanora intends to become a Mexico focussed lithium production company, producing high quality battery-grade
products.
The Board’s strategy to achieve this goal involves several stages:
1.
Identify a world class project 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 products.
2. Complete the feasibility study to evaluate and quantify the economic potential of its Sonora Project.
•
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.
3. Complete the detailed design of the mine and 17,500 tpa processing plant for stage 1 of the Sonora Project.
• As a result of the completion of the Ganfeng Offer transaction, Ganfeng will be responsible for leading
the EPC programme for the Project, which includes the hydrometallurgical part of the processing plant
that produces the final battery-grade product.
• Ganfeng is currently appointing a Chinese Design Institute to complete the FEED with initial site layouts
scheduled for Q2 2022, with site works for bulk earthworks expected to commence in late 2022.
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 products to prospective customers, predominantly in Japan and China. This has resulted in Hanwa,
one of Japan’s largest metals trading houses, signing a ten-year offtake agreement for 50% of stage 1 of
production and investing in the Company directly. In October 2019, the Company completed its offtake
5
agreement with Ganfeng, the world’s largest lithium company by Market Capitalisation2, for 50% of stage
1 production and up to 75% in Stage 2.
5. Complete the funding required to construct its Project.
• Ganfeng has invested an initial £22.0 million (US$30.1 million) for 29.99% of the Company and 22.5% of
the Sonora Project at the project level in 2019.
• The Company successfully raised £48.1 million (US$66.3 million) from issuance of new ordinary shares
with institutional and retail investors in February 2021. In addition to the placing and retail offer, Ganfeng
exercised its pre-emption rights, representing gross proceeds of £24.0 million (US$33.9 million).
• Ganfeng completed its Option to increase its stake in SLL to 50% in February 2021 for £21.9 million
(US$30.4 million)
• Ganfeng Offer to buy the remaining shares in Bacanora that it didn’t currently own, became unconditional
on 17 December 2021. As majority shareholder of Bacanora, Ganfeng will need to meet further funding
requirements for the Sonora Project.
6. Construction and commissioning of the Sonora Project’s plant.
a. Ganfeng is currently appointing a Chinese Design Institute to complete the FEED with initial site
layouts scheduled for Q2 2022.
b. Ganfeng is continuing to work with its equipment suppliers and, along with the Company, is
maintaining its previously advised project delivery schedule with first lithium production in H2 2024.
c. Works to build the construction road and early work camp have commenced. Site works for bulk
earthworks are expected to commence in late 2022.
7. Hiring of a team with the expertise to deliver the Sonora Project into production.
• As at 31 December 2021, the Company had 8 employees, contractors and Directors. Whilst there were 15
employees and contractors in the Sonora Project. Bacanora is led by CEO Peter Secker with over forty
years of experience who has built and operated 5 greenfield mining projects.
2 https://investingnews.com/daily/resource-investing/battery-metals-investing/lithium-investing/top-lithium-producers/
6
Operations
Bacanora owns 50% of SLL which is the holding company for the Sonora Project which is currently in the early works
phase of construction. The Sonora Project will move into full construction once the final commitment by the Ganfeng
and Bacanora Boards are received. In terms of how the Company expects SLL’s main operations to evolve, this will
include inter alia:
1. Environment, Social and Corporate Governance factors
• We recognise the risks involved in our business and our responsibility to uphold high ESG standards across
our business. Responsibility is integral to Bacanora’s culture. It defines how we work and how we behave,
governing how we interact with our customers, our partners and our communities.
• The Group monitors its safety obligations as a basic KPI (see below). It also has a number of Corporate
Social Responsibility Policies, which are published on the Company’s website3. As the Sonora Project
moves into its construction and production phases, the appropriate local level policies will also be put in
place.
2. Property, plant and equipment
• The Company’s property, plant and equipment comprise primarily the evaluated mineral property, pilot
plant in Hermosillo, land, and office furniture and IT equipment in Mexico and the UK.
• As the Sonora Project moves into construction and production, it will purchase the property, plant and
equipment as determined by completion of the FEED.
3. Maintenance
•
•
In the Sonora Project, Bacanora’s existing staff maintain the pilot plant and have had no material issues.
The pilot plant has completed its primary objective to produce samples of lithium products including
lithium carbonate, lithium hydroxide, lithium sulphate and roasted concentrate as proof of concept and
provide samples to potential engineering and offtake partners. In future the pilot plant will be used as a
training tool for process plant operations personnel and a design facility for lithium process optimisation
and improvement.
It is envisaged that the construction of the three main portions of the processing plant will be done under
EPC/M contracts, which will include all relevant inspections, costs to complete and process guarantees.
Once construction is complete, the Company will maintain and operate its facilities.
4. Delivery and transportation
• The final lithium products will be sold on a Free On Board basis to the Company’s offtake partners and
will be transported by road from the processing plant to the port of Guaymas in Sonora, Mexico at which
point ownership will pass to Hanwa and Ganfeng, who will then ship the product by sea to their end
customers.
5. Sales and marketing
• The Company has signed offtake agreements to sell 100% of its Stage 1 lithium production to its offtake
partners, who will either use the lithium products themselves or on-sell the product on to end-users. This
is in line with the wider industry practice 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.
6. 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.
7. R&D
• The Company currently has no patents registered on its production techniques and intends to use a well-
established sulphate roast processing route.
8. Employees
• As at 31 December 2021, the Company had 8 employees, contractors and Directors, in the corporate
segment, based in the United Kingdom and internationally. Sonora Lithium Group had 15 employees and
contractors as at 31 December 2021.
3 https://bacanoralithium.com/investors/documents/csr_documents
7
Key Challenges
Having secured the financing in early 2021 and subsequently, Ganfeng becoming a controlling shareholder in the
Company, the Company intends to move into the project construction stage in late 2022 to develop the Project
subject to all relevant approvals. The Company has a world-class majority shareholder and joint venture partner for
the Project in Ganfeng. Ganfeng has a wealth of experience in creating operating lithium product plants. The
Company intends to begin the construction of the plant in the midst of the worst global pandemic in 100 years, this
will bring several challenges to the construction phase, principally, ensuring the safe operation of the construction
site. It is a key challenge to ensure that our operation prevents further transmission of the disease amongst workers
and local communities and the construction can continue unabated, so that the Project can be delivered on time and
within budget.
The production of battery-grade lithium products from the Sonora Project will be from open pit mining operations
feeding a three-part chemical processing plant using the conventional sulphate route comprising beneficiation,
pyrometallurgical and hydrometallurgical sections. The Company has operated a lithium pilot plant in Sonora for the
past 6 years to demonstrate the viability of the Sonora Project. The 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.
The Company is currently in discussion with a number of contract suppliers. 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.
As is common in commodity markets, there is a degree of pricing uncertainty. The lithium market is no exception
and has experienced volatility over the past 5 years. From the high prices in 2018, the lithium markets encountered
downward pressure on lithium product pricing as a result of oversupply in the market. In Q4, 2020, prices bottomed
out at circa US$5,750 per tonne4 and 2021 has seen a pricing improvement, with spot prices in Q4 2021 approaching
record levels of US$40,000 per tonne 5,6. However, the longer term views on contract lithium prices from the major
banks, the structure under which product from Sonora will be sold, continue to maintain a range forecast of US$15,000
to US$17,500 per tonne7. However, there remains a degree of pricing uncertainty surrounding the emerging lithium
market as EV demand forecast continue to be updated. Please refer to the Operational Review section for more
detailed analysis of market dynamics.
Risk management
The Board is responsible for putting in place a system to manage emerging and existing risk and implement internal
control. Risks can manifest themselves as threats or can present as opportunities to be exploited, both can affect
business performance.
The Board recognises the need for an effective and well-defined risk management process and, whilst it oversees and
regularly reviews the current risk management and internal control mechanisms, it has historically delegated this
responsibility primarily to the Audit Committee of the Board and Senior Executive Management during the year.
Following the delisting of the Company from AIM, the Board committees have been removed and the relevant powers
and responsibilities returned to the Board as whole. The Board has considered mechanisms by which the business and
the financial risks facing the Group are managed and reported to the Board. The Board acknowledges it has
responsibility for reviewing the effectiveness of the systems that are in place to manage risk. Such systems are
designed to manage rather than eliminate the risk of failure to achieve business objectives. Any system can only
provide reasonable and not absolute assurance against loss.
All of our employees are responsible for identifying, evaluating and managing risks. Our operational and group
management supports the understanding and management of risks at all levels of the business. Executive management
provide a framework for managing and reporting material risks to the Management Risk Committee comprising of
senior corporate and operational managers. The Management Risk Committee’s role is to consolidate, challenge and
report risk management information to Executive management, who may escalate in turn to the Board of Directors.
4 https://seekingalpha.com/article/4396403-lithium-junior-miner-news-for-month-of-december-2020
5 https://seekingalpha.com/article/4400927-lithium-miners-news-for-month-of-january-2021
6 https://www.benchmarkminerals.com/membership/lithium-carbonate-prices-break-through-40-kg-barrier/
7 Canaccord Genuity – EV materials, Analyst note, 24 January 2022
8
Bacanora has developed procedures for identifying, evaluating and managing significant risks faced by the Group and
Sonora Lithium Group.
Roles and responsibilities for risk management within Bacanora:
Risk
oversight
3rd party
review of
risk
Bacanora Board
• Ultimately responsible for risk management and
communicating Group Risk Management Framework.
• Confirms that management’s strategies are within the
Board’s risk appetite tolerance.
Assurance activities
• Provides assurance to Executive Management on the
effectiveness of the Group Risk Management Framework
and its application across the business, as necessary.
Group risk
Management
Senior Executive
Management
Management Risk
Committee
• Responsible for ensuring that operating and group functions
implement the Group Risk Management Framework and
provide challenge on risk issues, their mitigation, and the
overall risk appetite of the Group.
• Ongoing development and co-ordination of the system of
risk management.
• Consolidation, challenge and reporting of all risk
management information.
• Providing support and guidance on the application of risk
management
Setters of Group standards
and processes
• Develop, maintain and communicate Group-level controls,
including policies, standards and procedures.
Operational
risk
management
Senior Operational
Management
Setters of operational
standards and processes
Functional management:
e.g., HSEC, HR, Finance
Operators
• Responsible for implementing the requirements of the
Group Risk Management Framework and for providing
assurance to the Management Risk Committee that it has
done so.
• Develop, maintain and communicate operational-level
controls, including policies, standards and procedures.
• Oversight and review of common risk areas (relating to own
area of responsibility) across Group and operations.
• Responsible Identifying, evaluating and managing risks.
• Reporting risk to functional and Senior Operational
Management.
The principal business and financial risks have been identified and control procedures implemented.
Financial controls
The Company has an established framework of internal financial controls, the effectiveness of which is regularly
reviewed by the Senior Executive Management team and the Board in light of an ongoing assessment of significant
risks facing the Company.
• The Board is responsible for reviewing and approving overall strategy of the Company, approving budgets and
plans. Monthly results and variances from plans and forecasts are reported to the Board.
• Management assist the Board in discharging its duties regarding the financial statements, accounting policies
and the maintenance of robust operational and financial controls.
• Procedures have been implemented for Budgeting and Planning, Procurement to Pay, Financial Close and
Reporting and Treasury. These are used for monitoring and reporting business performance to the Board
against those budgets and plans, and for forecasting expected performance over the financial period. These
cover income statements, cash flows, capital expenditures and balance sheets.
9
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.
Scheduled Board meetings to consider the 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 where there are variances;
• The Board considers significant financial control matters as appropriate; and,
• Documented whistle-blowing policies and procedures.
Principal Risks and Uncertainties
The Group’s internal risk identification and management process is undertaken by the Executive management team
and Management Risk Committee who prepare and review 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 Board (historically via its previously
formed Audit Committee), and specific risk items may also be discussed at Board level as appropriate. The risk
register is regularly updated as part of the risk management process.
The principal risks and uncertainties outlined in this section reflect the risks that could materially affect Bacanora,
or its ability to meet its strategic objectives, either directly or by the triggering of events that become material to
the Group or joint venture companies. The principal risks and trends outlined in this report should be viewed through
the prism of forward-looking statements and are made with a varying degree of uncertainty.
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 Project
Development of mineral properties involves a high degree of risk. Only a few properties that are explored are
ultimately developed into producing mines. Large capital investments require multi-year execution plans and are by
nature highly complex. 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:
•
•
geopolitical environment in host country (see Risk 2 below);
increasing capital costs due to supply chain delays, changes to process flow sheet, product suite
optimisations, Covid-19 impacts, price inflation and key equipment availability;
• obtaining sufficient financing for the development of the Sonora Project (see Risk 3 below);
• market price of lithium (see Risk 4 below);
•
availability of infrastructure capacity (see Risk 5 below);
•
ability to attract sufficient numbers of qualified workers (see Risk 7 below);
• environmental and regulatory compliance requirements (see Risk 10 below);
• delays in completion of FEED;
•
increased operating costs due to changes in input costs, including plant, material, energy and labour costs
(see Risk 9);
lack of availability of mining and processing equipment;
•
• 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;
• non-performance by third party contractors, contractor or operator errors;
10
taxes and imposed royalties;
•
• disruption caused by external groups e.g., cartel and demonstrators;
• unfavourable weather conditions; and
•
catastrophic events such as fires, storms or explosions and effects of global pandemics e.g., COVID-19.
The Group’s ability to deliver the Sonora Project to plan, principally in terms of safety, cost and schedule depend on
the factors outlined above. There are numerous activities that need to be completed in order to successfully
commence production at the Sonora Project including, without limitation: 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 and power facility permits; and handling any
other infrastructure issues.
There is no certainty that the Group or the joint venture will be able to recruit and train personnel, 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 Sonora Project. Furthermore, there is no guarantee that certain funds will be available to finance
construction given that funding is subject to approvals and meeting of conditions. 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,
production volume and quality and cash flows.
Mitigation:
The SFS was completed in January 2018. Since that date, the Company has worked to de-risk the Sonora Project’s
development by securing Ganfeng, the world’s largest lithium metals producer, as a JV partner in the Sonora Project,
and a controlling shareholder in the Company. Furthermore, the Company has obtained additional equity investments
from the equity placings and retail offering, acquired additional land, secured water permits, made key internal
hires, concluded offtake contracts with Ganfeng and Hanwa, and is continuing its FEED work. The Sonora Project has
started construction on the early works camp and construction access road.
Trend:
As we can see from the above, there are a diverse set of sub-risks which could affect the development of the Sonora
Project. Consequently, some risks have increased over the past twelve months e.g. the availability of sufficiently
skilled staff at a reasonable cost, whilst others have decreased e.g., equity financing risk and the impact of COVID-
19 due to the increased rates of vaccination. These issues are explored in further depth in the other principal risks.
Delays to the FEED may mean that the commencement of production is delayed beyond the target date.
Overall, since the last reporting period, we consider that there has been a reduction in the risk profile due to the
completion of Ganfeng’s takeover of Bacanora and the exercise of the Option to increase its stake in the Sonora
Project to 50%, further de-risks Sonora Project development.
Risk 2: Geopolitical uncertainty
Geopolitical risks are challenging for companies as they are hard to predict, interconnected with other business risks
and can significantly impact business operations. The COVID-19 crisis has added uncertainty, geopolitical instability
taking the form of increased travel restrictions, populism and protectionism, with collective backlashes against
globalization coupled with resource nationalism are becoming increasingly prevalent globally.
Beyond contributing to financial uncertainty and volatility, the rise of economic nationalism may mean that Bacanora
could operate in markets that may be unreceptive to the globalization which underpins supply chains, financing and
capital. Bacanora and the wider mining industry, which is heavily dependent on free trade and growth, will need to
be resilient in this new phase of geopolitics.
Many countries around the world have experienced an increase in nationalistic sentiment, which can manifest itself
in resource nationalism. On 30 September 2021, politicians from the MORENA party tabled a draft bill to reform
11
Mexico’s energy sector8. The bill proposed that the generation, conduction, transformation, distribution, and supply
of electric power, including the exploitation of natural resources and assets, would become a strategic area of the
state and that lithium would be included among the minerals considered strategic for the energy transition, meaning
that no concessions will be granted for its exploitation. However, the bill makes an exception for existing concessions
that are under development, such as those held by Bacanora, from these changes. The bill for the nationalisation of
Mexico’s lithium industry would require a constitutional reform and Article 27/135 of the Constitution establishes
that such a reform would require the Chamber of Deputies and the Senate to approve the reform with “a two-thirds
majority of all present members”. Subsequently, the reform must be approved by a majority of seventeen of the
thirty two legislatures of the states and Mexico City. In the Mexican general election on 6 June 2021, the people of
Mexico returned President Andrés Manuel López Obrador’s political Party to office, but with insufficient majority in
order to reform the constitution with 198 of 500 deputies. The MORENA party formed a coalition called Juntos
Hacemos Historia with the Ecologist Green party of Mexico and the Labour party with a total of 278 seats in the
chamber of deputies (55.6%). The opposition coalition, Va por México, was able to gain enough seats to block Juntos
Hacemos Historia from the two-thirds majority required to make constitutional amendments. It is the Company’s
views that these proposals would only impact new concessions. The proposals are expected to go before the chamber
of deputies and senate in the next regular session of Congress, that is due to finish at the end of April 20229. President
Andres Manuel Lopez Obrador has said that Mexico will deny any proposal for new private lithium concessions even
if Congress rejects the proposal10.
In further news, the President of the Labour and Social Welfare Commission, MORENA Senator Napoleón Gómez
Urrutia announced in October 2021 that he is working on an initiative to reform the Mexican Mining Law, specifically
items regarding concessions and their grants. In his announcement, he pointed out that it is necessary to establish
better control of non-renewable natural resources due to his opinion, that if concessions are granted without control
over these resources, or if they are monopolized by non-Mexican companies, their exploitation will not benefit the
country. He commented that some of the concessions granted currently have a term of up to 100 years11. He added
that he wanted to review and make adjustments to the tax policy of the sector, since Mexico has a 7.5% tax rate on
mining production, while in other countries, such as Peru, Bolivia and Chile it is between 25 and 30% and also to
review the payment of mining concession fees, among other provisions that he would like to reform so that they are
higher cost and less flexible.
Mitigation:
Geopolitical events can manifest themselves in many ways and are not always predictable. Each event carries its own
risk and consequence, and therefore needs to be mitigated on a case by case basis. Large scale geopolitical climate
is difficult to impact directly, Bacanora focuses on the mitigations it can control such as having an intimate knowledge
of the diverse, complex and developing geopolitical dynamic. As such we ensure we monitor developments in the
jurisdictions in which we operate and perform due diligence ahead of entering a business partnership including looking
at geopolitical implications. We behave as good corporate citizens and add value to the communities in which we
operate to maintain the Company’s social licence to minimise geopolitical risk. With respect to nationalisation of the
Company’s concessions, they are currently protected by Mexican and international law.
Trend:
Since 2020, the ongoing COVID-19 crisis continues to impact geopolitics. Increased uptake of COVID-19 vaccinations
by the reporting date, has for the time being ameliorated the worst effects of the virus and therefore reduced the
impact, however new strains of the virus may reverse this trend. The full impact of the Omicron variant is becoming
clearer but there continues to be a risk that further variants could lead to new restrictions or reduced efficacy of
existing vaccines to fight the virus.
The increasing rate of change in geopolitics and resource nationalism in Mexico and globally, means that geopolitical
risks remain key. The 2021 Mexican election delivered the MORENA party back into power in Mexico, but not with the
majority required to alter the Mexican constitution and nationalise the existing lithium concessions. Despite that,
8 https://www.jonesday.com/en/insights/2021/10/2021-mexican-constitutional-reform-bill-proposed-changes-for-foreign-investors-in-the-
electricity-sector
9 https://www.reuters.com/business/energy/mexican-congress-pushes-back-debate-power-bill-into-2022-2021-11-04/
10 https://www.reuters.com/world/americas/mexico-will-reject-private-lithium-deals-even-if-reform-bill-fails-president-2021-10-07/
11 https://mexicobusiness.news/mining/news/new-modifications-mining-law
12
the draft energy bill and attempts to change rules around mining concessions and tax rates provides evidence that
the Sonora Project’s geopolitical risk remains high.
Risk 3: Financing risk
Financing risk in the context of Bacanora’s principal risks is defined as having insufficient capital available to meet
the Company’s strategic development targets. Other types of financing risk exist, such as foreign exchange risk,
however these are not considered to be principal risks for reporting purposes.
In the reporting period, Bacanora has concluded a number of transactions which have reduced the financing risk
associated with the Sonora Project; including the equity raise, Ganfeng pre-emption rights exercise, Ganfeng
exercising their option to increase their stake in SLL to 50% and Ganfeng becoming a controlling shareholder of the
Company in 2021. The resulting 50:50 joint venture structure for SLL entails that each JV partner is responsible for
their share of the construction funding. During the reporting period, the Company and RK have agreed that the US$125
million undrawn portion of the US$150 million loan facility will no longer be available for draw down due to the
passage of time. The first tranche of the RK debt facility, US$25 million, was drawn down in July 2018. Following the
completion of the Ganfeng’s Offer, the RK debt facility and associated warrants have been fully repaid in January
2022.
In the event of significant inflationary pressures and cost overruns, further financing may be required, however there
is no guarantee that it would be available in this eventuality.
Mitigation:
At the end of 2021, Bacanora Group had US$122.1 million cash on hand and Sonora Lithium Group had US$26.6 million
cash on hand. In addition to the existing cash reserves in Bacanora Group and Sonora Lithium Group, Ganfeng, being
the majority shareholder of Bacanora, will assist in providing funding for the development of the Sonora Lithium
Project.
Trend:
Overall, since the last reporting period Bacanora’s financing risk has diminished significantly as a result of Bacanora’s
aforementioned US$66.3 million equity raise, Ganfeng’s exercise of its pre-emption rights for US$33.9 million
combined with Ganfeng’s completion of the Option to increase its stake in the Sonora Project to 50% for US$30.4
million. The sum of these transactions (US$130.6 million) significantly de-risks the Sonora Project’s development and
ameliorate the financing risk compared to the previous reporting period. Furthermore, Bacanora settled all
obligations to RK by repaying the debt and settling warrants in full on 7 January 2022, thereby reducing financing
risk. In December 2021, the Ganfeng Offer became unconditional and had sufficient acceptances to take the Company
private, thus funding for Bacanora and by extension, the Sonora Project, rests with Ganfeng.
Current and forecast favourable lithium prices, may support the ability for Bacanora, Ganfeng or a project company
to raise further debt financing as required.
Risk 4: Market risks – Supply and demand fundamentals adversely affecting lithium pricing
Numerous factors beyond the Company’s control affect the demand for and price of lithium products, please see the
market review on page 33 for further details. 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. The price Bacanora will receive is linked
to the prevailing long term contract price at the time of sale. Therefore, the price will be largely dictated by the
expected growth in demand for lithium batteries potentially mitigated by increased or over supply from other mines.
Pricing fluctuations can be favourable which may present an opportunity to have additional cash flow. Growth in
demand for lithium has been strong in recent years primarily due to increased usage of electric vehicles and grid
storage; however, there is no guarantee that this growth will continue at the same rate or increase as quickly as
anticipated. The Company competes on a supply basis with established competitors, who may be able to increase
their production to fill 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 financial condition, results of operations and economic prospects. The economics of
producing lithium may change because of lower prices, which could result in reduced production of lithium.
13
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 Sonora project.
Mitigation:
For budgeting and longer-term forecasting, conservative prices of lithium and input commodities have been assumed
at US$11,000 per tonne for battery-grade lithium carbonate. The outlook for the lithium market is positive, with the
longer term views on contract lithium prices, the structure under which product from Sonora will be sold, continuing
to maintain a range forecast of US$15,000 to US$17,500/t12. With a SFS forecast cost of around US$4,000 per tonne,
Bacanora would be in the lower quartile for cost, which should insulate the Company from the short term fluctuations
in price. Furthermore, 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. Contract pricing tends to be less
volatile than spot market pricing, reducing the impact of short-term pricing fluctuations.
Trend:
Spot prices at the beginning of 2021 Fastmarkets reported lithium carbonate battery-grade spot midpoint prices
US$7,250 per tonne, while battery-grade lithium hydroxide continued at a mid-point spot price of US$9,000 per tonne.
By the end of December 2021 spot prices had more than tripled to US$34,000 and US$29,350 per tonne for battery-
grade lithium carbonate and hydroxide respectively13, prices in the near term appear buoyant, with demand rising
significantly due to the COVID-19 green recovery and the high demand for EVs, however mid to longer term contract
lithium prices are forecast to range between US$15,000 to US$17,500/t. The oversupply in the market experienced
in 2019 and 2020 and stockpiles of battery-grade lithium products have been eroded. For more details see the market
review on page 33.
In July 2021, the London Metal Exchange launched a new cash-settled futures contract for lithium hydroxide which
should lower risk along the lithium supply chain and increase transparency, they can be traded monthly out to 15
months14. This development may enable the Sonora Project to ameliorate some downside price risk for volumes not
covered by the offtake agreements.
Risk 5: Infrastructure
The Sonora Project depends 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, governmental permissions 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 the Sonora Project has laid the groundwork for the infrastructure
requirements and the Company is currently finalising contracts with third parties for the construction of required
infrastructure including the energy cogeneration facility and LNG.
Trend:
No material change in the risk.
12 Canaccord Genuity – EV materials, Analyst note, 24 January 2022
13 https://seekingalpha.com/article/4476301-lithium-miners-news-for-the-month-of-december-2021
14 https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/launch-of-lithium-futures-could-entice-new-investors-
experts-say-65553977
14
Risk 6: Health and Safety
Protecting the safety and health of employees, contractors and local community and other stakeholders is a
fundamental issue facing the Group and the wider mining industry. Mining is inherently hazardous, with the potential
to cause harm. COVID-19 and other pandemics produces additional significant risk to the health of our stakeholders.
Mitigation:
The Company complies with the applicable laws and regulations of the countries in which we operate. Where these
prove insufficient, we apply standards based on good international industry practice. Safety is our first consideration,
and we provide a place of work that is safe for everyone. We have instituted policies and procedures which ensures
we identify the hazards associated with our activities and ensure that they are effectively managed. We investigate
all occupational health and safety incidents and provide corrective and preventive actions.
In response to the continuing COVID-19 pandemic, the Company instituted health and safety protocols and social
distancing at the pilot plant and offices in Mexico and UK. These will remain in place for the foreseeable future.
These controls do not impact the Company's ability to continue to work on site. The Company recognises the
additional risks associated with COVID-19 and the construction of stage 1 of the Sonora Project, consequently
appropriate working practices will be implemented with Company employees, contractors and communities to
minimise the transmission of the virus, such as increasing the length of time in the rotation system, monitoring
temperatures and COVID-19 testing.
Trend:
The COVID-19 pandemic is a risk from a health and safety perspective, although the Company has introduced control
measures. Furthermore, at the reporting date, 86% of our employees and contractors have received the double
vaccination. From that perspective, the risk from COVID-19 has diminished during 2021.
There is no intrinsic change in operations that would increase the risk inherent in our operating model since last
reporting period. However, looking forward to the start of construction of the Sonora Project, the potential for health
and safety incidences to occur may increase.
Risk 7: Attraction and retention of staff
The success of the Company, in common with other businesses, will be highly dependent on the expertise and
experience of its employees, particularly 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
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 recruitment of new staff and the development of all staff will enable more robust succession planning. The
Company has started a recruitment programme will start which will reduce reliance on the key members of staff and
ensure that there are sufficient staff for the construction of the mine. At the reporting date, in Bacanora, two out
of 8 employees and contractors are female (20%) at 31 December 2021.
Bacanora is an attractive place to work due to supporting staff through the pandemic and providing interesting and
fulfilling work. The Company and the Sonora Project operates within a growth sector in an environmentally
responsible commodity for the future economy, which for some is a major attraction.
Trend:
The COVID-19 situation has intensified competition for talent, particularly in project construction setting. Since the
reporting date, Ganfeng have acquired a 50% stake in SLL and a controlling stake in Bacanora. Ganfeng will lead the
design of the processing plant. Ganfeng therefore brings extensive and experienced talent pool, thereby de-risking
the Sonora Project. There continues to be a reliance on key personnel but to lesser degree as a result. As a result of
15
the recovery from the pandemic, companies are reporting wage inflation and difficulty retaining staff15, 16. This could
potentially have adverse impacts for the Company and Sonora Project from cost and skills retention perspectives.
Risk 8: Social licence to operate
The social license to operate has been defined as existing when a project has the ongoing approval within the local
community and other stakeholders, ongoing approval or broad social acceptance. Social licence to operate is created
and maintained slowly over time as the actions of a company build trust with the community it operates in and with
other stakeholders. A catastrophic breakdown in trust with our community and governmental partners in Mexico has
the potential to significantly impede the construction or operation of the Sonora mine and processing plant.
Mitigation:
Compliance with Group policies and standards which provide guidance concerning risk management, community and
social responsibility. Bacanora collaborates with key stakeholders and participates in strategic partnerships to
mitigate threats that may deteriorate Bacanora’s social licence. Bacanora fosters the development of long-term
relationships with a range of local and national stakeholders. The Company has dedicated staff working with
community stakeholders.
Trend:
Risks relating to social licence have not materially changed since the previous reporting period. Bacanora continues
to build trust with the community and has received approvals for the site’s construction access road to cross Ejido
land (community based farming co-operative land), as evidence of the health of our social licence. See section 172
statement on page 19 for more details.
Risk 9: Cost of production
Significant increase in the cost of producing battery-grade lithium products in the long-term has the potential to have
a material adverse effect on the Company’s profitability and cash flow. Cost of production can be significantly
affected by the cost of the underlying commodities and materials from which they are made. The price of the raw
materials and services depends on a wide variety of factors largely beyond the Company’s control. Supplies of
materials and services are exposed to adverse events such as physical disruptions, environmental and industrial
incidents, etc which may impact our ability to access these materials and services at reasonable costs. Delays in the
construction of the gas pipeline to the plant will entail trucking gas for a longer period of time incurring additional
costs. The Sonora Project is based in Mexico and is therefore exposed to foreign exchange fluctuations between US
Dollar and Mexican Peso. COVID-19 may impact the cost to deliver the Sonora Project due to changes in Rota, COVID-
19 safe working practices, testing and changes to accommodation provisions.
Mitigation:
The SFS has assessed the Sonora Project to be potentially a low cost lithium operation. Detailed FEED including
detailed energy and mass balances cost estimates will be reviewed and evaluated once completed by the Chinese
Design Institute. The Sonora Project is in discussions with potential long-term suppliers to ensure access to long-
term supply of key materials, including gas, at competitive prices. Currently, it is the Company’s policy not to hedge
foreign currency exposure because the Company and Sonora Lithium Group’s cash in hand as well as capital and
operational cost is primarily denominated in US Dollar. Smaller balances are held in Mexican Peso and Great British
Pounds for local operating expenses, in order to mitigate short term swings in the currency pairs.
Trend:
No material change in unit costs is currently anticipated, however all cost estimates will be reviewed and evaluated
once completed by the Chinese Design Institute. COVID-19 may increase costs. The natural gas consumers in the US
experienced 39% increase in gas prices in 2021 over 2020 due to the global economic recovery, cold weather, and
supply disruptions, according to the World Bank. The average price for natural gas of US$2.80/MMBtu in 2021 is still
below the real terms (2018) level forecast in the SFS of US$3.00/MMBtu, however towards the end of 2021 Henry Hub
and West Texas winter gas pricing was approaching US$4.00/MMBtu and the long term US natural gas price is expected
15 https://www.ft.com/content/9fd3c498-1014-47ee-8e25-865a91efd594
16 https://www.wsj.com/articles/companies-plan-big-raises-for-workers-in-2022-11638889200
16
to increase to US$4.00/MMBtu by 2035. Energy is a key component of the Sonora operating costs and the recent
worldwide trends of increasing energy prices are of concern.
Risk 10: Environmental risk, impact and compliance
The Group’s operations in Mexico are subject to environmental regulation. 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 and detritus from camp.
relocation of vegetation; and,
The Sonora Project’s future operations will also be at risk from the adverse effects of climate change including the
increased likelihood of extreme weather events.
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 as well as applying for and maintaining all relevant permits. The Company takes its
ESG responsibilities seriously, the Company has published its second annual Corporate Governance and Sustainability
report on page 48.
Trend:
The amount of time for environmental permitting to be approved is increasing as a result of COVID-19. Large scale
action on global warming is accelerating, with both companies and countries making pledges at COP26. For instance,
the newly established Glasgow Financial Alliance for Net Zero announced private financing of US$130 trillion to
accelerate the transition to a net-zero economy, however the world is on track for 2.4°C warming17.
Risk 11: 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,
17 https://www.lawsociety.org.uk/topics/climate-change/reflecting-on-cop26-what-were-the-key-
outcomes#:~:text=One%20of%20the%20major%20successes,and%20leaders%20summit%20in%202023.
17
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 reserves and
resources will be recovered if the Group proceeds to production or that they will be recovered at the volume, grade
and rates estimated. In the same respect, there is also an opportunity that ore will prove more prolific than previously
adjudged.
Mitigation:
The Company engaged reputable third-party organisations to perform the competent persons report on the feasibility
of the operations in Mexico and confirms as far as possible the mineral resources and reserves at Sonora, which was
published in January 2018.
Trend:
Since the previous reporting period, the risk of the mineral asset not being present in forecast quantities remains
unchanged.
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 ESG KPIs.
Key Performance
indicator
Lost time injury
frequency rate
(LTIFR)
Cash balance
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.
Capital investment
in the Sonora
Project
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.
Reserves and
Resources held at
year end in the
Sonora Project
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 Project.
18
In 2021, there were no LTIs resulting in a LTIFR of nil.
This follows on from Nil LTIs in 2020 and 2019 in
Bacanora Group and Sonora Lithium Group combined.
At 31 December 2021, the Bacanora’s cash balance
was US$122.1 million plus SLL’s cash balance of
US$26.6 million (31 December 2020: US$39.2 million
for the group). 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 year ended 31 December 2021, the Group has
spent US$0.2 million (for the year ended 31 December
2020, the Group spent US$2.0 million) on PPE on a
cash basis (see Cashflow Statement). 2021
expenditure is primarily related to the FEED work at
Sonora, however only represents 2 months
expenditure due to deconsolidation of Sonora Lithium
Group from 26 February 2021 onwards.
Sonora has 5 million tonnes of LCE measured and
indicated resources, of that, 4.5 million tonnes are
reserves. There has been no change on these
resources and reserves estimates.
As per the Streamlined Energy and Carbon Reporting (“SECR”) Regulations published in 2018 quoted companies and
large unquoted companies that have consumed, more than 40,000 kilowatt-hours (kWh) of energy in the reporting
period must include energy and carbon information within their directors' report. Bacanora Lithium Plc and the Group
does not qualify as a quoted company or a large unquoted company and therefore are presently exempt from the
SECR reporting requirements. The Company intends to publish energy emissions data in line with the SECR regulations
as the Sonora Project develops.
Directors’ section 172 statement
The Board of Bacanora is aware that the decisions it makes may affect the lives of many people in the Company and
in Sonora Lithium Group. The Board makes a conscious effort to understand the interests of the Group’s stakeholders,
and to reflect them in the balanced choices it makes in creating long-term sustainable success for the business. The
Board views engagement with the shareholders and wider stakeholder groups as essential work. The Board is aware
that it needs to listen to each stakeholder group, so that it can understand specific interests and foster effective and
mutually beneficial relationships. Given the importance of stakeholder focus, long-term strategy and reputation,
these themes are discussed throughout this Annual Report. By understanding of the Group’s stakeholders, the Board
can adapt its decision making to find optimal outcomes.
This section serves as the Directors’ section 172 statement and should be read in conjunction with the Strategic
Report and the Report from the Company’s Corporate Governance and Sustainability Committee. This 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.
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.
Stakeholder mapping and engagement activities within the reporting period.
Due to the entwinned nature of the Company and its JV, the Sonora Lithium Group, the Board regularly reviews our
combined principal stakeholders and how it engages with them. The stakeholder voice is heard by the Board
throughout the annual cycle through information provided by management and also by direct engagement with
stakeholders themselves. The relevance of each stakeholder group to each decision that is made by the Board or
management, may change depending on the matter or issue in question, so the Board seeks to consider the needs
and priorities of each stakeholder group during its discussions, based on the merits of each issue in question.
The Company continuously interacts with a variety of stakeholders important to its success, such as equity investors,
joint venture partner, 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.
19
Who: Key Stakeholder groups
Equity Investors and Joint Venture
Partner
The Company requires capital. As such,
existing and prospective equity
investors as well as Project level joint
venture partners are important
stakeholders.
For the majority of the reporting
period, the Company had a number of
substantial shareholders that owned
more than 3% of the Company’s shares.
By the end of the reporting period,
Ganfeng have had acceptances or
already controlled 333,342,270
Bacanora shares of the 387,136,502
shares in issue, representing 86.1% of
the Company. The only other remaining
substantial shareholder is Hanwa Co Ltd
with 3.2%, which has accepted the
Ganfeng Offer post year end.
In the reporting period, Ganfeng
increased their stake in SLL, the holding
company for the Sonora Project to 50%
from 22.5%.
Why: why is it important to engage this
group of stakeholders
How: how Bacanora engaged with the
stakeholder group
What: what came of the engagement
Prior to the takeover by Ganfeng, the
Company was 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.
Access to capital is of vital importance
to the long-term success of our business
to be able to construct the Sonora
Project. Joint venture partner
involvement was vital to the success of
the development of the Sonora Project.
Without their share of the capital
funding for the Project and their
expertise, the Company could not create
value for its shareholders by producing
lithium products and therefore a return
on the investment.
Through the Company’s engagement
activities, Bacanora strove to obtain
investor buy-in into the Group’s strategic
objectives detailed on page 5 and how it
goes about executing them.
During the Ganfeng Offer period it was
important to engage with shareholders to
keep them informed about developments
so that they may make informed
decisions in respect of the Offer. The
Board also have to follow statutory rules
and rules from the City code on
20
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.
The Company engaged with investors on
topics of strategy, the Ganfeng Offer,
Project funding, governance, Project
updates and performance. Please see
Dialogue with Shareholders section of
the Annual Report on page 43. The CEO
and CFO presented at a number of
investor meetings, analysts interviews
and one-to-one meetings.
Joint venture partners - Sonora
• Ganfeng has 50% representation on
the SLL board of directors under
the terms of the joint venture
agreement. Regular meetings are
held with Ganfeng.
Prospective and existing investors
• AGM and Annual and Interim
•
Reports
Investor roadshows and
presentations
• One-on-one investor meetings and
calls with the Chairman, CEO and
CFO
• RNS announcements
• 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
•
In February 2021, the Company
completed an over-subscribed equity
fund raise of US$66.3 million from
investors. Ganfeng also exercised their
pre-emption rights investing US$33.9
million to bring their stake in the
Company to 28.88%.
Ganfeng exercised its option to raise
their stake to 50% of SLL, which
completed in February 2021.
The Company worked closely Ganfeng
to progress the review of the
engineering design of the lithium
processing plant.
During the period, Ganfeng made a
takeover offer for the Company, which
was declared unconditional on 17
December 2021. The Offer was warmly
received by most investors and had
significant uptake, resulting in Ganfeng
Who: Key Stakeholder groups
Why: why is it important to engage this
group of stakeholders
How: how Bacanora engaged with the
stakeholder group
What: what came of the engagement
takeovers and mergers. The Bacanora
Independent Directors recommended the
Offer as they were cognisant of the risks
that are inherent in single asset
companies and elevated in mining
development projects. Furthermore, the
terms of the Offer allowed Bacanora
shareholders to realise their investment
in Bacanora, in cash and at a significant
premium to the undisturbed share price.
In addition, Bacanora shareholders were
able to maintain an exposure to the
lithium industry by retaining an interest
in a quoted lithium project, through the
Zinnwald Distribution.
Shareholder interests include but are not
limited to:
• Business sustainability
• High standard of governance
• Ethical behaviour
• Delivering long-term shareholder
value
• Comprehensive review of financial
performance of the business
Shareholder approvals at GMs:
The Company held its usual AGM in
June, after which it held a Q&A Session
with shareholders.
The Company also held a separate GM
to approve the distribution of its
shares in Zinnwald Lithium Plc to its
shareholders.
During the Offer, the Company
followed statutory and rules from the
City code on takeovers and mergers
and published a variety of
announcements relating to the Offer
during 2021 on the Company website
and via the regulatory news
service18,19.
Dissentient shareholders:
Prior to the reporting period, former
shareholders of Bacanora Minerals Ltd
were reminded of the 3 year deadline
of 23 March 2021 to exchange their old
shares in Bacanora Minerals Ltd for
new shares in Bacanora Lithium Plc.
The Company continued to engage
with shareholders during the period.
owning or having acceptances for 86.1%
of Bacanora as the end of the year.
Ganfeng also announced its intention to
delist the company from the AIM stock
exchange, which was completed on 26
January 2022.
At the 30 June 2021 AGM, all of the
resolutions were passed with more than
75% of proxy votes in favour each time.
Shareholders approved the share capital
reduction, at the 24 September 2021
general meeting to create distributable
reserves enabling the distribution of the
Zinnwald shares on 22 December 2021.
The Trust that held the shares for the
dissentient shareholders was dissolved
in the period and the remaining shares
sold and the resulting funds were
returned to shareholders where
applicable.
18 https://bacanoralithium.com/investors/offer.aspx
19 https://bacanoralithium.com/investors/regulatory_news.aspx
21
Who: Key Stakeholder groups
Debt providers
During the period, the Company had a
US$25 million debt facility with RK Mine
Finance that was entered into in July
2018.
Why: why is it important to engage this
group of stakeholders
How: how Bacanora engaged with the
stakeholder group
What: what came of the engagement
Access to capital is of vital importance
to the long-term success of our business
to be able to construct the Sonora
Project.
Ongoing support from debt providers is
crucial to enable the construction of the
Sonora Project.
Various contractual conditions of the
debt finance require regular updates on
ongoing progress.
• One-on-one meetings with the CEO
and CFO
• Monthly reporting on Project
progress.
• Ad hoc discussions with
management as required
• Tripartite discussions between RK,
Ganfeng and management to
ensure there were no impediments
for the investment from Ganfeng’s
completion of the SLL Option and
the Ganfeng Offer.
The Company continued to enjoy a good
relationship with RK Mine Finance.
Waivers were received relating to
Ganfeng’s SLL Option transaction and
Ganfeng Offer.
During the period, the Company and RK
agreed that the undrawn US$125 million
facility would cease to be available to
the Company, however the US$25
million already drawn would continue to
be provided on the original terms.
Workforce
The Company has eight corporate
employees including its Directors on the
reporting date. Both the CEO and CFO
are UK based.
The vast majority of the workforce in
future will be based in Mexico and the
Directors consider workforce issues
holistically for the Company and Sonora
Project as a whole.
General Workforce:
• The Company maintains an open
line of communication between its
employees, Senior Executive
Management and Board of
Directors.
The Sonora Project’s workforce is
based in Mexico.
The Company and the Sonora Project
works to attract, develop and retain the
high quality talent, equipped with the
right skills for the future of Bacanora
and the Project.
The Company and Sonora Project’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.
The Board have identified that reliance
on key personnel is a known risk (see the
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 previous
Audit Committee meetings.
22
After the year end, on 7 January 2022,
the RK debt facility was repaid in full
and all warrants were settled following
the completion of the Ganfeng Offer.
UK Employees
In prior periods, the Board met with
management to discuss long-term
remuneration strategy based on advice
from independent advisers. These new
schemes, together with the
remuneration report, were approved by
shareholders at the 2021 AGM.
Mexico
The team worked from home and
operational staff were trained in
COVID-19 safe working protocols.
Clerical staff who are not double
vaccinated continue to work from
home.
Who: Key Stakeholder groups
Why: why is it important to engage this
group of stakeholders
How: how Bacanora engaged with the
stakeholder group
What: what came of the engagement
Principal Risks and Uncertainties on page
10).
Stakeholder interests include but are not
limited to:
•
Job creation, fair worker pay and
conditions.
• Development opportunities and
interesting work.
• Clear communication with employees
• Excellence in health and safety.
• Employees have been consulted on
the potential risk of redundancy as
a result of the Ganfeng takeover.
• There is a formalised employee
induction into the Company’s
corporate governance policies and
procedures.
• The Company has a whistleblower
hotline in English and Spanish.
Meetings were held with staff to
provide Project updates and ongoing
business objectives.
Efforts to focus on plant safety have
yielded no lost time injuries in 2021.
Mexico
•
Senior Executive Management 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.
•
Governmental and regulatory bodies
The Company and Sonora Project are
impacted by local governmental
organisations in the UK and Mexico
respectively.
The Sonora Project will only be able to
commence production once it receives
relevant licences and permits from
government to mine and undertake
chemical processing.
Stakeholder interests include but are not
limited to:
• Payment of taxes and statutory
benefits.
• Compliance with regulations.
•
Job creation, worker pay and
conditions.
23
• Employees are expected to be
represented by ratified workplace
agreements once operations grow
sufficiently.
• The Company provides general
corporate presentations regarding
the Sonora Project development as
part of ongoing stakeholder
engagement with the Secretaría de
Economía, Sonora state
government, Bacadéhuachi local
government and Mexico federal
government. The Company
maintained its good relations with
the respective government bodies
and frequently communicated
progress.
Bacanora management have remained
in close contact with governmental
leaders in Sonora.
Who: Key Stakeholder groups
Why: why is it important to engage this
group of stakeholders
How: how Bacanora engaged with the
stakeholder group
What: what came of the engagement
Community
The local community at the mine site in
Bacadéhuachi, Mexico and the
surrounding area.
• Health and safety.
• Waste and environment.
• Environmental protection.
The community provides social licence to
operate.
The Sonora Project needs to engage with
the local community to build trust. Having
the 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 Bacadéhuachi and
wider Sonora area will provide employees
to the mine and our suppliers.
The Sonora Project will in due course have
a social, environmental and economic
impact on the local community and
surrounding area. The Sonora Lithium
Group is committed to ensuring
sustainable growth minimising adverse
impacts. The Sonora Lithium Group will
engage these stakeholders as appropriate.
• The Company engages with the
relevant departments of the
Mexican government in order to
progress the operational licences it
will require.
• The Mexican operations followed
Sonora state COVID-19
requirements for the operation of
the pilot plant, when required.
• The Company has identified key
stakeholders with the local
community.
• Bacanora has open dialogue with
the Bacadéhuachi local government
and community leaders regarding
the Project’s development.
• The Company has existing
sustainability/ESG policies and
management structure at corporate
and Project level.
• The Sonora Lithium Group
continues to develop its local
Environmental and Social
engagement plans in conjunction
with its appointed consultants
(Golder). See Sustainability section
for more detail.
The Company engages with the local
community as part of the 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.
Minera Sonora Borax “MSB”, signed an
agreement with community leaders for
permission to construct the
construction access road on the Ejido
land.
Unfortunately, due to the COVID-19
crisis, the Company was restricted in
its ability to engage more closely in
2021. More active community
engagement will take place in 2022
subject to COVID-19 restrictions.
Suppliers
During the construction phase, The
Sonora Project will be using key
Our suppliers are fundamental
to ensuring that the Company can
construct the Project on time and budget.
• Management team continue to
work closely with proposed EPC
suppliers and Ganfeng to finalise
See Page 31 of the operational report
for latest on progress on testwork and
finalising FEED work.
24
Who: Key Stakeholder groups
Why: why is it important to engage this
group of stakeholders
How: how Bacanora engaged with the
stakeholder group
What: what came of the engagement
suppliers under commercial engineering
contracts to deliver the mine and plant,
all of whom are large international
vendors.
Using quality suppliers ensures that as a
business it meets the high
standards of performance that we expect
of ourselves and vendor partners.
At a local level, we also partner with a
variety of smaller companies, some of
whom are independent or family run
businesses.
Offtake partners
The Company has two commercially
priced lithium offtake agreements with
Ganfeng and Hanwa, both of whom are
investors in the Company in 2021 and
have Board seats.
The Company is moving toward the
construction stage of its Sonora Project
and a key metric to sourcing the capital
required, is securing its offtake
agreements.
The Company will sell its product under
long-term offtake agreements.
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.
•
Supplier due diligence.
• Contact with procurement
department and accounts payable.
• Assist local suppliers to address
liquidity challenges.
• Directors representing both of our
offtake partners are engaged at
Board meetings and receive all
Board materials.
• They remain informed of Project
developments and provide
management with advice and
guidance
• Management prepares monthly
project reports for the Board.
Smaller local vendors were engaged at
a broader level to better align with
Company objectives.
The Company already has commercial
offtake agreement with Ganfeng and
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.
25
Principal decisions by the Board during and post the reporting period.
The Board defines principal decisions as both those that have long-term strategic impact and are material to the
Group, but also those that are significant to its 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) Fundraising:
In February 2021, Bacanora completed a placing and retail offer with gross proceeds of US$66.3 million. In addition,
Ganfeng exercised its pre-emptive right at the placing price of 45 pence and to increase its holding in the Company
to 28.88% for total amount of US$33.9 million. The Board concluded that these transactions would complete the
Company’s 50% share of the funding package required to construct stage 1 of its world class Sonora Project. This
would maximise shareholder return on the investment and help to fulfil the Company’s business model.
Consideration
Shareholders
Outcome
The Board considered the ability for shareholders
to unlock the value of the Sonora Project, by
having the Project fully funded and the de-risking
of the Project by having Ganfeng involved in the
EPC process and fund 50% of the Project level
spend. This was balancing the cost of the
transactions in terms of dilution for existing
shareholders not taking part in the equity raise
and the reduction in ownership of SLL by 27.5%.
Employees and the local community
The Board considered the
investment on employees and
community.
impact of the
local
the
Debt holders
The Board considered the Company’s conditions
precedent, in order to draw further tranches of
the existing debt.
The Board concluded that greater value for shareholders could
be unlocked by concluding the funding package for the
construction of the Sonora Project, compared to continuing
unfunded. The completing of the funding package fulfils
strategic goal 5. “Complete the funding required to construct
its Project”.
The Board concluded that securing investment would also
secure employment for existing employees and future
employees, and
inhabit. The
communities would benefit from the assured development of
the Sonora Project which would flow from finalising the
financing package.
the communities
they
One of the conditions precedent for being able to draw down
further tranches from the RK debt facility is to ensure full
funding of the Project is achieved. The financing of the
development of the Sonora Project facilitates eventual
revenues from production, which would have been used to
repay RK. Thus, the decision was aligned to RK’s interests at
the time.
b) Recommendation of Ganfeng cash offer:
On 6 May 2021, the Bacanora Independent Directors and the Ganfeng Board announced details of a possible cash offer
by Ganfeng for the remaining shares in Bacanora that it did not own. On 25 August 2021, the Bacanora Independent
Directors and the Ganfeng Board reached an agreement on the terms of a recommended conditional cash offer to be
made by Ganfeng for the entire issued and to be issued ordinary share capital of Bacanora not already owned by
Ganfeng. The Bacanora Board also intend to make a conditional distribution in specie, comprising the shares in
Zinnwald currently owned by Bacanora, to all Bacanora Shareholders (including Ganfeng) on the record date, being
the date that the Offer becomes or is declared unconditional. The distribution is subject to various conditions. Subject
to the conditions being met, Bacanora Shareholders will be entitled to receive for each Bacanora Share 67.5 pence
in cash from Ganfeng pursuant to the Offer and 0.23589 Zinnwald Shares to be distributed by Bacanora.
26
Consideration
Shareholders
Outcome
The Independent Directors retained Peel Hunt as
its financial adviser to provide advice on the “fair
and reasonableness” of the Offer based on a
range of scenarios for the Company to consider.
shareholders
During the Ganfeng Offer period, the Company
kept
informed about Offer
developments so that they could make informed
decisions in respect of the Offer. The Board have
to follow statutory rules and rules from the City
code on takeovers and mergers and published
announcements on the Company’s website and
via the regulatory news service.
Peel Hunt has advised that the financial terms of the Offer
were fair and reasonable. The Independent Directors
considered that, after taking into account the risks and
rewards, including risks that are inherent in single asset
companies and elevated in mining development projects, the
cash consideration representing a premium of between 50% to
59% versus a range of closing and VWAP share prices, the Offer
should be recommended to shareholders. A full list of all
factors taken into consideration is included in the Offer
Document20.
Furthermore, the Board recognised the intrinsic value of its
stake in Zinnwald and negotiated a conditional distribution in
specie of the shares in Zinnwald to existing shareholders,
thereby unlocking the value in Zinnwald through a distribution
in specie. This distribution was made to shareholders on 22
December 2021.
Directors
Bacanora
Independent
The
unanimously
recommended the Offer and the distribution of the Zinnwald
shares and consider that this will promote the success of the
Company for the benefit of its members as a whole. The Offer
allows Bacanora Shareholders to realise their investment in
Bacanora, in cash and at a significant premium to the
undisturbed share price. The Bacanora shareholders will
maintain an exposure to the lithium industry by retaining an
interest in a highly prospective quoted lithium project, through
the Zinnwald Distribution.
that
On 17 December 2021, Ganfeng announced that the final
condition relating to the Mexican Antitrust Clearance was
satisfied, and
the Offer became unconditional.
Furthermore, on 23 December 2021, Ganfeng had received
acceptances in excess of 75 percent of Bacanora's issued
ordinary share capital and made an application to the London
Stock Exchange for the cancellation of the admission of
Bacanora Shares to trading on AIM. The cancellation took effect
at 7.00 am (GMT) on 26 January 2022.
As at 31 December 2021, Ganfeng owned around 73.1 percent
of Bacanora's
issued ordinary share capital excluding
acceptances for which transfer of shares are yet to be made.
When valid acceptances were taken into account, Ganfeng
controlled 86.7% of the issued share capital as at 31 December
2021.
20 https://bacanoralithium.com/_userfiles/pages/files/offer/offer_document_150921.pdf
27
Debt holders
The Board gave due consideration to the impact
that the recommendation of the Offer would have
on the Group’s debt providers. The prospective
change of control would entail repayment of the
debt within 30 days of completion.
Employees and Contractors
stated
The Board gave due consideration to the impact
that the recommendation of the Offer would have
on the Group’s Directors, employees and
contractors. As
the Rule 2.7
announcement, Ganfeng’s initial intention was to
use its existing central management functions to
manage the Sonora Project. In addition, once
Bacanora ceased to be an AIM listed company, a
number of listing company-related functions will
become unnecessary.
in
Community and governmental stakeholders
The Board gave due consideration to the impact
that the recommendation of the Offer would have
on the Group’s community and governmental
stakeholders.
The Board concluded that in the event of a change in control,
RK would be repaid and there would be sufficient funds
available to enable in the Group to fund the repayment.
On 7 January 2022, the RK debt and warrants were settled in
full.
The Independent Directors of Bacanora were expected to and
did resign from the Bacanora Board, with effect from the Offer
becoming unconditional on 17 December 2021. There are three
remaining Directors forming part of the Board of Bacanora. The
five roles in the UK office remain unaffected and will continue
until the end of 2022 as the London office is to remain open.
In considering the Offer, the Bacanora Independent Directors
have taken account of both the long-term potential value of
Bacanora and the risks in achieving this value.
Ganfeng is one of the largest lithium compounds producers in
the world and the world's largest lithium metals producer in
terms of production capacity. The Board concluded that
Ganfeng’s expertise in the lithium industry would provide a
clear strategic direction and access to funding resources would
significantly assist in progressing the development of the
Sonora Lithium Project through its construction phase to
production.
c) RK loan facility:
Recognising the passage of time from the initial US$150 million debt facility agreement with RK entered into in July
2018, Bacanora and RK signed a non-binding indicative term sheet to amend certain terms to extend the facility
during the period. The Company and RK were in discussions for a number of months with a view to agreeing legally
binding terms and documentation. However, due to no immediate need to draw down additional tranches, extension
fee considerations and the limited availability period for an extension post the expiry date of 18 June 2021, the
Company and RK have agreed that the remaining undrawn facility, amounting to US$125 million, will no longer be
available for draw down. Subsequently, as part of the Ganfeng Offer, it was agreed that the loan would be voluntarily
redeemed within 30 days from the Offer being declared unconditional. Following the Ganfeng Offer becoming
unconditional on 17 December 2021, all outstanding liabilities to RK were repaid on 7 January 2022.
28
Consideration
Shareholders
Outcome
The Board of Bacanora considered the impact of
the RK debt facilities on shareholders.
Debt holders
The Board considered the impact of the non-
extension of the RK debt facility to the debt
holders.
Our Assets:
The Sonora Project21
Since the initial drawing of the RK debt facility in July 2018,
the Company had raised funds in the equity market and had
gained a 50:50 joint venture partner in Ganfeng at the Project
level. These resulted in the Company having additional cash
reserves to support the current development funding
requirements of the Sonora Project. There was no immediate
need to draw down further tranches from the RK debt facility.
In addition, due to extension fee consideration and limited
availability period for an extension, the Company and RK have
agreed to cancel the remaining undrawn facility amount of
US$125 million. The Company will seek alternative terms with
debt provides in light of the current favourable debt market
conditions as and when the requirement arises.
The Board concluded that there was no immediate need to
draw down further tranches from the RK debt facility due to
the significant amount of cash reserves. The Company and RK
have agreed to cancel the remaining undrawn facility of US$125
million. This allowed RK to redeploy their committed funds in
order to earn a return on those funds.
Bacanora holds 50% of SLL which is the holding company for the Sonora Project. The Sonora 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 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
operation. The results indicated a US$1.253 billion pre-tax Net Present Value for the Project at an 8% discount rate
and US$11,000 per tonne LCE price, 26.1% IRR and US$4,000 per tonne LCE life of mine operating costs, placing
Sonora among the lowest cost producers. 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 concessions 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 the Sonora Project. These mineral
resources are inclusive of mineral reserves. Mineral reserves and resources are unchanged since they were published.
21 https://www.bacanoralithium.com/pdfs/Bacanora-FS-Technical-Report-25-01-2018.pdf
29
Measured and Indicated Mineral Resources
Category
Cut–off
Tonnes(2)
Li
(Li ppm)
(000t)
(ppm)
Measured(1)
Indicated
Total
1,000
1,000
1,000
Inferred Mineral Resources
103,000
188,000
291,000
3,480
3,120
3,250
Category
Cut–off
(Li ppm)
Inferred
1,000
Tonnes(2)
Li
(000t)
268,000
(ppm)
2,650
K
(%)
1.5
1.3
1.4
K
(%)
1.2
LCE
(000t)
1,910
3,130
5,038
LCE(3)
(000t)
3,779
Mineral Reserves: (Cut-off grade of 1,500ppm Li)
Category
Tonnes
Proven
Probable
Total
(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 nineteen-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% final battery-grade lithium product. Per the SFS, 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 LCE,
respectively. The plant design also includes a circuit to produce up to 30,000 tpa of potassium sulphate by-product
through a series of evaporation and precipitation stages.
30
Operational Review
Corporate review
Financial year 2021 has seen numerous developments on our path to fulfil the Company’s strategic objectives. The
Company’s primary focus has been to complete the design and funding packages required to construct its Sonora
Project.
In February 2021, Ganfeng completed its Option to increase its stake in SLL to 50%. Ganfeng purchased 73,955,680
new ordinary shares in SLL at 29.59 pence at a total value of £21.9 million (US$30.4 million). On completion a new
JVA came into force, which replaces the original joint venture agreement entered into on 29 June 2019. The funds
received from the exercise of Ganfeng’s Option will be applied towards the development of the Project.
At the time, in order to fund Bacanora’s share of the Project’s capital expenditure, the Company completed a
successful placing and retail offer in February 2021. The placing and retail offer raised gross proceeds of £48.1 million
(US$66.3 million) through the issue of a total of 106,995,885 new ordinary shares at a price of 45 pence per placing
share. Furthermore, in May 2021 Ganfeng exercised its pre-emptive right and increased its shareholding in the
Company to 28.88% through the subscription for a total of 53,333,333 new ordinary shares at the placing price of 45
pence per share, representing gross proceeds of £24.0 million (US$33.9 million).
On 25 August 2021, the Bacanora Independent Directors and the Ganfeng Board reached an agreement on the terms
of a recommended conditional cash offer to be made by Ganfeng for the entire issued and to be issued ordinary share
capital of Bacanora not already owned by Ganfeng. The Bacanora Board also approved a conditional distribution in
specie, comprising the shares in Zinnwald which was at the time owned by Bacanora, to all Bacanora Shareholders
(including Ganfeng) on the record date, being the date the Offer becomes or is declared unconditional. Under the
Offer, Bacanora Shareholders were entitled to receive for each Bacanora Share 67.5 pence in cash from Ganfeng
pursuant to the Offer and 0.23589 Zinnwald Shares to be distributed by Bacanora. On 17 December 2021, Ganfeng
confirmed that all conditions had been met and therefore the Offer was unconditional and they had sufficient level
of acceptance for change of control to be deemed to have taken place. Consequently, Mark Hohnen, Eileen Carr,
Jamie Strauss, Andres Antonius and Graeme Purdy resigned from the Board of Directors. On 22 December 2021, the
shares of Zinnwald were distributed to the shareholders of Bacanora. On 23 December 2021, Ganfeng announced that
they had sufficient support for the Offer in order to apply to the London Stock Exchange for the cancellation of the
admission of Bacanora Shares to trading on AIM. The cancellation took effect at 7.00 am (GMT) on 26 January 2022.
The Company had a US$150 million senior debt facility with RK which was entered into in July 2018. Throughout the
life of the loan, only the first tranche (US$25 million) of the debt facility was drawn upon. Given the change of
control, the RK debt facility and all liabilities arising from it was settled on 7 January 2022. The Company will work
closely with Ganfeng to fully fund the Project throughout its construction stage. Any further debt financing is subject
to Board approvals from both prospective debt providers and the Company and entering into definitive legal
agreements with each other. With a consolidated Group cash balance of US$122.1 million and an aggregated cash
balance (including cash of US$26.6 million in Sonora Lithium Group) of US$148.7 million as at 31 December 2021, the
Company has sufficient funds to support the short-term funding requirements of the ongoing construction programme,
even after repaying US$43.3 million to settle the RK debt facility.
Prior to the distribution of Zinnwald shares, in June 2021, Zinnwald completed its strategic acquisition of the
remaining 50% of DL that it does not already own from the estate of SolarWorld Aktiengesellschaft, for a total
consideration of €8.8 million, settled by a cash payment of €1.5 million and the issue of approximately 50 million
new ordinary shares of 1 pence each in Zinnwald22. The DL Acquisition gave Zinnwald full ownership and operational
control of the Zinnwald Project in Germany. On 14 December 2021, Zinnwald announced that it had completed a
placing and retail offer of approximately £5.8 million to enable it to advance further its wholly-owned Zinnwald
Lithium Project. On completion of the DL Acquisition and fundraising, Zinnwald’s issued share capital consisted of
293,395,464 ordinary shares with one voting right each. Prior to the distribution, Bacanora's shareholding in Zinnwald
was 90,619,170 shares representing a dilution in shareholding from the initial holding of 44.3% to 30.9%23.
22 https://polaris.brighterir.com/public/zinnwald_lithium/news/rns/story/xozv5mw
23 https://www.londonstockexchange.com/news-article/ZNWD/result-of-placing-and-retail-offer/15249776
31
Operations review
Sonora Project
Significant preparatory work for the plant site was completed during the reporting period including plant site location
survey, geotechnical, and hydrogeological works. Vegetation and topsoil rescue for the plant site has been completed.
The work to protect the flora at the plant site area was completed in Q2 2021. The Sonora Lithium Group relocated
the flora and is working to ensure that vegetation formerly located at the plant site is preserved. The majority of the
workforce for this work has been employed from the local Bacadehuachi area. Recycled shipping containers have
been purchased for the first phase of the construction camp and are being converted into habitable units for transport
to site in Q1 2022. The rehabilitation of the construction access road was completed in early February 2022.
Test well construction and pumping tests were completed in the period. This work enables the hydrological model to
be validated for the selected site so that design of the permanent well can begin to supply process water for the site.
The Sonora Lithium Group has completed the purchase of 1,122 hectares of land for the new plant site location at El
Destiero in July 2021, with the payment of the remaining US$0.3 million consideration. This payment was in addition
to US$0.2 million initial instalment made in July 2018 and a second instalment of US$0.1 million in December 2020.
Post period end, a further 508 hectares were purchased for US$0.2 million at Perciditos.
The Sonora Project’s priority remains the health and well-being of staff, partners and its local communities. The
Sonora Lithium Group continue to take all appropriate measures to protect them in accordance with the relevant
governmental and regional requirements. In January 2022, Sonora was in the yellow (medium) traffic light level of
risk24, meaning all work activities are permitted but with certain limitations for high risk individuals, and activities
following preventative measures.
Site works for bulk earthworks have been rescheduled to begin late 2022. Bacanora continues to work with Ganfeng,
to mitigate the impact of COVID-19 safety protocols on project construction, optimising work rotations and reducing
accommodation population density. By extending work rosters for employees and contractors, the Sonora Lithium
Group hopes to provide more time for contractors to be on-site, whilst enabling camp accommodation optimisation.
These measures facilitate the success of COVID-19 social distancing outcomes.
Work to complete the front-end engineering design (“FEED”) has continued throughout the period. Ganfeng is
currently appointing a Chinese Design Institute to complete the FEED with initial site layouts scheduled for Q2 2022.
Bulk earthworks are expected to commence in late 2022. Ganfeng is continuing to work with its equipment suppliers
and, along with the Company, is maintaining its previously advised project delivery schedule with first lithium
production in H2 2024. A short list of LNG suppliers has been completed and supply sources from Mexico and USA are
being evaluated with draft supply contracts being reviewed. Evaluation of co-gen power suppliers continued in 2021,
with proposals from a shortlist of three providers currently under evaluation.
24 https://ogletree.com/insights/mexicos-covid-19-traffic-light-monitoring-system-news-for-december-27-2021-january-9-2022/
32
Lithium Market Update 2021
Despite the continued global disruption precipitated by the COVID-19 pandemic, 2021 saw a sustained revival in
market sentiment for lithium. At the end of the year, estimates of consumption was 486,000 tonnes of LCE and
production was on par at 485,000 tonnes for 2021. This level of demand represented a 59.3% increase from 305,000
tonnes LCE in 2020, due to the COVID-19 related green recovery, accelerating demand for EVs and battery storage
for renewables. Demand is expected to grow to 573,000 tonnes and 724,000 tonnes LCE in 2022 and 2023 respectively.
Production volumes have been relatively inelastic in 2021, with volumes increasing from 464,000 thousand tonnes, a
4.7% increase25. The narrowing of the supply surplus in 2021 and concerns about future deficits has seen knock on
effects on the price of lithium. Macquarie forecasts the lithium market to be in a 2,900 tonnes deficit this year, rising
to 20,200 tonnes in 2022, with the shortfall widening further to 61,000 tonnes in 2023. Credit Suisse’s deficit
projections were at 117,000 tonnes and 248,000 tonnes in 2024 and 2025, respectively26.
During 2019 and 2020, oversupply and destocking led to weak prices, which in turn led to mine closures and paused
capital plans, particularly in higher cost spodumene producers. In December 2020, Fastmarkets reported mid-point
battery-grade spot prices CIF China, Japan & Korea for lithium carbonate and lithium hydroxide at US$6,750 and
US$9,000 per tonne respectively27. The low price in 2020 was attributed to an oversupply of lithium products. This
was compounded by dwindling lithium demand caused by rolling regional COVID-19 related lockdowns which restricted
manufacturing output and reductions in consumer confidence, thereby dampening lithium demand. 2021 saw
meteoric increases in price, across the year. At the turn of 2022, LME spot battery-grade lithium hydroxide was
trading at US$33,000 per tonne28 an increase of 266%. Similarly, Benchmark’s lithium carbonate, battery-grade, EX-
Works China price has been trading at record prices, which have exceeded US$40,000 per tonne29. Market observers
such as Fitch Solutions are forecasting average prices for lithium carbonate prices at US$21,000 per tonne in 202230.
In the shorter term a price correction may weigh on the market as suppliers look to take advantage of the incentive
pricing, with new or restarted production in 2022 from Wodinga (Mineral Resources initially +250,000 tonnes per year
of spodumene concentrate31), Kemerton Hydroxide refinery (+50,000 tonnes of lithium hydroxide), Allkem Olaroz
(formerly Orocobre) +25,000 tonnes LCE), Pilgangoora (Pilbara Minerals, Ngungaju plant +200,000 tonnes of
spodumene concentrate32), Salar del Carmen (SQM +60,000 tonnes LCE), Cauchari-Olaroz (Lithium Americas +40,000
tonnes) and Bessemer City (Livent +5,000 tonnes of lithium hydroxide)33. With production restarting and coming on
stream in 2023, lithium carbonate price is expected to reduce to a more moderate US$17,500 per tonne in 2025
according to Canaccord Genuity34.
In the longer term the broad market outlook for lithium is promising – a rapidly transitioning EV and battery storage
sector is expected to see consumption growth outpace production growth, which may result in sustained elevated
prices to the benefit of producers35. Super majors are taking note, in a presentation to investors, Rio Tinto’s head of
economics Vivek Tulpule said that by 2030 EV manufacturers would need about three million tonnes of lithium,
compared with the roughly 350,000 tonnes they consume today36. Rio Tinto estimated that existing operations and
projects combined, will contribute one million tonnes of lithium. Filling the supply gap will require over 60 Jadar
projects, the Jadar mine will produce 58,000 tonnes of lithium carbonate. With the Sonora Project, due to commence
production in H2 2024, the Company is set to benefit from the attractive fundamentals of the lithium industry.
25 https://publications.industry.gov.au/publications/resourcesandenergyquarterlydecember2021/documents/Resources-and-Energy-Quarterly-
December-2021.pdf
26https://capital.com/lithium-price-
forecast#:~:text=In%20November%2C%20Fitch%20Solutions%20revised,%2419%2C000%20a%20tonne%20in%202023
27 https://seekingalpha.com/article/4396089-lithium-miners-news-for-month-of-december-2020
28 https://www.lme.com/Metals/EV/Lithium-prices
29 https://www.benchmarkminerals.com/membership/lithium-carbonate-prices-break-through-40-kg-barrier/
30 https://capital.com/lithium-price-forecast
31 https://www.mining.com/web/mineral-resources-to-restart-wodgina-mine-as-ev-demand-boosts-lithium-prices/
32 https://www.mining-technology.com/news/pilbara-minerals-restart-ngungaju-plant/
33 https://www.spglobal.com/platts/en/market-insights/latest-news/energy-transition/121421-commodities-2022-global-lithium-market-to-
remain-tight-into-2022
34 Canaccord Genuity – EV materials, Analyst note, 24 January 2022
35 https://seekingalpha.com/article/4476301-lithium-miners-news-for-the-month-of-december-2021
36 https://www.miningweekly.com/article/lithium-supply-gap-will-require-60-jadar-projects-rio-tinto-2021-10-21
33
Financial Review
In the reporting period several corporate transactions had a marked effect on the accounts of the Group. The Group
made a total comprehensive income of US$16.3 million for the year ended 31 December 2021 (year ended 31
December 2020: US$15.6 million loss).
On 26 February 2021, Ganfeng completed its option to increase its stake in Sonora Lithium Ltd from 22.5% to 50%. On
completion of the transaction, a revised 50:50 JVA came into force. After a review of the provisions of the revised
JVA, the Company has assessed that Bacanora now has joint control over the Sonora Lithium Group. Therefore, the
Group followed deconsolidation protocols for the Sonora Lithium Group and now utilises equity accounting to record
the Company’s investment in the Sonora Lithium Group. Recognition of 50% of SLL’s net assets led to a gain on the
change of control of SLL of US$31.9 million. From the date of deconsolidation to the end of the year, Bacanora’s
share of Sonora Lithium Group loss was US$1.0 million.
In addition to the gain on deconsolidation other non-recurring items include: a gain on the distribution of the
Company’s investment in Zinnwald Lithium Plc of US$8.7 million and distribution income of US$4.2 million as a result
of the cancellation of a related party payable.
During the year ended 31 December 2021, the Group incurred US$8.0 million general and administrative costs (year
ended 31 December 2020: US$4.4 million) and share-based payment expense of US$0.9 million (year ended 31
December 2020: US$0.6 million). The increase in cost was due to increased corporate activities particularly on legal
and professional fees, investor relations, employee costs and travel compared to the previous year. The Group’s
operating loss was US$9.1 million (year ended 31 December 2020: US$5.3 million).
Finance income totalled US$0.9 million during the year ended 31 December 2021 (year ended 31 December 2020:
US$0.4 million) being cash interest income on cash reserves of US$0.2 million and interest income on funding to
related parties of US$0.7 million.
The Group incurred finance costs of US$15.3 million in relation to the Group’s debt financing for the year ended 31
December 2021 (year ended 31 December 2020: US$6.8 million). As a result of the change of control following the
Ganfeng Offer becoming unconditional, the Group agreed to repay the RK debt facility early and settle the financial
warrant liability. As a result, the Group recognised US$2.8 million interest expense, US$12.2 million accelerated
Eurobond transaction costs, discounts and the early repayment fee and a US$0.3 warrant revaluation. The debt and
warrants were fully repaid on 7 January 2022.
Other comprehensive income includes net foreign exchange differences recycled through profit and loss of US$3.4
million and US$0.4 million loss on foreign currency translation adjustment (year ended 31 December 2020: US$0.3
million gain).
The net assets of the Group increased to US$134.3 million at 31 December 2021 from US$49.9 million at 31 December
2020, due primarily to the issuance of equity totalling US$96.4 million, the total comprehensive income for the year
of US$16.3 million, as well as issuance of shares as a result of exercised share options of US$1.2 million and share-
based expense of US$0.9 million. This is offset by the distribution of its investment in Zinnwald Lithium Plc recognised
at its fair value of US$16.2 million, deconsolidation of the Sonora Lithium Group of US$12.3 million and vesting of
RSUs US$1.9 million as a result of the change of control.
The Group had a consolidated cash balance of US$122.1 million at 31 December 2021, which increased by US$82.9
million from US$39.2 million at 31 December 2020. The increase in cash was mainly a result of total equity raise of
US$96.4 million and interest on cash balance of US$0.2 million. This is offset by cash expenditure on operations of
US$8.8 million, payments of interest and principal repayments on the RK debt facility of US$3.7 million, reduction in
cash on change of control of subsidiaries of US$0.4 million, purchases of property, plant and equipment of US$0.2
million, payments to related parties of US$0.2 million and US$0.2 million foreign exchange loss.
The Sonora Lithium Group has a cash balance of US$26.6 million at 31 December 2021. Together, the total aggregated
cash of the Group and Sonora Lithium Group amounts to US$148.7 million at 31 December 2021.
Given the ongoing unprecedented COVID-19 health and ensuing economic crises, many companies have seen their
balance sheets come under duress throughout the reporting period. Being in the early works phase of construction
and having raised significant sums in the equity market, Bacanora and SLL have not entered into commitments to
develop the Sonora Project and retain significant cash balances. Consequently, the Directors have, at the time of
34
approving the Financial Statements, a reasonable expectation that the Company has adequate resources to continue
in operational existence for the foreseeable future.
Financing update
Despite the impact of the ongoing COVID-19 pandemic on Project financing, the Company has made significant strides
in the year, to secure additional funding required for the development costs of the Sonora Project. Bacanora's
cornerstone investor and offtake partner, Ganfeng, completed its option to increase its stake in SLL from 22.5% to
50% on 26 February 2021. Ganfeng subscribed for 73,955,680 new ordinary shares in SLL at 29.59 pence at a total
value of £21.9 million (US$30.4 million). This investment forms part of the Sonora Lithium Group’s assets to fund the
Project. The strategic investment from Ganfeng forms a major part of the finance package for the construction of an
initial 17,500 tonnes per annum LCE operation for the Sonora Project. As part of the revised JV agreement, Ganfeng
and Bacanora will contribute proportionally to the construction funding for the Sonora Project in SLL.
In order to support Bacanora's 50% share of the Sonora Project construction funding requirement, Bacanora embarked
on an ambitious fundraising process. On 8 February 2021, Bacanora completed a successful placing and retail offer
which raised gross proceeds of £48.1 million (US$66.3 million) through the issue of a total of 106,995,885 new ordinary
shares at a placing price of 45 pence per share. On 26 May 2021, Ganfeng completed its pre-emption right to increase
its shareholding in the Company to 28.88%. Ganfeng subscribed for a total of 53,333,333 new ordinary shares at the
placing price of 45 pence per share, representing gross proceeds of £24.0 million (US$33.9 million).
Subsequent to these fundraisings, Ganfeng announced an offer to acquire the remaining shares in the Company that
it did not own at the time. The Ganfeng Offer became unconditional on 17 December 2021. By the end of the year,
Ganfeng became the Company’s controlling shareholder. Ganfeng has significant amount of cash resources which will
provide ongoing support to the development of the Sonora Project.
Throughout the period under review Bacanora maintained the RK debt facility according to the original terms and
conditions. However, due to no immediate need to draw down additional tranches, extension fee considerations and
the limited availability period for an extension post the expiry date of 18 June 2021, the Company and RK have agreed
that the remaining undrawn facility, amounting to US$125 million, will no longer be available for draw down.
Subsequently, as part of the Ganfeng Offer, it was agreed that the loan would be voluntarily redeemed within 30
days from the Offer being declared unconditional. Following the Ganfeng Offer becoming unconditional on 17
December 2021, all outstanding liabilities to RK were repaid on 7 January 2022.
Careful stewardship of the Company’s capital resources have meant that the Company enjoyed a strong cash position
of US$122.1 million at the year end. In addition, Sonora Lithium Group’s cash balance of US$26.6 million will enable
the Company to commence earthworks for the Project in late 2022.
The management of Bacanora will work closely with Ganfeng to complete the funding and development of the Sonora
Project and bring the Project to fruition.
On behalf of the Board of Directors,
Janet Blas, Chief Financial Officer
28 February 2022
35
The strategic report of Bacanora Lithium Plc, on pages 5 - 35, was approved and authorised for issue by the Board of
Directors on 28 February 2022 and were signed on its behalf by:
Peter Secker, Chief Executive Officer
28 February 2022
36
Governance
Directors and Senior Management
Board Composition
For the majority of 2021, the Board comprised a Non-executive Chairman, an Executive Director and six other Non-
Executive Directors (NEDs). The Board considered the following Non-Executive Directors to be independent – Jamie
Strauss, Eileen Carr, Andres Antonius and Graeme Purdy. None of these Directors had been employees, had a
significant business relationship or close family ties with related parties or represent significant shareholders.
On 17 December 2021, following the declaration by Ganfeng that its offer for the Company had become unconditional,
in accordance with the Offer Document, the Chairman and the four Independent Non-Executive Directors all resigned
from the Board. Consequently, as at 31 December 2021, the Board comprised an Executive Director and two other
Non-Executive Directors (NEDs), none of whom would be considered independent. Details of the Directors who served
during the year are set out within the list of Directors below. As the Company is now a privately owned company and
a subsidiary of Ganfeng, the structure of the Board will be solely determined by Ganfeng.
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.
The Board has a ‘Charter’ that sets out the role and responsibility of the Board and the manner in which it will
exercise and discharge these duties. The role of the Board is to determine the strategic direction of the Company,
regularly review the appropriateness of it and oversee its implementation. It is not the role of the Board to manage
the Company itself but rather to monitor the management and performance of the business. It does this in the
following areas:
Strategy, financial and operational matters;
Financial expenditure;
Shareholder engagement and communications;
• Board composition and organisation;
•
•
•
• Governance and general sustainability (ESG) matters;
• Designated positions of responsibility. The roles of management are covered in relation to their interaction
with the Board rather than their day to day operational tasks.
Whilst the Board has delegated the normal operational management of the Company to the Executive Director 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.
Whilst the Company was an independent UK listed Plc, the Non-Executive Directors had 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 Director and other senior members of the management team. The Lead Independent Director held
informal meetings with the Non-Executive Directors without the Executives present. The Non-Executive Directors
enjoyed open access to the Executives and other senior management with or without the Chairman being present.
Director Commitments
The Executive Director, Peter Secker, was employed on a full-time contract during 2021 and will be retained for a
limited period by Ganfeng for transitional purposes. Mark Hohnen’s contract moved to a Non-Executive Chairman role
on 30 June 2021, and he resigned on 17 December 2021.
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
37
Directors, meetings with shareholders, any meetings forming part of the Board evaluation process and training
meetings. In 2021, the ongoing COVID-19 pandemic led to most meetings being conducted remotely.
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.
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 full Board meetings in the year ended 31 December 2021 is set out below:
22 January
1 February
31 March
30 June
23 November
17 December
Mark Hohnen
Peter Secker
Jamie Strauss
Eileen Carr
Andres Antonius
Junichi Tomono
Wang Xiaoshen
Graeme Purdy
X
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
X
✓
✓
✓
✓
✓
✓
✓
✓
✓
X
✓
✓
✓
✓
✓
✓
✓
✓
✓
X
✓
X
X
X
✓
✓
✓
X
✓
✓
X
X
✓
As part of the Ganfeng Offer process, the Board held regular meetings of the Independent Directors to consider all
matters relating to the Offer. The Independent Directors were those as defined under the Takeover Code as being
independent of the Offeror, Ganfeng Lithium Ltd. These Independent Directors were Mark Hohnen, Peter Secker,
Jamie Strauss, Eileen Carr, Andres Antonius, Graeme Purdy and Junichi Tomono. A summary of attendance at these
Independent Director meetings is set out below.
Mark Hohnen
Peter Secker
Jamie Strauss
Eileen Carr
Andres Antonius
Junichi Tomono
Graeme Purdy
31 Mar 1 Apr
✓
✓
✓
✓
X
✓
✓
✓
✓
✓
✓
✓
✓
✓
9 Apr
✓
✓
✓
✓
✓
✓
✓
5 May
✓
✓
X
✓
✓
✓
✓
6 May
✓
✓
✓
✓
X
✓
✓
10 Jun 30 Jun 19 Jul
18 Aug 24 Aug 13 Sep 20 Oct
✓
✓
✓
✓
✓
X
✓
X
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
X
✓
X
✓
✓
✓
✓
X
✓
✓
✓
✓
✓
✓
✓
✓
X
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
Board Committees
The Board has historically delegated specific responsibilities to the Audit, Remuneration and Corporate Governance
and Sustainability Committees, details of which are set out below. Each Committee has written terms of reference
setting out its duties, authority and reporting responsibilities, which are all kept on the Company’s website. These
were kept under continuous review to ensure they remained appropriate and reflect any changes in legislation,
regulation or best practice. Following the resignation of the Chairman and four Independent Non-Executive Directors
on 17 December 2021 and the Company’s delisting from AIM on 26 January 2022, the Committees were all disbanded
and the relevant powers and responsibilities returned to the Board as whole.
There is currently no internal audit function, given the size of the Group, although the Audit Committee keeps this
under annual review.
38
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 was 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 Committee was responsible for overseeing for the Company, subsidiaries, joint venture companies as a whole,
the following matters:
Financial reporting;
Internal control and risk management systems;
Internal audit function;
•
•
•
• External audit and the relationship with the external auditors;
•
and Whistleblower and fraud programmes
The Audit Committee met at least three times in 2021 and comprised independent non-executive Directors only, with
the Chief Financial Officer in attendance and not a member. The Committee had unrestricted access to the Group’s
Auditor, who may attend all meetings. During 2021. the Audit Committee comprised Eileen Carr as Chairman, Andres
Antonius and Graeme Purdy.
The Audit Committee Report contains more detailed information on the Committee’s role and activities during the
year.
ii) Remuneration Committee
The Remuneration Committee assumed general responsibility for assisting the Board in respect of remuneration
policies and strategies for the Company and ensuring they are designed to support strategy and promote long-term
sustainable success. It ensured that the Company offers competitive remuneration that is aligned to company purpose
and values, and clearly linked to the successful delivery of the Group’s long-term strategy, whilst remaining
financially responsible. It also ensured formal and transparent procedure for developing policy on executive
remuneration and determining director and senior management remuneration.
The Committee was responsible for overseeing for the Company, major subsidiaries and the Group as a whole, the
following matters:
• Remuneration policies, including long- and short-term incentives;
• Review of Executive Management performance and recommendations for incentive awards;
• Annual Reporting of the Company’s remuneration activities;
• Administration of incentive plans;
• Company policies regarding pension and other benefits; and
• The engagement and independence of external remuneration advisers.
The Remuneration Committee met as and when necessary and comprised independent non-executive Directors only.
During 2021, the Remuneration Committee comprised Jamie Strauss as Chairman, Eileen Carr and Andres Antonius.
The Remuneration Committee report contains more detailed information on the Committee’s role and activities
during the year, as well as the Directors’ remuneration and fees.
iii) Corporate Governance and Sustainability Committee
The Corporate Governance and Sustainability Committee was incorporated to emphasise the Company’s commitment
to Sustainability / ESG Matters. The Board and Management of the Company are committed to maintaining a high
standard of corporate governance. The Company chose to adhere to the Quoted Companies Alliance (“QCA”)
Corporate Governance Guidelines for Small and Mid-Size Companies, which was updated in April 2018 and comprises
ten key principles. The purpose of the Corporate Governance and Sustainability Committee was to provide for the
Board’s effectiveness and continuing development in meeting these ten principles.
39
The Committee was also responsible for overseeing, on behalf of the Board, the development, implementation and
monitoring of the Company’s sustainable development in all its internal policies and operations around the three
pillars of a Sustainability framework – Environment, Social and Governance (“ESG”). These are based on the United
Nations’ set of 17 Sustainable Development Goals (SDGs), of which for mining companies, the key takeaways are to
extract responsibly, waste less, use safer processes, incorporate new sustainable technologies, promote the improved
wellbeing of local communities, curb emissions, and improve environmental stewardship
The Committee was responsible for overseeing for the Company, subsidiaries joint venture companies and the Group
as a whole, the following matters:
• Corporate Governance matters highlighted by the QCA Code
•
Sustainability matters and policies across the 3 main pillars
• Undertake and report on an annual basis an ESG Materiality assessment to identify key issues as the
Company moves through its evolution from exploration to construction and into production
• Reporting of all ESG and Corporate Governance matters in Company publications.
The Corporate Governance and Sustainability Committee comprised Mark Hohnen, 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 Directors who served during the year are set out in their biographical details below.
During 2021, the experience and knowledge of each of the Directors gave them the ability to constructively challenge
strategy and to scrutinise performance. Prior to the resignations in December 2021, the Board believed it had 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 did 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 was satisfied that the Chairman and each of the Non-Executive Directors were able to devote
sufficient time to the Group’s business.
During the period, Mark Hohnen, Jamie Strauss, Eileen Carr, Graeme Purdy and Andres Antonius all resigned on 17
December 2021.
New Directors receive a formal induction to the Company including a briefing memo on the Company from the
Company Secretary.
List of Directors
Peter Secker, Chief Executive Officer and Director
Mr Secker is a mining engineer with over 35 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. He is also a director of Zinnwald Lithium Plc.
Wang Xiaoshen, Non-Executive Chairman
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 GLF International Co. Ltd, Reed Industrial
Minerals Pty Ltd. and Lithium Americas Corp. 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.
Junichi Tomono, Non-Executive Director
Mr Tomono has over 24 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
40
lithium. As head of the Hanwa’s 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.
Mark Hohnen, Non-Executive Chairman and Director (Resigned – 17 December 2021)
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 a director of Pensana Rare Earths Plc, the ASX and LSE listed rare earth metals explorer.
He also served as Non-Executive Chairman of BOSS Resources Ltd and director of Salt Lake Potash Limited.
Jamie Strauss, Non-Executive Director (Resigned – 17 December 2021)
Mr Strauss has 30 years of experience within the stockbroking and mining finance sector. He is founder and director
of Digbee Ltd, a data, research and ESG Reporting platform specifically focused on 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 and serves on the Advisory Panel for Mines &
Money.
Eileen Carr, Non-Executive Director (Resigned – 17 December 2021)
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 board and the audit committee of Sylvania Platinum Ltd. 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 (Resigned – 17 December 2021)
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.
Graeme Purdy, Non-Executive Director (Resigned – 17 December 2021)
Mr Purdy has over 25 years’ experience in the resources and battery industries and is Chief Executive Officer of AIM-
listed Ilika Plc (ticker: IKA), a solid-state lithium battery technology developer. Since joining Ilika in 2004, Graeme
has led two successful rounds of venture funding before floating the company on AIM in 2010. Earlier in his career,
Graeme worked with Shell, a global energy group, focusing on the design, construction and commissioning of large
process engineering projects in remote locations, including Latin America. Mr Purdy holds a Master’s degree in
Chemical Engineering from Cambridge and an MBA from INSEAD business school in France. Graeme is a Chartered
Engineer and a Sainsbury Management Fellow.
41
Board advice during the period
During the period, the Independent Directors of the Board (as defined by the Takeover Code) appointed Peel Hunt as
its Financial Adviser during the Offer from Ganfeng.
Internal Advisory Roles
i) Lead Independent Director
Whilst Bacanora had an Executive Chairman, the Company decided to have a Lead Independent Director, Jamie
Strauss. His primary role was 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 acted 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 attended 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, acted 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 had a significant role in relation to the Company’s legal and regulatory compliance, including
being the MAR designee and played a proactive and central role in ensuring good governance. He has been retained
for a limited period to assist with the transition process. He is also a director and CFO of Zinnwald Lithium Plc.
The Company Secretary assisted the Chairman in preparing for and running effective Board meetings, including the
timely dissemination of appropriate information. The Company Secretary also acted 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 acted as one of the links between the Company and shareholders
on matters of governance and investor relations. The Company Secretary reported directly to the Chairman on
governance matters.
iii) Annual Board Appraisal
In accordance with current best practice and the Code, the Board historically undertakes an annual formal evaluation
of its performance and effectiveness and that of each Director and its Committees. This evaluation would be
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 would meet, informally, without the
Chairman present and evaluated his performance. The Board considered that the use of external consultants to
facilitate the Board evaluation process would be unlikely to be of significant benefit to the process.
The Chairman stated that he valued 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. This review would ordinarily have happened over the year-end period, but with the
resignation of the majority of the Board in December 2021, no review was undertaken in 2021.
Ongoing Board Development
Executive Directors were 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 were encouraged to raise any personal development or training needs with the Chairman or
through the Board evaluation process.
The Company Secretary ensured that all Directors are kept abreast of changes in relevant legislation and regulations,
with the assistance of the Company’s advisers where appropriate.
42
Dialogue with Shareholders
i) All Investors
The Board attaches great importance to providing shareholders with clear and transparent information on the Group's
activities, strategy and financial position. Communications with all investors was challenging during 2021 due to the
significant restrictions imposed by the Takeover Panel during an Offer Period. The Company was restricted in what
matters could be discussed and a member of the Company’s Financial Adviser, Peel Hunt, was in attendance on all
calls or meetings. The Company engaged directly on several occasions with the shareholder investor group that
opposed the Ganfeng Offer.
General communication with shareholders is co-ordinated by the Chairman, Chief Executive Officer and Chief
Financial Officer. In addition, the Lead Independent Director provided 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 the Sonora Project;
• 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 its IPO on AIM in 2014;
• Details on the proxy voting results of all resolutions put to a vote at the most recent AGMs;
• Contact details including a dedicated email address info@bacanoralithium.com through which investors can
contact the Company.
The Company’s AGMs are held in London following the publication of its annual results and all shareholders are invited
to attend. In 2021, the Company conducted a question and answer session that included electronic access as part of
its AGM. Furthermore, a general meeting was held on 24 September 2021 to approve the cancellation of the share
premium account and approve the Zinnwald Distribution subject to certain conditions being met.
Bacanora includes in its annual AGM documents a “Deemed consent” letter for new shareholders to be moved 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.
ii) 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 in early 2021.
iii) Private Investors
The Company acknowledges that the majority of its private investors held their shares via nominee shareholders and
may not be able to fully utilise 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.
43
The Company holds shareholder conference calls by the CEO, whereby shareholders are 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.
iv) 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.
44
Directors Report
The Directors present their Annual Report and Financial Statements of the Company and Group for year ended 31
December 2021.
Results and dividends
The results for the year are set out in the Consolidated Financial Statements.
The Company made a distribution in specie of its investment in Zinnwald Lithium Plc as part of the Ganfeng Offer.
The making of this distribution was subject to various conditions, the last of which is the Offer becoming or being
declared unconditional, which was met on the record date of 17 December 2021. The distribution of the Zinnwald
shares was made to Bacanora shareholders on 22 December 2021. The holder of each Bacanora share received 0.23589
Zinnwald shares.
The Directors do not recommend any further distribution in specie or payment of a dividend.
Directors
The Directors who served during the period were:
• Peter Secker
•
Junichi Tomono
• Wang Xiaoshen
• Mark Hohnen (resigned 17 December 2021)
•
Jamie Strauss (resigned 17 December 2021)
• Andres Antonius (resigned 17 December 2021)
• Eileen Carr (resigned 17 December 2021)
• Graeme Purdy (resigned 17 December 2021)
Directors' interests
The Directors' interests in the share capital of the Company as at 31 December 2021 are as follows and relate to
shares issued on the exercise of options on 17 December 2021. Other shareholdings held by Directors during the year
had accepted the Offer from Ganfeng and transferred to Ganfeng by the year end:
Director
Mark Hohnen
Peter Secker
Jamie Strauss
Andres Antonius
Junichi Tomono
Eileen Carr
Wang Xiaoshen
Total
Substantial shareholdings
No of Shares
% of Issued Share Capital
330,490
421,288
-
-
-
-
-
751,778
0.1%
0.1%
0.0%
0.0%
0.0%
0.0%
0.0%
0.2%
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 2020. The Ganfeng shareholding relates to shares already transferred to
Ganfeng, whilst as at 31 December 2021, Ganfeng had received valid acceptances in relation to its Offer totalling
333,342,270 or 86.1% of total issued share capital.
45
Major Shareholder
Ganfeng Lithium Co., Ltd(1)
Hanwa Co Ltd
No of Shares
% of Issued Share Capital
282,924,334
12,333,261
73.1%
3.2%
(1)The shareholding is legally owned by Ganfeng International Trading (Shanghai) Ltd, a 100% subsidiary of Ganfeng Lithium Co., Ltd
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 14 in the Consolidated Financial Statements for a detailed discussion on financial risk.
Post balance sheet events
Please refer to note 24 in the Consolidated Financial Statements for a detailed discussion on events that occurred
subsequent to 31 December 2021.
Future developments
The Company will continue to focus on its efforts to commence construction of Stage 1 of Sonora.
Auditor
BDO LLP were reappointed as auditor to the Company at the Annual General Meeting held on 30 June 2021.
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
Wang Xiaoshen, Chairman
28 February 2022
46
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 UK adopted
international accounting standards in conformity with the requirements of the Companies Act 2006. 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 with UK adopted international accounting standards in conformity
with the requirements of the Companies Act 2006, 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.
47
Corporate Governance and Sustainability Committee Report
Part 1 – Corporate Governance Statement from the CEO
On behalf of the Board, I am pleased to present the Directors’ Corporate Governance and Sustainability Report
summarising the Company’s Corporate Governance and Sustainability (ESG) policies and activities for the year ended
31 December 2021. We use the words sustainability and ESG (Environmental, Social and Governance) on an
interchangeable basis. A summary of the Committee’s role, membership and relevant qualifications can be found in
the corporate governance section herein or the QCA statement on the website.
Following the acquisition of the Company by Ganfeng and the resignation of the Chairman and four independent Non-
Executive Directors on 17 December 2021, the Corporate Governance and Sustainability Committee ceased to exist,
and its delegated responsibilities were returned to the Board as a whole. At the time of publication, the Corporate
Governance and Sustainability Committee has not been reformed and no further appointments have been made to it
accordingly.
The Bacanora Board continues to provide leadership and support to our senior management team in order to achieve
sustainable added value for shareholders. The Board is responsible for enabling the efficient operation of the
Company by providing adequate financial and human resources and an appropriate system of financial control to
ensure these resources are fully monitored and utilised. 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,
employees, 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
addition, the Company recognises its responsibility across ESG more widely through incorporation of transparent
environmental and social policies and metrics within its business plan. 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 website
and has been translated into Spanish for use in our operations in Mexico.
Part 2 – Bacanora’s Sustainability Philosophy
At Bacanora, we view sustainability as a guiding principle of our development strategy and are dedicated to delivering
on the commitments to our shareholders, debt holders, clients, employees, local communities, 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 have
the following over-arching Sustainability Philosophy that governs everything we do:
•
Promote responsibility for the environment within the organisation and communicate and implement this
policy at all levels within the workforce;
integrate positively with local communities;
•
• Reduce the use of energy, water and other resources;
• Minimise waste by reduction, re-use and recycling methods;
• Comply with all relevant environmental legislation/regulation;
•
• Do not prioritise funding needs ahead of sustainability requirements;
•
•
Encourage all stakeholders to commit to the sustainable development philosophy;
Identify and provide appropriate training, advice and information for staff and encourage them to develop
new ideas and initiatives;
Provide appropriate resources to meet the commitments of this policy;
Promote and encourage involvement in local environmental initiatives/schemes;
•
•
Ensure that our policies and services are developed in a way that is complimentary to this policy;
Part 3 – Group Sustainability Structure and Reporting
The chart below outlines Bacanora’s sustainability structure and lines of reporting. The Board retains ultimate
responsibility for all matters but had delegated regular review and oversight to the Corporate Governance and
Sustainability Committee.
48
Following the delisting of the Company from AIM, all Board committees have been removed and the relevant powers
and responsibilities returned to the Board as whole. The CEO has operational responsibility. The Company also has
ongoing reporting responsibilities to its JV Partner and now parent company, Ganfeng, to feed into their own
sustainability structures. The Company has established a conceptual structure for its future local committees in
Sonora that will manage its sustainability activities on a community and regional level in Mexico in 3 key areas. These
committees will commence operations once the Covid-19 pandemic has receded and construction has commenced.
•
•
•
Sustainable Development - municipal planning, economic development, regional stability
Environmental Monitoring - water, air, life, health
Strategic Investment (regional) - selection, design and implementation of initiatives, partnerships
In terms of reporting, Bacanora had developed a regular reporting structure to ensure its sustainability philosophy is
adhered to, monitored and reported on an appropriate basis. As with the local committee structure, this reporting
will commence once the project moves into full construction mode.
• Monthly – the local committees report into the CEO on progress of key deliverables and selected KPI
metrics, which is in turn summarised for review by the Board on a high-level basis;
• Quarterly – the local committees will meet with key stakeholders; the local committees will report to the
CEO on key relevant matters. The CEO will report to the Board any material matters arising.
• Annual – the local committees will hold annual meetings and report on the annual KPIs and metrices to the
CEO, who will report to the Board.
Part 4 – Current Sustainability Focus and Deliverables
Group Sustainability Framework
At a Corporate level, the Company has well-established systems and policies to ensure good corporate governance,
which are detailed in its annual QCA Statement and on the Company’s website. At a local operational level, the
Company has a comprehensive sustainability programme and structure in operation at Sonora. The Company’s focus
in 2021 has been to put in place a holistic “joined-up” framework to create a long term Sustainability Framework to
govern all Group’s policies and activities.
Operational Level
On an Environmental level, as part of securing of permits and licenses to operate, the Company has already produced
multiple environmental reports, policies and procedures which cover how the Company can operate. On a Social
level the Company commissioned Solum in 2017/18 to produce an extensive baseline review and reports of Social /
Community requirements and engagement. The Company also has a number of local initiatives (new access road,
educational assistance) in place to bring significant benefits to the local economy. On a Governance basis, as noted
earlier, the Company has established local committees to manage its key requirements going forward.
49
Since early 2020, the Company has commissioned Golder’s environmental review team on site to complete primary
stakeholder mapping, prioritisation and contact scheduling. Their current focus is on updating the existing
documentation around Environmental and Social Management Plans (“ESMP”) and developing an integrated
Environmental and Social Impact Assessment (“ESIA”) combining all existing documentation. Their key deliverables
are:
•
Environmental and Social Management System (“ESMS”), which incorporates:
•
(i) policy; (ii) identification of risks and impacts; (iii) management programs; (iv) organizational
capacity and competency; (v) emergency preparedness and response; (vi) stakeholder engagement;
and (vii) monitoring and review.
•
ESMS is the overarching system – below it are 2 main next levels:
•
•
•
ESMP;
ESIA;
Separate ones for mine and chemical plant and also co-gen facility.
Stakeholder engagement plan with local communities – including assessment on any potential resettlement;
•
• Grievance mechanisms for local communities and external stakeholders;
•
•
Best available technology study assessment – ongoing to improve efficiency;
Influx management plan to address impact during construction and operation.
Other Items that are already contracted and in progress include:
• Greenhouse Gas (GHG) monitoring assessment and reporting framework;
• Human rights framework;
•
•
•
Biodiversity - critical habitats screening, impacts and mitigation;
Ecosystems baseline assessment, impacts and mitigation;
Site security and safety strategy.
I look forward to updating Project stakeholders about the Company’s ESG progress.
Peter Secker, Chief Executive Officer
28 February 2022
50
Audit Committee Report
Dear Shareholders,
I am pleased to present this report on behalf of the Board and its former Audit Committee, covering the activities
for the twelve months ended 31 December 2021.
The principal roles of the Audit Committee are to support the Board in fulfilling its oversight responsibilities to ensure
integrity of financial reporting, the efficacy of the risk management framework and the internal control system as
well as consideration of compliance matters. Following the acquisition of the Company by Ganfeng and the resignation
of the four independent Non-Executive Directors on 17 December 2021, the Audit Committee ceased to exist, and its
delegated responsibilities were returned to the Board as a whole. At the time of publication, the Audit Committee
has not been reformed and no further appointments have been made to it accordingly.
Prior to being disbanded, the Audit Committee was responsible for assessing the quality of the audit performed by
and the independence of the auditor. During the period, three meetings of the Committee were held and the CFO
was invited to attend together with the external auditor. Significant issues considered during the year are listed
below:
Issue
Accounting for
Transactions – Completion
of Ganfeng Option to
purchase remaining 27.5%
of SLL.
Critical judgement and
estimates - Impairment
assessment of Sonora
Project assets
Summary of Issue
Accounting for the completion of the
Ganfeng Option under IFRS 10 -
Consolidated Financial Statements
and IAS 27 - separate financial
statements have been considered in
assessing the impact on the Group,
Bacanora Lithium Plc and SLL’s
financial statements.
Review of impairment indicators
under IAS 36 resulted in no
impairment required for the Sonora
Project assets.
Going concern -
Accounting basis of
preparation
Based on detailed cashflow forecasts,
whether it is prudent to account on a
going concern basis.
Controls Processes –
Review of key controls
Upgrade of existing systems, controls
and procedures to ensure compliance
with corporate governance
requirements.
Risk Management Process
Review continued
operation of the risk
management process
In 2020, the Company developed a
control framework for the
management and mitigation of risk.
This risk process is now embedded.
51
Key Action Point
Committee action: Review of
accounting treatment prepared by
management.
Committee action: Review of
estimates and accounting treatment
prepared by management.
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. Special
consideration was given to the
potential impact of COVID-19 on the
business.
Committee action: Review of
controls.
Monitoring of controls will continue
as the Sonora Project progresses into
development to ensure adequate
controls are in place.
Committee action: Review of risk
management processes.
This process will continue to be
monitored over the coming period.
Audit Tender Process
Review of auditor tenure
QCA guidelines recommend a tender
process at least every 10 years.
Committee action: Reviewed the
steps for initiating a tender process
and recommended tendering once
the Ganfeng offer is concluded (see
below).
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 twelve months ended 31 December 2021. 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 substantive testing on the Company’s Mexican subsidiaries.
Previously, BDO Canada LLP was the auditor for Bacanora Minerals Ltd, the then ultimate parent company of the
Group. BDO Canada LLP was first appointed for the audit of the accounts for Bacanora Minerals Ltd ending 30 June
2011. Bacanora Minerals Ltd was formerly dually listed on the TSX and AIM markets. In 2018, the Company re-
domiciled to the UK from Canada which resulted in Bacanora Lithium Plc becoming the ultimate parent company of
the Group. Following the decision to re-domicile to the UK from Canada, BDO LLP, a limited liability partnership
registered in England and Wales, was appointed to the role of Company auditor in May 2018. 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.
However, in accordance with QCA guidelines and the Audit Committee charter, the role of the external auditor should
be reviewed and put to tender every ten years and it has been recommended to the Board that the re-tender for the
external auditor should be dependent upon the Ganfeng transaction. The recommendation in no way implied a dis-
satisfaction with our current BDO, but was instead driven by compliance with our own internal controls.
Objectivity and Independence
The Audit Committee and the Board monitored the auditor’s objectivity and independence. The Audit Committee
and the Board was satisfied that BDO and the Group have appropriate policies and procedures in place to ensure that
these requirements are not compromised in the interim accounts review and the year-end audit.
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 17 to the Consolidated Financial
Statements.
Whistle blower process
One of the Audit Committee’s key delegated responsibilities is to oversee the whistle blower policy and process.
Bacanora is committed to conducting its business with honesty and integrity, and expect all staff to maintain high
standards in accordance with its Code of Conduct. However, all organisations face the risk of things going wrong from
time to time, or of unknowingly harbouring illegal or unethical conduct. A culture of openness and accountability is
essential in order to prevent such situations occurring and to address them when they do occur.
To that end the Audit committee and the Board approved an updated group policy. The aim of the policy is to
encourage persons to report suspected wrongdoing as soon as possible, in the knowledge that their concerns will be
taken seriously and investigated appropriately, and that confidentiality will be respected. The policy provides
guidance as to how to raise the aforementioned concerns. The policy also aims to reassure persons that they should
be able to raise genuine concerns without fear of reprisals, even if they turn out to be mistaken.
52
The new policy includes the use of an independent whistle blower hotline, Safecall37. The hotline is supported 24
hours a day in a variety of languages and media. Whistleblower reports can be made in Spanish and English, in written
or telephone form. The policy is published on the Company’s website.
Internal Auditor
The requirement for the appointment of an internal auditor has been assessed by the Audit Committee and the Board;
the level of spend and complexity of the operations being taken into account when considering this decision. The
Bacanora Board and by extension Audit Committee members receive monthly management information which includes
financial and operational updates, covering various business functions such as human resources, security and health
and safety. The Management Risk Committee regularly reports its activities to the Audit Committee and the Board.
In this way, the Company conducts certain internal audit activities even though there is no internal audit function.
To date, the Board 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
Consolidated Financial Statements. The going concern statement is detailed in full in note 2 to the Consolidated
Financial Statements.
Janet Blas, Chief Financial Officer
28 February 2022
37 https://www.safecall.co.uk
53
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 Director, Non-Executive Directors (NEDs) and senior executive management for the year ended 31
December 2021.
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 year, the Remuneration Committee
met twice primarily to review, monitor and score the targets for the first performance periods for the new Restricted
Share Unit (“RSU”) and Performance Share Unit (“PSU”) schemes.
Following the acquisition of the Company by Ganfeng and the resignation of the four Independent Non-Executive
Directors on 17 December 2021, the Remuneration Committee ceased to exist, and its delegated responsibilities were
returned to the Board as a whole. At the time of publication, the Remuneration Committee has not been reformed
and no further appointments have been made to it accordingly.
Part 2 – 2021 AGM Approval of New Share Incentive Schemes (“New Schemes”) and 2020 Remuneration Report
Whilst it is not a regulatory requirement for AIM to put their Remuneration Reports to shareholders for annual
approval, the Committee believed that it would be good corporate governance for Bacanora to do this at the time
given its size and stage of development. Accordingly, the terms of the New Schemes were put to shareholders for
their approval at the 2021 Annual General Meeting along with the Company’s remuneration report for 2020. These
New Schemes were developed in conjunction with Pearl Meyer and were based on current best practices and the
proxy companies ISS and Glass Lewis duly recommended them to shareholders for approval. The proxy voted results
for the 2021 AGM saw the 2020 Remuneration Report approved with 90.1% of votes in favour and the New Schemes
were approved with 95.7% of votes in favour.
Part 3 - Summary of basic remuneration structures in 2021
Remuneration for Executive Director and Senior Management
For details of Directors’ emoluments, please refer to note 22 to the Consolidated Financial Statements.
All Executive Director and Senior Management are paid a fixed annual salary and, subject to meeting appropriate
targets within their scorecard, are included in the historic and new share-based incentive plans noted below. Through
to the end of December 2019, the awards under the historic plans relate to a maximum number of options/RSUs for
both the former Executive Chairman and CEO. The new short term RSU and long-term PSU incentive schemes came
into effect from 1 January 2020 and were formally approved by shareholders at the June 2021 AGM.
Executive Director service contracts and salaries for the periods covered by this report:
Name
Role
Annual Salary as at 31 December 2021[1]
Annual Salary as at 31 December 2020
Notice period[1]
Mark Hohnen
Non-Executive Chairman
Nil
£240,000
3 months
Peter Secker
CEO
£300,000
£300,000
12 months
Awards under historic schemes
Options and RSUs – Related to FY December 2020[2]
Nil
Nil
54
Awards under new incentive schemes
RSUs – Related to first performance period from 1 January
2020 to 31 December 2021[2,3]
PSUs - Related to first performance period from 1 January
2020 to 31 December 2022[2,3]
54,183
Nil
Applicable Maximum % of Salary under new schemes
Short Term Scheme (new RSUs)
Long Term Scheme (PSUs)
60%
100%
150,850
Nil
60%
100%
[1] In December 2020 Mr. Hohnen extended his Executive Chairman contract until 30 June 2021, after which he became Non-
Executive Chairman on a fixed fee basis of £100,000 per annum. The contract had a 3 month notice period. Mr Hohnen resigned
along with the four Independent Non-executive Directors on 17 December 2021, when the Ganfeng Offer became unconditional.
[2] The new incentive schemes came into effect from 1 January 2020 and the initial assessment period for RSUs was due to run
for 2 years to 31 December 2021 (one year thereafter) and for PSUs to run for 3 years to 31 December 2022. Awards would
ordinarily only have been made at the end of the assessment period but were brought forward to 13 September 2021 due to the
nature of the Offer from Ganfeng. No further awards were made under the historic schemes with effect from the end of 2019.
The share-based payment charges in the accounts commence from the date of award.
[3] Due to the terms and timing of the Ganfeng Offer, the Initial Performance Period was shortened to 1 January 2020 to
13 September 2021.
For details of Executive Directors emoluments, please refer to note 22 for the dollarised total remuneration for the
Directors for the year ended 31 December 2021 compared with the year ended 31 December 2020. The salaries above
represent the contractual base salaries.
Remuneration of Non-Executive Directors
On 17 December 2021, four Independent Non-Executive Directors resigned as the takeover Offer from Ganfeng
became unconditional on that date. Prior to that, the Non-Executive Directors had all entered into appointment
letters with the table below showing the key terms.
Initial Term Notice
3 Years
1 Month
Annual Fees
Independent Non-Executive Directors
Jamie Strauss
Basic Fee of £40,000, £7,000 as Chair of Remuneration Committee,
£7,000 as Chair of Corporate Governance & Sustainability
Committee, £6,000 for Lead Independent Director
Basic Fee of £40,000, £7,000 as Chair of Audit Committee
Basic Fee of US$50,000
Basic Fee of £40,000
Eileen Carr
Andres Antonius
Graeme Purdy
Non-independent Non-Executive Directors
Junichi Tomono[1] Nil Fees
Xiaoshen Wang[1] Nil Fees
[1]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.
1 Month
1 Month
1 Month
3 Years
3 Years
3 Years
1 Month
1 Month
3 Years
3 Years
For details of Non-Executive Directors emoluments, please refer to note 22 for the dollarised total remuneration for
the Directors for the year ended 31 December 2021 compared with the year ended 31 December 2020. The salaries
above represented the contractual base salaries.
Part 4 - Historic Long Term Incentive Schemes
Historically, the variable pay component for Directors and Executive Management comprised the long-term Option
and Restricted Share Units (RSU) schemes. Whilst these schemes were replaced by the new incentive schemes with
effect from 1 January 2020, the schemes continued to run until the Ganfeng Takeover Offer activated the change of
control clauses within these schemes, which triggered an immediate vesting in full of all unvested Options or RSUs.
The basic terms of these schemes were as follows:
• Option scheme:
• Options vest one third on date of grant, one third after 12 months from grant date, and one third after 24
months from grant date;
55
• Options expire 90 days after recipient ceases to be a Director, officer, employee or consultant, unless the
Board specifically agrees in writing otherwise; and
• Options expire on the third anniversary of the date of grant, if unexercised.
• RSU Scheme
• RSUs vest on the third anniversary of the date of grant;
• 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
• RSUs expire 90 days after recipient ceases to be a Director, officer, employee or consultant, unless the
Board specifically agrees in writing otherwise.
The table below shows all existing options and RSUs granted to Directors that automatically vested on 17 December
2021 when Ganfeng’s Offer became unconditional:
Name
Mark Hohnen
Mark Hohnen
Peter Secker
Peter Secker
Date of
Grant
28 Oct 19
2 Oct 20
28 Oct 19
2 Oct 20
Vested
Options
Unvested
Options
Expiry
Date
- 27 Oct 22
59,833 1 Oct 23
- 27 Oct 22
71,829 1 Oct 23
Price
£0.3325
£0.2440
£0.3325
£0.2440
151,439
119.668
205,800
143,659
The table below shows all existing RSUs for Directors as at 17 December 2021:
Name
Mark Hohnen
Mark Hohnen
Peter Secker
Peter Secker
Date of
Grant
28 Oct 19
2 Oct 20
28 Oct 19
2 Oct 20
RSUs
Granted
Vesting
Date
204,970 27 Oct 22
97,811 1 Oct 23
278,546 27 Oct 22
117,420 1 Oct 23
The second tranche of RSUs originally issued in September 2018 reached their vesting date during the year, and in
accordance with the rules of the scheme vested at a price of 67 pence being the higher of the closing price on 10
September 2021 or the 5-day closing VWAP to 10 September 2021. At its discretion, the Board elected to pay the net
amount due, after the payment of withholding taxes, under these awards in cash. None of these RSUs had been issued
to Directors.
Part 5 – New Short Term RSU Incentive Scheme - Awards for first performance period
With effect from 1 January 2020, the Company adopted the ‘Short-term Restricted Unit Scheme’ (“RSU Scheme”).
The key features of this scheme were detailed in both the 2020 Annual Report and the 2021 Notice of AGM, at which
meeting the scheme was approved by shareholders.
All awards granted under the RSU Scheme were to be subject to annual performance criteria set by the Remuneration
Committee each financial year, relating to each eligible employee’s performance against personal, financial,
strategic and ‘Environmental, Social, and Corporate Governance’ (“ESG”) metrics. Each eligible person was set a
minimum performance threshold which must be satisfied to trigger any issuance of RSUs to them (“Threshold”). In
addition, a base target (“Target”) and maximum amount (“Maximum”) were also set.
The first performance period was to run with an effective date from 1 January 2020 until 31 December 2021 (“RSU
Initial Performance Period”). This initial two-year period was put in place to reflect cash preservation measures in
2020, as well reflecting the overall strategy of the Company as it transitions towards its construction phase. Due to
the terms and timing of the Ganfeng Offer, the RSU Initial Performance Period was shortened to 1 January 2020 to
13 September 2021.
The Company calculated any awards under the RSU Scheme based on a percentage of base salary as recommended
by the Remuneration Committee at the start of each performance period. Pay-outs were split 50% Cash and 50% in
RSUs at the end of the assessment period and the number of RSUs issued was based on the share price of the Company
at the date of award. All RSUs issued were due to automatically vest three years from the date of grant, being 13
56
September 2024 and the related shares (or cash alternative at the Company's discretion) would be issued on that
date. All RSUs had a standard clause of immediate vesting in the event of a change in control, accordingly when the
Ganfeng Offer became unconditional, then these RSUs vested on that date.
The awards granted to Directors were as follows:
Role
Name
Mark Hohnen Non-Executive Chairman
Peter Secker
[1] These RSUs automatically vested on 17 December 2021, the date when the Ganfeng Offer became unconditional.
No of RSUs
54,183
150,850
Cash
£ 36,357
£ 101,221
Vesting Date[1]
13 September 2024
13 September 2024
CEO
Part 6 – New Long Term PSU Incentive Scheme - Awards for first performance period
With effect from 1 January 2020, the Company adopted the ‘Long term Performance Stock Unit Scheme’ (“PSU
Scheme”). The key features of this scheme were detailed in both the 2020 Annual Report and the 2021 Notice of
AGM, at which meeting the scheme was approved by shareholders.
All awards granted under the PSU Scheme were to be subject to three-year performance criteria set by the
Remuneration Committee each financial year, relating to objective corporate metrics as follows:
‘Relative Total Shareholder Return (“RTSR”)’ against the peer group (see below); and
•
• Any additional objective goals relating to corporate strategy for the three-year measurement period, if deemed
appropriate at the beginning of the period.
Each eligible person was set a (i) minimum performance threshold which must be satisfied in order to trigger any
issuance of PSUs to them (“Threshold”). In addition, a base target (“Target”) and maximum amount (“Maximum”)
will also be set. Performance criteria for RTSR shall be calculated as Maximum being in the top quartile relative to
the peer group, Target being in the top half and Threshold being in the third quartile.
The first performance period was to be with an effective date from 1 January 2020 to 31 December 2022 (the “PSU
Initial Performance Period”). The Company was to calculate any awards under the PSU Scheme based on a percentage
of base salary as recommended by the Remuneration Committee at the start of each performance period and the
share price at the start of the period. For the PSU Initial Performance Period, the Committee recommended the
following:
• performance below Threshold – no PSUs issued
• performance equal to Threshold – PSUs issued to 25 percent of salary
• performance equal to Target – RSUs issued to 50 percent of salary
• performance equal to Maximum – RSUs issued to 100 percent of salary
The recommended Peer Group was Pilbara Minerals (ASX:PLS), Lithium Americas (TSX:LAC), Orocobre (ASX:ORE),
Galaxy Resources (ASX:GXY), Piedmont Lithium (Nasdaq:PLL), Ioneer (ASX:INR), AVZ Minerals (ASX:AVZ), EMH
(ASX:EMH), Neo Lithium (TSX:NLC, Critical Elements (TSX:CRE), Lake Resources (ASX:LKE) and Millennial Lithium
(TSX:ML).
Due to the terms and timing of the Ganfeng Offer, the Initial Performance Period was shortened to 1 January 2020 to
13 September 2021. The Committee reviewed the Company’s RTSR performance against this peer group and
concluded it fell into the bottom quartile and accordingly no PSUs could be recommended to be issued to Executive
Management or Directors.
For and on behalf of the Remuneration Committee
Wang Xiaoshen, Chairman of Bacanora Lithium Plc
28 February 2022
57
Independent Auditor’s Report to the members of Bacanora Lithium Plc
Opinion on the financial statements
In our opinion:
•
•
•
the Financial Statements give a true and fair view of the state of the Group’s and of the Parent Company’s
affairs as at 31 December 2021 and of the Group’s profit for the year then ended;
the Group Financial Statements have been properly prepared in accordance with UK adopted International
Accounting Standards;
the Parent Company Financial Statements have been properly prepared in accordance with UK adopted
International Accounting Standards 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.
We have audited the Financial Statements of Bacanora Lithium Plc (the ‘Parent Company’) and its subsidiaries (the
‘Group’) for the year ended 31 December 2021 which comprise the Consolidated Statement of Financial Position, the
Consolidated Statement of Comprehensive Income, 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 is applicable law and UK adopted international accounting standards and, as regards the Parent
Company Financial Statements, as applied in accordance with the provisions 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 believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Independence
We remain 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.
Conclusions relating to going concern
In auditing the Financial Statements , we have concluded that the Directors’ use of the going concern basis of
accounting in the preparation of the Financial Statements is appropriate. Our evaluation of the Directors’ assessment
of the Group and the Parent Company’s ability to continue to adopt the going concern basis of accounting included:
Reviewing cash flow forecasts for the period to June 2023 and challenging the Directors on the completeness and
accuracy of the forecasts. This included a comparison of forecast overhead expenditure with historic expenditure,
agreeing available cash balances, reviewing Group commitments to check these are accurately reflected in the cash
flow forecasts.
Based on the work we have performed, we have not identified any material uncertainties relating to events or
conditions that, individually or collectively, may cast significant doubt on the Group and the Parent Company’s ability
to continue as a going concern for a period of at least twelve months from when the Financial Statements are
authorised for issue.
Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the
relevant sections of this report.
58
Overview
Coverage
99% (2020: 99%) of Group profit before tax
99% (2020: 99%) of Group total assets
Key audit matters
2021
2020
Carrying value of investment
Accounting for the exercise of the
Ganfeng option
Carrying value of Evaluated mineral
property
X
X
X
X
Carrying value of Evaluated mineral property is no longer
considered to be a key audit matter because the Group
lost control of Sonora Lithium Project and now has joint
control, so its investment in Sonora Lithium Ltd is
accounted for as a joint venture using the equity method.
Materiality
Group Financial Statements as a whole
US$1,810,000 (2020: US$820,000) based on 1% (2020: 1%) of total assets
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of the Group and its environment, including the Group’s
system of internal control, and assessing the risks of material misstatement in the Financial Statements. We also
addressed the risk of management override of internal controls, including assessing whether there was evidence of
bias by the Directors that may have represented a risk of material misstatement.
The Group audit covered the UK Parent Company, Bacanora Finco Ltd, Bacanora Treasury Ltd and a number of
subsidiaries of Sonora Lithium Limited (the joint venture) 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 C.V. Specific audit procedures were carried out on Sonora Lithium Ltd, Bacanora Chemco S.A.
de C.V. and Bacanora Finco Limited. Each of the audits were conducted by the group audit team. 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 the group audit team.
Key audit matters
Key audit matters are those matters that, in our professional judgement, 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) that 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.
59
Key audit matter
Carrying value of
investment
Accounting for the
exercise of the
Ganfeng option and
assessing the impact
of this option on the
Group’s control of
Sonora Lithium Ltd
As at 31 December 2021, the
Group held a joint venture
investment in Sonora Lithium
Ltd. The Group’s investment
totalled US$50.1 million. The
details of this investment are
disclosed in note 7. There are a
number of judgements and
estimates used by management
in assessing the investment for
indicators of impairment under
the accounting standards.
There are also judgements and
estimates included in the
feasibility study which
management have relied upon.
These are set out in note 4a,
and the subjectivity of the
judgements and estimates
together with the significant
carrying value of the
investment made this a key
area of focus for our audit.
Ganfeng held a 22.5% non
controlling stake in Sonora
Lithium Ltd. On 13 November
2020 Ganfeng gave notice to
exercise its option to acquire
an additional 27.5% interest in
Sonora Lithium Ltd for
approximately £21 million
consideration. As described in
note 7, on 26 February 2021 the
transaction was completed and
Ganfeng’s stake increased to
50%. Management has
considered whether the Group
still controls Sonora Lithium Ltd
or retains joint control. The
assessment of control in
accordance with the relevant
accounting standards involves
significant judgement. The
judgements applied by
How the scope of our audit addressed the key audit
matter
We assessed management’s review of indicators of
impairment and our procedures included the following:
• We reviewed and challenged, where appropriate,
management’s impairment indicators assessment
against the criteria in the Group’s accounting
policy and applicable accounting standards in
order to determine whether management’s
assessment was complete and in accordance with
the requirements of the accounting standard.
• We obtained and checked the feasibility study
prepared by management’s external experts and
assessed their competence and independence.
• We corroborated management’s assumptions on
future lithium prices against market data to
confirm whether management’s projection of
future lithium prices was reasonable.
• We reviewed the mineral licenses held by the
Group and made enquiries with management to
determine whether there were any reasons the
licenses would not remain valid.
• We reviewed board minutes and RNS
announcements to check whether there were
any indicators of impairment.
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 investment in Sonora Lithium Ltd.
We have reviewed management’s assessment of whether
the Group still controls Sonora Lithium Ltd or exercises a
joint control from 26 February 2021. Our audit
procedures included the following:
• We have reviewed the Joint Venture agreement
dated February 2021 and confirmed the conditions
were met for the completion of the transaction.
• We have reviewed management’s control assessment
in accordance with the accounting standards. We
have involved our financial reporting technical
experts in review of management’s assessment,
supporting documents, and basis for conclusion.
• We reviewed management’s valuation methods used
to value the fair value the investment on the
transaction date and consulted with our valuations
specialist on the appropriateness of this method.
• We also considered whether alternative valuation
methods were more appropriate, including
60
management are set out in note
4a and 7 to the Financial
Statements, with management
concluding from 26 February
2021 the Group lost control and
retained joint control of the
Sonora Lithium project and its
investment in Sonora Lithium
Ltd is accounted for as a joint
venture using the equity
method.
The joint venture investment in
Sonora Lithium Ltd is required
to be measured initially at fair
value. As disclosed in note 4,
the initial fair value involves
estimates and judgements.
Given the subjectivity of these
judgements and estimates, this
was assessed to be a key area
of focus for our audit work.
consideration of whether the value implied using a
discounted cash flow method was a better estimate.
We concurred with management that the use of
uncertain and long-term forecasts prior to
development and production included more
estimates than basing the valuation on the
transaction price. We concurred that the transaction
price is an observable valuation agreed to be fair by
two independent parties.
• We reviewed the calculation for the gain on disposal
of the subsidiary, including the net asset position as
at date of disposal.
• We confirmed there have been no changes to the
shareholding/joint venture.
• We also reviewed the disclosures in the Financial
Statements relating to this transaction.
Key observations:
Based on our audit procedures, we found the judgements
applied by management in the assessment of accounting
treatment as joint control over Sonora Lithium Ltd and
the estimation of the initial fair value of the investment
to be appropriate.
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 .
In order to reduce to an appropriately low level the probability that any misstatements exceed materiality, we use
a lower materiality level, performance materiality, to determine the extent of testing needed. 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.
Based on our professional judgement, we determined materiality for the Financial Statements as a whole and
performance materiality as follows:
61
Group Financial Statements
Parent Company Financial Statements
2021
US$
2020
US$
2021
US$
2020
US$
Materiality
1,810,000
820,000
1,450,000
660,000
Basis for
determining
materiality
Rationale for the
benchmark
applied
Performance
materiality
Basis for
determining
performance
materiality
1% of total assets
1% of total assets
80% of Group
materiality
80% of Group
materiality
The Parent Company materiality has been set on a
% of Group materiality.
is
in
The materiality has been based on total
the
the Group
assets as
exploration and development phase of
its operations and is not revenue
generating or profit making. The audit
team considers assets to be one of the
principal considerations for users of the
Financial Statements.
1,357,500
615,000
1,080,000
495,000
75% of Group
materiality
75% of Group
materiality
75% of Parent Company
materiality
75% of Parent Company
materiality
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 misstatements.
Component materiality
We set materiality for each component of the Group based on a percentage of between 15% and 80% of Group
materiality dependent on the size and our assessment of the risk of material misstatement of that component.
Component materiality ranged from US$270,000 to US$1,450,000. In the audit of each component, we further applied
performance materiality levels of 75% of the component materiality to our testing to ensure that the risk of errors
exceeding component materiality was appropriately mitigated.
Reporting threshold
We agreed with the Audit Committee that we would report to them all individual audit differences in excess of
US$36,000 (2020:US$16,000). We also agreed to report differences below this threshold that, in our view, warranted
reporting on qualitative grounds.
Other information
The Directors are responsible for the other information. The other information comprises the information included
in the Annual Report and Financial Statements, 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. 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 course of 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 this gives rise to a material misstatement in the Financial Statements themselves. 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.
62
Other Companies Act 2006 reporting
Based on the responsibilities described below and our work performed during the course of the audit, we are required
by the Companies Act 2006 and ISAs (UK) to report on certain opinions and matters as described below.
Strategic report and
Directors’ report
Matters on which we
are required to report
by exception
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
year 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.
In the light of the knowledge and understanding of the Group and 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.
We have nothing to report in respect of the following matters in relation to which the
Companies Act 2006 requires us to report to you if, in our opinion:
•
•
adequate accounting records have not been kept by the Parent Company, or returns
adequate for our audit have not been received from branches not visited by us; or
the Parent Company Financial Statements are not in agreement with the accounting
records and returns; or
•
certain disclosures of Directors’ remuneration specified by law are not made; or
we have not received all the information and explanations we require for our audit.
Responsibilities of Directors
As explained more fully 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 control
as the Directors determine is necessary to enable the preparation of Financial Statements that are free from material
misstatement, whether due to fraud or error.
In preparing the Financial Statements, the Directors are responsible for assessing the Group’s and the Parent
Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and
using the going concern basis of accounting unless the Directors either intend to liquidate the Group or the Parent
Company or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the Financial Statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with
ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these Financial Statements.
Extent to which the audit was capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in
line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including
fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below:
63
• Holding discussions with management and the Board of Directors to understand the laws and regulations
relevant to the Group and Parent Company. These included elements of financial reporting framework, tax
legislation and environmental regulations
• Holding discussions with management and the audit committee to consider any known or suspected instances
of non-compliance with laws and regulations or fraud
• Testing appropriateness of journal entries made through the year by applying specific risk criteria to detect
possible irregularities or fraud
• Assessing the judgements made by management when making key accounting estimates and judgements, and
challenging management on the appropriateness of these judgements (see also Key audit matters above)
• Reviewing minutes from board meetings of those charges with governance to identify any instances of
noncompliance with laws and regulations
• We communicated relevant identified laws and regulations and potential fraud risks to all engagement team
members and remained alert to any indications of fraud or non-compliance with laws and regulations
throughout the audit.
Our audit procedures were designed to respond to risks of material misstatement in the Financial Statements,
recognising that the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting
one resulting from error, as fraud may involve deliberate concealment by, for example, forgery, misrepresentations
or through collusion. There are inherent limitations in the audit procedures performed and the further removed non-
compliance with laws and regulations is from the events and transactions reflected in the Financial Statements, the
less likely we are to become aware of it.
A further description of our responsibilities is available on the Financial Reporting Council’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Use of our report
This report is made solely 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
fullest extent permitted by law, we do not accept or assume responsibility 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.
Jack Draycott (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London, UK
28 February 2022
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
64
Consolidated Statement of Financial Position
As at 31 December 2021
In US$
Assets
Current assets
Cash and cash equivalents
Receivables from related parties
Other receivables and prepayments
Total current assets
Non-current assets
Investment in joint venture
Receivables from related parties
Investment in associate
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
Borrowings
Financial warrants liability
Total current liabilities
Non-current liabilities
Borrowings
Financial warrants 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
Note 31 December 2021
31 December 2020
21
5
7
21
6
8
9
10
11
12
11
12
15
15
15
15
122,105,953
2,726,934
820,704
125,653,591
50,144,596
4,626,712
–
–
–
54,771,308
180,424,899
3,889,497
40,505,348
1,750,000
46,144,845
–
–
–
46,144,845
53,014,057
813,170
53,557,251
–
–
26,895,576
39,238,496
–
2,044,988
41,283,484
–
–
7,865,575
32,217,934
570,732
40,654,241
81,937,725
1,329,214
–
–
1,329,214
29,197,920
1,549,576
30,747,496
32,076,710
30,348,183
16,801,168
53,557,251
977,738
3,872,567
(68,021,565)
Equity attributable to equity shareholders of Bacanora Lithium
Plc
Non-controlling interest
Total shareholders’ equity
Total liabilities and shareholders’ equity
134,280,054
37,535,342
–
134,280,054
180,424,899
12,325,673
49,861,015
81,937,725
The accompanying notes on pages 69 - 101 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 2022 and were signed on its behalf by:
Peter Secker, CEO
28 February 2022
65
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2021
In US$
Expenses
General and administrative
Share-based payment expense
Depreciation
Foreign exchange loss
Operating loss
Finance and other income
Finance costs
Share of loss in investment in joint venture
Gain on change in control of subsidiaries
Distribution income on release of payable
Profit/(loss) before tax from continuing operations
Tax charge
Profit/(loss) after tax from continuing operations
Gain/(loss) on discontinued operation - Zinnwald Lithium
Loss on discontinued operation - Deutsche Lithium
Profit/(loss) after tax
Other comprehensive income/(loss):
Foreign currency translation adjustment
Recycled translation difference to profit and loss - Zinnwald Lithium
Recycled translation difference to profit and loss - Change of control of
subsidiaries
Total comprehensive income/(loss)
Profit/(loss) after tax attributable to shareholders of Bacanora Lithium
Plc
Note
Year ended
Year ended
31 December 2021
31 December 2020
17
15
8
18
18
7
7
21
16
19
19
6
19
7
(8,032,383)
(4,425,964)
(864,228)
(30,943)
(205,988)
(590,665)
(189,130)
(66,257)
(9,133,542)
(5,272,016)
845,963
(15,307,525)
(1,011,167)
31,920,796
4,169,666
11,484,191
355,913
(6,829,405)
–
–
–
(11,745,508)
(4,103)
(5,114)
11,480,088
(11,750,622)
8,661,803
–
(102,791)
(4,068,697)
20,141,891
(15,922,110)
(432,084)
127,875
(3,568,358)
304,209
–
–
16,269,324
(15,617,901)
20,205,660
(15,602,068)
Loss after tax attributable to non-controlling interests
(63,769)
(320,042)
Profit/(loss) after tax
20,141,891
(15,922,110)
Total comprehensive income/(loss) attributable to shareholders of
Bacanora Lithium Plc
16,333,093
(15,297,859)
Total comprehensive loss attributable to non-controlling interests
(63,769)
(320,042)
Total comprehensive income/(loss)
16,269,324
(15,617,901)
Net earnings/(loss) per share (Continuing operations) (basic &
diluted)
Net earnings/(loss) per share (Discontinued operations) (basic &
diluted)
15
15
0.03
0.02
(0.05)
(0.02)
The accompanying notes on pages 69 - 101 are an integral part of these Consolidated Financial Statements.
66
Consolidated Statement of Changes in Equity
For the year ended 31 December 2021
Share capital
In US$
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
31 December 2019
222,981,837
30,240,469
16,646,060
53,557,251
3,807,562
3,568,358
(55,464,190)
52,355,510
12,645,715
65,001,225
Comprehensive income for the year:
Loss for the year
Other comprehensive income
Total comprehensive loss
Contributions by and distributions to owners:
Issue of share capital - RSUs
Lapsed option charge
Share-based payment expense
31 December 2020
Comprehensive income for the year:
Profit/(loss) for the year
Other comprehensive loss including recycled
translation difference
Total comprehensive income/(loss)
Contributions by and distributions to owners:
Issue of share capital - Capital raise
Issue of share capital - Ganfeng pre-emption
Issue of share capital - Options
Lapsed option charge
Vesting of RSUs
Share-based payment expense
Change in control of subsidiaries
Share premium reduction
Distribution of investment in Zinnwald
15
15
15
15
15
15
15
15
15
7
15
6
–
–
–
–
–
–
–
–
–
833,846
107,714
155,108
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(15,602,068)
(15,602,068)
(320,042)
(15,922,110)
304,209
–
304,209
–
304,209
304,209
(15,602,068)
(15,297,859)
(320,042)
(15,617,901)
(708,097)
(2,712,392)
590,665
–
–
–
332,301
(112,974)
2,712,392
–
–
590,665
–
–
–
(112,974)
–
590,665
223,815,683
30,348,183
16,801,168
53,557,251
977,738
3,872,567
(68,021,565)
37,535,342
12,325,673
49,861,015
–
–
–
–
–
–
–
–
–
106,995,885
14,730,123
48,129,302
53,333,333
7,537,067
26,023,740
2,991,601
398,684
813,170
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(90,954,210)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(495,812)
(125,353)
(981,448)
864,228
(239,353)
–
–
–
–
20,205,660
20,205,660
(63,769)
20,141,891
(3,872,567)
–
(3,872,567)
–
(3,872,567)
(3,872,567)
20,205,660
16,333,093
(63,769)
16,269,324
–
–
–
–
–
–
–
–
–
–
–
–
62,859,425
33,560,807
495,812
1,211,854
125,353
–
(880,078)
(1,861,526)
–
864,228
239,353
90,954,210
–
–
(16,223,169)
(16,223,169)
26,895,576
134,280,054
–
–
–
–
–
–
62,859,425
33,560,807
1,211,854
–
(1,861,526)
864,228
(12,261,904)
(12,261,904)
–
–
–
–
(16,223,169)
134,280,054
31 December 2021
387,136,502
53,014,057
813,170
53,557,251
The accompanying notes on pages 69 - 101 are an integral part of these Consolidated Financial Statements.
67
Consolidated Statement of Cash Flows
For the year ended 31 December 2021
In US$
Cash flows from operating activities
Total profit/(loss) before tax for the year
Adjustments for:
Share-based payment expense
Depreciation of property, plant and equipment
Foreign exchange
Finance and other income
Finance costs
Share of loss on investment in joint venture
Gain on change in control of subsidiaries
Distribution income on release of payable
Note
Year ended
31 December 2021
Year ended
31 December 2020
20,145,994
(15,916,996)
15
8
18
18
7
7
21
675,549
30,943
156,316
(845,963)
15,307,525
1,011,167
(31,920,796)
(4,169,666)
590,665
189,130
8,109
(355,913)
6,829,405
–
–
–
102,791
4,068,697
(Gain)/loss on discontinued operation - Zinnwald Lithium
Loss on discontinued operation - Deutsche Lithium
19
19
(8,661,803)
–
Changes in working capital items:
Other receivables
Accounts payable and accrued liabilities
(708,772)
(23,285)
(241,538)
(122,130)
Net cash used in operating activities
(9,002,791)
(4,847,780)
Cash flows from investing activities:
Interest received
Purchase of property, plant and equipment
Purchase of exploration and evaluation assets
Payments to related parties
Cash reduction on the change of control of subsidiaries
Purchase of investment in associate
Payments to Deutsche Lithium
Net cash used in investing activities
Cash flows from financing activities
Proceeds from share capital, net of share costs
Repayment of borrowings
Interest paid
Net cash flows from financing activities
Change in cash and cash equivalents during the year
Exchange rate effects
Cash and cash equivalents, beginning of the year
Cash and cash equivalents, end of the year
8
9
21
7
15
11
11
202,653
(179,117)
(18,751)
(160,704)
(421,708)
–
–
(577,627)
96,420,232
(926,780)
(2,818,966)
92,674,486
83,094,068
(226,611)
39,238,496
122,105,953
355,913
(1,994,569)
(36,144)
–
–
(1,627,642)
(679,458)
(3,981,900)
(112,974)
–
(710,585)
(823,559)
(9,653,239)
(11,816)
48,903,551
39,238,496
The accompanying notes on pages 69 - 101 are an integral part of these Consolidated Financial Statements.
68
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 was previously listed on the AIM market of the London Stock Exchange,
with its common shares trading under the symbol, "BCN". On 26 January 2022, the Company delisted from the AIM
market of the London Stock Exchange. The registered address of the Company is 4 More London Riverside, London,
SE1 2AU.
The Group is a mining group primarily engaged in the identification, acquisition, exploration and development of
mineral properties located in Mexico, through its 50% holding in the Sonora Project.
2 Basis of preparation
Statement of compliance
These Consolidated Financial Statements have been prepared in accordance with UK adopted International
Accounting Standards and applied in accordance with the provisions of the Companies Act 2006.
On 31 December 2020, IFRS as adopted by the European Union at that date was brought into UK law and became UK-
adopted international accounting standards, with future changes being subject to endorsement by the UK
Endorsement Board.
The Consolidated Financial Statements were authorised for issue by the Board of Directors on 28 February 2022.
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.
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
a significant cash balance of US$122.1 million as at 31 December 2021 and has not entered into funding commitments
to its investments in associate or joint venture. On 7 January 2022, the Group repaid its RK debt facility and associated
warrants totalling US$42.3 million. The Company retained adequate resources to continue in operational existence
for the foreseeable future. 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 2021:
69
Name of subsidiary
Country of
incorporation
Shareholding on
31 December 2021
Shareholding on 31
December 2020
Nature of business
Bacanora Finco Ltd
Bacanora Treasury Ltd
Battery Finance (Jersey) Ltd1
Bacanora Battery Metals Ltd2
Sonora Lithium Group Companies3
Sonora Lithium Ltd
Bacanora Chemco S.A. de C.V.
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.
UK
UK
Jersey
UK
UK
Mexico
Canada
Mexico
Mexico
BVI
Mexico
Operadora de Litio Bacanora S.A. de C.V.
Mexico
Minerales Industriales Tubutama, S.A. de
C.V.
Mexico
100%
100%
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
100%
100%
100%
100%
77.5%
77.5%
77.5%
54.25%
54.25%
77.5%
77.5%
77.5%
46.5%
Financing company
Financing company
Dissolved
Dissolved
Holding company
Lithium processing
Holding company
Lithium
Mining/exploration
Mineral exploration
Holding company
Lithium
mining/exploration
Mexican service
organisation
Dormant
1Battery Finance (Jersey) Ltd was dissolved on 4 May 2021.
2Bacanora Battery Metals Ltd was dissolved on 4 May 2021.
3The Company has joint control over SLL and its subsidiaries (the “Sonora Lithium Group”) from 26 February 2021, and therefore performed
deconsolidation procedures during the year.
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. A change in ownership interest of a subsidiary, without a loss of
control, is accounted for as an equity transaction.
On 26 February 2021, Ganfeng International Trading (Shanghai) Ltd, a 100% subsidiary of Ganfeng Lithium Co., Ltd
(collectively “Ganfeng”) completed its option to increase its stake in Sonora Lithium Ltd ("SLL") from 22.5% to 50%.
SLL is the operational holding company for the Sonora Lithium Project. Consequently, Ganfeng subscribed for
73,955,680 new ordinary shares in SLL at 29.59 pence at a total value of £21.9 million (US$30.4 million). On
completion of the transaction, a revised 50:50 JVA came into force, whereby each party is responsible for their
portion of Project capex. After performing a detailed control assessment including a review of the provisions of the
revised JVA, management have assessed that the Company now has joint control over the Sonora Lithium Group, and
therefore the results of the Sonora Lithium Group have been consolidated to 26 February 2021. Subsequently, the
Group’s investment in the Sonora Lithium Group has been accounted for using the equity method. For further detail
see note 7.
For the duration of the RK debt facility, the legal title to the shareholdings in each of Minera Sonora Borax (“MSB”),
Bacanora Chemco, Operador Lithium Bacanora (“OLB”), Mexilit, Minera Megalit (“Megalit”) was transferred to
CiBanco SA as part of the debt security. Economic and voting rights for these shares all remain with the original
relevant Group companies. The Group extinguished the RK debt facility in January 2022. See Note 11 for further
information.
70
Standards, amendments and interpretations adopted
During the year, the following standards and amendments have been implemented.
Standard
IFRS 7, IFRS 9,
IAS 39
The adopted amendments have not resulted in any changes to the Consolidated Financial Statements.
Detail
Amendments regarding pre-replacement issues in the context of the IBOR
reform
Effective date
1 January 2021
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 1
IFRS 3
IFRS 9
IAS 1
IAS 1
IAS 8
IAS 12
IAS 16
IAS 37
Detail
Amendments resulting from Annual Improvements to IFRS Standards 2018–
2020 (subsidiary as a first-time adopter)
Amendments updating a reference to the Conceptual Framework
Amendments resulting from Annual Improvements to IFRS Standards 2018–
2020 (fees in the ‘10 percent’ test for derecognition of financial liabilities)
Amendment – regarding the classification of liabilities
Amendment – regarding the disclosure of accounting policies
Amendment – regarding the definition of accounting estimate
Amendment – regarding deferred tax on leases and decommissioning
obligations
Effective date
1 January 2022
1 January 2022
1 January 2022
1 January 2023
1 January 2023
1 January 2023
1 January 2023
Amendments prohibiting a company from deducting from the cost of
property, plant and equipment amounts received from selling items
produced while the company is preparing the asset for its intended use
1 January 2022
Amendments regarding the costs to include when assessing whether a
contract is onerous
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.
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 the 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
71
equity. On disposal of a foreign operation all exchange differences recognised through other comprehensive income
are recycled to profit and loss.
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 other 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.
Investment in associate – Zinnwald Lithium Plc
Where the Group has the power to participate in (but not control) the financial and operating policy decisions of
another entity, it is classified as an associate. Associates are initially recognised in the Consolidated Statement of
Financial Position at cost. Any premium paid for an associate above the fair value of the Group's share of the
identifiable assets, liabilities and contingent liabilities acquired is capitalised and included in the carrying amount of
the associate. Where there is objective evidence that the investment in an associate has been impaired the carrying
amount of the investment is tested for impairment in the same way as other non-financial assets.
Subsequently associates are accounted for using the equity method, where the Group's share of post-acquisition
profits and losses and other comprehensive income is recognised in the Consolidated Statement of Other
Comprehensive Income (except for losses in excess of the Group's investment in the associate unless there is an
obligation to make good those losses).
Profits and losses arising on transactions between the Group and its associates are recognised only to the extent of
unrelated investors' interests in the associate. The investor's share in the associate's profits and losses resulting from
these transactions is eliminated against the carrying value of the associate.
When an associate is disposed of, the Group discontinues the use of the equity method from the date when its
investment ceases to be an associate. Any retained interest in the associate is recognised as a financial asset at fair
value. Any difference between the retained interest at fair value plus any consideration received and the carrying
amount of the investment on the date of disposal, is recognised in the Statement of Comprehensive Income.
When an investment is distributed to its owners, the liability to pay shall be recognised when the distribution is
appropriately authorised and is no longer at the discretion of the Group and measured at its fair value. When the
Group settles the distribution payable, it recognises the difference, if any, between the carrying amount of the
investment distributed and the carrying amount of the dividend payable in profit or loss.
Investment in joint venture – Sonora Lithium Ltd
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
72
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.
When joint ventures are disposed of, the Group discontinues the use of the equity method from the date when its
investment ceases to be a joint venture. Any retained interest in the joint venture is recognised as a financial assets
at fair value. Any difference between the retained interest at fair value plus any consideration received and the
carrying amount of the investment on the date of disposal, is recognised in the statement of comprehensive income.
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 sum of 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:
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.
Exploration and evaluation assets
Costs incurred prior to acquiring the right to explore an area of interest are expensed as incurred.
73
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 extracting
a mineral resource, and general and 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.
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”.
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
year ended 31 December 2021.
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.
74
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.
1.
Cash and cash equivalents 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.
2.
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.
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, and the Group’s primary and secondary Eurobonds. The Group accounts for
the financial warrants at fair value through profit or loss.
1.
Warrant liabilities
The warrants granted to RK 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.
2.
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.
When the Group revises its estimates of cashflows on the primary and secondary Eurobonds, it adjusts the amortised
cost of the Eurobond to reflect the actual and revised estimated contractual cash flows. The Group recalculates the
amortised cost of the Eurobond as the present value of the estimated future contractual cash flows that are
discounted at the financial instrument’s original effective interest rate or, when applicable, the revised effective
interest rate for market rate changes. The adjustment is recognised in Consolidated Statement of Comprehensive
Income as finance income or cost.
75
When the Group extinguishes its borrowings, the financial liability is removed from its Statement of Financial Position.
The difference between the carrying amount of the financial liability extinguished and the consideration paid, shall
be recognised in profit or loss. All unamortised transaction costs and discounts are accelerated through the profit
and loss.
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.
76
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.
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 earnings/loss per share is calculated by dividing the earnings/loss attributable to the common shareholders of
the Group by the weighted average number of common shares outstanding during the reporting period. Diluted
earnings/loss per share is calculated by adjusting the earnings/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.
77
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 those options
is transferred to retained earnings. The dilutive effect of outstanding options is reflected as additional dilution in the
computation of diluted earnings/loss 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.
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.
Investment in joint venture
On 26 February 2021, the Ganfeng Option Exercise completed with Ganfeng owning 50% of the enlarged issued share
capital of SLL and a new 50:50 joint venture agreement came into effect. The Company assessed that it had lost
control of SLL and that its investment in SLL should be accounted for as a joint venture using the equity method.
On the change of control from subsidiaries to joint venture, management have applied judgement in determining the
fair value of its retained interest in SLL. The fair value of the retained interest has been determined by reference to
the Company market price at which the shares in SLL were issued to Ganfeng, therefore utilising level 2 hierarchy
inputs.
The investment is assessed at each reporting period date for impairment in accordance with IAS 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.
Distribution of investment in Zinnwald Lithium Plc
When an investment is distributed to its owners, the liability to pay shall be recognised when the distribution is
appropriately authorised and is no longer at the discretion of the Group and measured at its fair value. When the
Group settles the distribution payable, it recognises the difference, if any, between the carrying amount of the
investment distributed and the carrying amount of the dividend payable in profit or loss.
On 17 December 2021, the Ganfeng Offer became unconditional and therefore the distribution of the Group’s
investment in Zinnwald Lithium Plc became appropriately authorised and no longer at the discretion of the Group.
The distribution payable was recognised at its fair value being the market price of the shares distributed.
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
78
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.
The Group’s Parent Company, subsidiaries and the Sonora Lithium Ltd joint venture 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$.
Zinnwald Lithium Plc has a functional currency of EUR. The results and financial position of Zinnwald Lithium Plc are
translated into the presentational currency, US$, 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 the foreign currency translation reserve. On disposal of the foreign
operation, all exchange differences recognised directly, through other comprehensive income have been recycled to
profit and loss.
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. As a consequence of all “in the money” unvested options, vesting in full upon the Ganfeng Offer becoming
unconditional on 17 December 2021, the remaining share-based payment expense of these options has been
accelerated through the Consolidated Statement of Comprehensive Income in the year.
See note 15 for further details regarding these inputs.
5 Other receivables and prepayments
Other receivables and prepayments contain short term receivables from VAT and other indirect taxes, prepaid
expenses and deposits paid. All receivables are due within one year.
In US$
Other receivables
Prepayments and deposits
Total
31 December 2021
31 December 2020
684,413
136,291
820,704
1,138,579
906,409
2,044,988
6
Investment in associate
The following entity has been included in the Consolidated Financial Statements as an associate using the equity
method:
Name
Country of
incorporation
Principal place of
business
Shareholding
Shareholding
31 December 2021 31 December 2020
Zinnwald Lithium Plc
UK
UK
0%
44.3%
Prior period - Initial recognition
On 29 October 2020, the Group acquired its interest in Zinnwald Lithium Plc in exchange for its 50% investment in
Deutsche Lithium GmbH and a cash consideration, a total consideration valued at US$7.7 million.
79
The investment in associate has been equity accounted for under IAS 28 based on the significant influence the Group
has over Zinnwald Lithium Plc. This influence is derived through its shareholding, its right to a seat on the company’s
board of directors and its rights to a net royalty. No value has been attributed to the net royalty rights due to it not
meeting the recognition principles of IFRS 9.
In US$
Investment in Deutsche Lithium
Cash
Total
Consideration
6,036,515
1,627,642
7,664,157
The following table summarises the purchase price allocation for the transaction:
In US$
Net current assets
Non-current assets
Total
Current period
Purchase price
2,725,594
4,938,563
7,664,157
In June 2021, Zinnwald Lithium Plc acquired the remaining 50% of Deutsche Lithium GmbH that, prior to the
transaction, it did not already own, for a total consideration of €8.8 million consisting of a cash payment of €1.5
million and the issue of approximately 50 million new shares. This resulted in Zinnwald Lithium Plc owning 100% of
Deutsche Lithium GmbH and obtaining control of Deutsche Lithium GmbH. Bacanora's shareholding in Zinnwald
Lithium Plc decreased to 35.5%. The Company has recognised the associated increase in share of net assets.
In December 2021, Zinnwald Lithium Plc completed a placing and retail offer, raising a total of approximately £5.8
million (before expenses). Bacanora's shareholding in Zinnwald Lithium Plc decreased to 30.9%. The Company has
recognised the associated increase in share of net assets.
As part of the Ganfeng Offer, the Board and shareholders of Bacanora have approved the distribution to Bacanora
shareholders of the 90,619,170 shares held by Bacanora in Zinnwald Lithium Plc subject to certain conditions being
met including the Ganfeng Offer becoming unconditional. The Ganfeng Offer became unconditional on 17 December
2021. On 22 December 2021, the distribution was made to the relevant Bacanora shareholders. The distribution
payable was recognised at its fair value being the market value of the shares to be distributed. A gain on distribution
of US$5,457,308, being the difference between the distribution payable of US$16,223,169 and the carrying value of
the investment of US$10,765,862 has been recognised in the Consolidated Statement of Comprehensive Income.
Zinnwald Lithium Plc made a loss after tax and total comprehensive loss of €1,727,303 for the year, of which, the
Company has recognised its share of total comprehensive loss for the year.
The reconciliation of the carrying amount of the investment in associate is as follows:
In US$
Opening carrying value
Initial recognition
Share of loss on investment in associate
Increase in share of net assets
Foreign exchange translation (loss)/gain (OCI)
Derecognition on distribution
Closing carrying value
31 December 2021
31 December 2020
7,865,575
–
(120,522)
3,452,893
(432,084)
(10,765,862)
–
–
7,664,157
(102,791)
–
304,209
–
7,865,575
80
7
Investment in joint venture
The following entity has been included in the Consolidated Financial Statements using the equity method:
Name
Country of
incorporation
Principal place of
business
Shareholding
31 December 2021
Sonora Lithium Ltd
UK
UK
50.0%
Change of control – initial recognition
On 26 February 2021, Ganfeng completed its option to increase its stake in SLL from 22.5% to 50%. Consequently,
Ganfeng subscribed for 73,955,680 new ordinary shares in SLL at 29.59 pence at a total value of £21.9 million (US$30.4
million). On completion of the transaction, a revised 50:50 JVA came into force, whereby each party is responsible
for their portion of Project capex. After performing a detailed control assessment including a review of the provisions
of the revised JVA, which include the unanimous consent of both parties over certain relevant activities, management
have assessed that the Company now has joint control over SLL and its subsidiaries, and therefore performed
deconsolidation procedures. Subsequently, the Group’s investment in the Sonora Lithium Group has been accounted
for using the equity method.
The following is an analysis of the assets and liabilities over which the Group lost control and the net liabilities which
were recognised on 26 February 2021:
In US$
Current assets
Non-current assets
Current liabilities
Net assets deconsolidated
Receivables from related parties
Payables to related parties
Net liabilities recognised
Net asset impact of loss of control
26 February 2021
(2,455,859)
(32,999,937)
737,535
(34,718,261)
3,822,698
(8,339,332)
(4,516,634)
(39,234,895)
The total cash and cash equivalents deconsolidated on 26 February 2021 was US$421,708.
As a result, a gain on change in control of subsidiaries has been recognised:
In US$
Fair value of interest retained
Net asset impact of loss of control
Non-controlling interest
Gain on deconsolidation of subsidiary
Gain on deconsolidation of subsidiary
Gain on recycle of foreign currency translation reserve
Total gain on change in control of subsidiaries
26 February 2021
55,325,429
(39,234,895)
12,261,904
28,352,438
28,352,438
3,568,358
31,920,796
81
Investment reconciliations
The reconciliation of the carrying amount of the investment in joint venture is as follows:
In US$
Opening carrying value
Initial recognition
Share of loss on investment in joint venture
Distribution received on release of payable
Closing carrying value
31 December 2021
–
55,325,429
(1,011,167)
(4,169,666)
50,144,596
The summarised financial information of the Sonora Lithium Group and reconciliation to the investment carrying
value is set out below. The summarised information represents amounts shown in Sonora Lithium’s consolidated
financial statements, as adjusted for differences in accounting policies and fair value adjustments related to the
Company’s investment in joint venture.
In US$
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets (100%)
Net assets attributable to non-controlling interests
31 December 2021
28,329,253
76,579,768
(732,352)
(4,626,704)
99,549,965
739,227
Share of net assets attributable to the equity shareholders of SLL
100,289,192
Group share of net assets (50%)
50,144,596
Included in the amounts above are
In US$
Cash and cash equivalents
Non-current financial liabilities
31 December 2021
26,593,063
4,626,704
Summarised financial information relating to the consolidated loss of the Sonora Lithium Group for the period
between 26 February and 31 December 2021 is presented below:
In US$
Depreciation
Interest income
Interest expense
Total loss after tax and total comprehensive loss
Group share of total loss after tax and total comprehensive loss
31 December 2021
(154,064)
49,544
(643,310)
(2,044,759)
(1,011,167)
Commitments
The Sonora Lithium Group had the following commitments at 31 December 2021:
82
-
-
concession taxes on the license properties, which are expected to total approximately US$231,875 in the
following year.
rental payments totalling US$24,041 in Hermosillo, Sonora over the next six months.
Legal cases
On 24 August 2021, the Company provided an update on the litigation with the Estate of Colin Orr-Ewing (the "Estate")
in regard to its challenge to the validity of the lithium royalty over the Sonora Lithium Project. The Alberta Court
held a hearing on 9 March 2021 to hear the Estate's application for Summary Trial on the grounds that the Company's
action was time limitation barred. The Court has issued its judgement that found in favour of the Estate. The
Company has appealed this judgement. The Company maintains that the royalty is invalid on the grounds of
misrepresentation and a lack of consideration and intends to exhaust all legal avenues on behalf of all its shareholders
to ensure that the Alberta Courts adjudicate fully on the merits of the case, rather than restricting their review to a
technical time limitation defence. The Company has at all times taken a conservative approach to the treatment of
the purported royalty and included it fully in the financial model for the Sonora Feasibility Study published in 2018,
as well as all financial projections to investors and debt funding partners.
8 Property, plant and equipment
The Sonora Lithium Group owns ten contiguous mineral concessions in Sonora, Mexico. Seven of these ten concessions
form the Sonora Lithium Project covered by the technical Feasibility Study released in January 2018.
On 26 February 2021, management have assessed that the Company now has joint control over SLL and its subsidiaries,
and therefore the results of the Sonora Lithium Group have been consolidated to 26 February 2021. Subsequently,
the Group’s investment in the Sonora Lithium Group has been accounted for using the equity method. For further
detail see note 7.
83
The movements within of property, plant and equipment as at 31 December 2021 are set out below:
Cost (US$)
31 December 2019
Additions
31 December 2020
Additions
Evaluated
mineral property
Land
Buildings
Plant and
machinery
Office furniture
and equipment
Transportation
Total
26,140,230
3,035,000
840,472
737,266
1,957,320
–
–
–
28,097,550
3,035,000
840,472
737,266
475,840
–
–
–
435,697
6,104
441,801
–
120,734
31,309,399
–
1,963,424
120,734
33,272,823
–
475,840
Deconsolidation of subsidiaries1
(28,573,390)
(3,035,000)
(840,472)
(737,266)
(441,801)
(120,734)
(33,748,663)
31 December 2021
Depreciation
31 December 2019
Charge for the year
31 December 2020
Charge for the year
Deconsolidation of subsidiaries1
31 December 2021
Net Book Value
31 December 2019
31 December 2020
31 December 2021
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
208,201
42,913
251,114
7,043
378,404
74,665
453,069
12,417
160,880
69,092
229,972
11,483
118,274
2,460
865,759
189,130
120,734
1,054,889
–
30,943
(258,157)
(465,486)
(241,455)
(120,734)
(1,085,832)
–
–
–
–
–
26,140,230
3,035,000
28,097,550
3,035,000
–
–
632,271
589,358
–
358,862
284,197
–
274,817
211,829
–
2,460
30,443,640
–
–
32,217,934
–
1Disposals are a result of not consolidating the balance sheet of the Sonora Lithium Group from 26 February 2021. See Note 7 for further information.
84
9 Exploration and evaluation assets
Movement in the year is as follows:
In US$
31 December 2019
Additions
31 December 2020
Additions
534,588
36,144
570,732
6,306
Deconsolidation of subsidiaries1
(577,038)
31 December 2021
–
1Disposals are a result of not consolidating the balance sheet of the Sonora Lithium Group from 26 February 2021. See Note 7 for further
information.
10 Accounts payable and accrued liabilities
The Group’s other payables mainly relate to payables resulting from options and RSUs to key management personnel.
In US$
31 December 2021
31 December 2020
Trade payables
Accrued liabilities
Other payables
Total
11 Borrowings
4,587
599,455
3,285,455
3,889,497
223,620
759,200
346,394
1,329,214
On 3 July 2018, the Group entered into a US$150 million senior debt facility with RK, drawing down US$25 million.
On 22 June 2021, it was agreed with RK that the remaining undrawn facility of US$125 million would no longer be
available for drawdown. As part of the Ganfeng Offer, it was agreed that the loan would be voluntarily redeemed
within 30 days from the Offer being declared unconditional. The repayment of the RK debt facility occurred on the
7 January 2022. As a result, all unamortised transaction costs and discounts have been accelerated through the
Consolidated Statement of Comprehensive Income in the year.
During the year, RK held a fixed charge security over the shares of various subsidiaries of the Group except for
Bacanora Lithium Plc and Bacanora Battery Metals Limited. RK also held a fixed charge security over certain bank
accounts held by the relevant UK, Canadian and Mexican entities. RK held a floating charge over Bacanora Lithium
Plc’s assets not covered by the fixed charge. RK held fixed and floating charge over the assets of the relevant Mexican
entities related to the Sonora Lithium Project. All charges are in process of being released following the repayment
of the RK debt facility.
The facility had a debt covenant for the Group to maintain a minimum working capital balance of US$15 million
measured monthly. Working capital for the purpose of the debt covenant is defined as current assets minus current
liabilities, excluding assets and liabilities relating to Zinnwald Lithium Plc, Bacanora Battery Metals Limited and
overdue VAT receivables. On repayment of the debt, post year end, all covenants were cancelled.
85
The carrying value of the Group’s borrowings at 31 December 2021 is as follows:
In US$
Current
Interest rate
Maturity
31 December 2021
31 December 2020
Primary Eurobond
LIBOR with a 1% minimum + 8%
Secondary Eurobond
Zero interest bearing
Total current borrowings
Non-current
Primary Eurobond
LIBOR with a 1% minimum + 8%
Secondary Eurobond
Zero interest bearing
Total non-current borrowings
Total borrowings
2022
2022
2024
2038
31,172,015
9,333,333
40,505,348
–
–
–
–
–
–
25,394,438
3,803,482
29,197,920
40,505,348
29,197,920
The movement in the Group’s borrowings in the year ended 31 December 2021 is as follows:
In US$
31 December 2019
Primary Eurobond interest expense
Eurobond unwinding
Re-estimation cost
Interest payments
31 December 2020
Primary Eurobond interest expense
Eurobond unwinding
Early repayment fee
Repayment of borrowings
Interest payments
31 December 2021
12 Financial warrants liability
Primary Eurobond
Secondary Eurobond
Total
21,607,156
2,839,013
1,658,804
–
(710,535)
25,394,438
2,804,832
5,969,344
749,147
(926,780)
(2,818,966)
31,172,015
2,444,454
24,051,610
–
583,673
775,355
–
2,839,013
2,242,477
775,355
(710,535)
3,803,482
29,197,920
–
2,804,832
5,529,851
11,499,195
–
–
–
749,147
(926,780)
(2,818,966)
9,333,333
40,505,348
The Company granted RK with 6 million warrants alongside the above Eurobonds in July 2018. 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 were 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. As part of the Ganfeng Offer, it was agreed between the Company and RK that the warrants would be
settled at an agreed fair value of US$1.75 million. The warrants were settled on 7 January 2022.
86
13 Financial instruments
The Group’s financial instruments are classified as follows:
As at 31 December 2021 (In US$)
At amortised cost
At fair value
through profit or
loss
Total
Financial assets
Cash and cash equivalents
Receivables from related parties
Other receivables
Total financial assets
122,105,953
7,353,646
684,413
130,144,012
Financial liabilities
Accounts payable and accrued liabilities
Borrowings
3,889,497
40,505,348
–
–
–
–
–
–
122,105,953
7,353,646
684,413
130,144,012
3,889,497
40,505,348
Financial warrants liability
Total financial liabilities
–
1,750,000
1,750,000
44,394,845
1,750,000
46,144,845
Net financial assets/(liabilities)
85,749,167
(1,750,000)
83,999,167
As at 31 December 2020 (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
Borrowings
Financial warrants liability
Total financial liabilities
39,238,496
1,138,579
40,377,075
1,329,214
29,197,920
–
30,527,134
–
–
–
–
–
1,549,576
39,238,496
1,138,579
40,377,075
1,329,214
29,197,920
1,549,576
1,549,576
32,076,710
Net financial assets/(liabilities)
9,849,941
(1,549,576)
8,300,365
14 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 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 as at 31 December 2021, is
held in institutions with an A-1 rating.
87
The Group’s other receivables relate to input tax receivables in the UK. Its current receivables from related parties
relate to a receivable from Ganfeng Lithium relating to the vesting of the Company’s share options.
The Company’s non-current receivables from related parties mainly relate to receivables from joint venture
companies, all of which will generate cash flows from future lithium sale profits at the Sonora Lithium Project 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.
Substantially all of the receivables represent amounts due from the Group’s majority shareholder and the UK
government 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, other receivables and receivables from related parties
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 other receivables and receivables from related parties fully
collectible.
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.
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 2021 (In US$)
Within 30
days
30 days to
6 months
6 to 12
months
Over 12
months
Accounts payable and accrued liabilities
Borrowings
Financial warrants liability
3,889,497
40,505,348
1,750,000
–
–
–
–
–
–
–
–
–
As at 31 December 2020 (In US$)
Within 30
days
30 days to
6 months
6 to 12
months
Over 12
months
Accounts payable and accrued liabilities
Borrowings
Financial warrants liability*
–
45,656,639
–
*No gross cash financial liability is present as the Company had the option to settle the warrants in equity or cash.
1,329,214
710,535
–
–
2,347,848
–
–
687,364
–
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 is a joint venture partner in a lithium project in Mexico. As a result, a portion of the Group’s expenditures,
cash, other receivables, accounts payables and accrued liabilities, borrowings and financial warrants liability are
denominated in the United States dollar, Great British pound and Euro and are therefore subject to fluctuation in
exchange rates.
As at 31 December 2021, a 10% change in the exchange rate between the United States dollar and Euro and Great
British pound, which is a reasonable estimation of volatility in exchange rates, would result in less than US$0.1 million
change to the Group’s total comprehensive income.
88
Fair values
The fair value of cash, other receivables, receivables from related parties, accounts payable and accrued liabilities
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 financial warrants liability is disclosed in note 12.
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 2021, the Group held US$134,280,054 (31 December 2020 - US$36,557,604) of capital. The Group
sets the amount of capital in proportion to risk and corporate growth objectives. The Group manages its capital
structure and adjusts it in light of changes in economic conditions and the risk characteristics of the underlying
assets.
15 Equity
Authorised and issued share capital
The authorised share capital of the Company consists of an unlimited number of voting common shares of par value
£0.10.
31 December 2019
Issue of share capital - RSUs1
31 December 2020
Shares
Share Capital
(In US$)
Share Premium
(In US$)
222,981,837
30,240,469
16,646,060
833,846
107,714
155,108
223,815,683
30,348,183
16,801,168
Issue of share capital - Capital raise2
106,995,885
14,730,123
48,129,302
Issue of share capital - Ganfeng pre-emption3
53,333,333
7,537,067
26,023,740
Share premium reduction
Issue of share capital - Options4
–
–
(90,954,210)
2,991,601
398,684
813,170
31 December 2021
387,136,502
53,014,057
813,170
1 The issuance of 833,846 new ordinary shares in relation to the vesting of RSUs granted in September 2017 at an issue price of 24.4p.
2 The issuance of 101,395,885 new ordinary shares in the Company to institutional and professional investors at a price of 45p. In addition, retail
and other investors subscribed for 5,600,000 new ordinary shares at a price of 45p. Amounts are shown net of transaction costs.
3 Ganfeng exercised its pre-emption rights in relation to the above capital raise and subscribed to a total of 53,333,333 new ordinary shares at a
price of 45p. Amounts are shown net of transaction costs.
89
4 The issuance of 2,991,601 new ordinary shares in relation to the Company’s options being exercised. 1,258,009 were issued at an issue price of
24.4p, 1,300,863 were issued at an issue price of 33.25p and 432,729 were issued at an issue price of 39.25p.
Share options
All share options were issued under the Group’s Share Option Plan. Options generally vested as 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.
Under the Group’s Share Option Plan, all “in the money” unvested options, vested in full on the Ganfeng Offer
becoming unconditional on 17 December 2021. 2,991,601 options were exercised by option holders on the same date.
The following table summarises the activities and status of the Company’s share option plan as at and during the year
ended 31 December 2021:
31 December 2019
Granted1
Expired
31 December 2020
Expired
Exercised
31 December 2021
Number of
options
Weighted average
exercise price (£)
6,610,901
1,258,009
(4,389,810)
3,479,100
(487,499)
(2,991,601)
–
0.70
0.24
(0.82)
0.38
(0.88)
(0.30)
–
1 The options granted on 2 October 2020, were valued using the Black-Scholes method with a volatility of 66.80%, calculated using Bacanora’s
historic share price, an option term of 3 years, a risk-free interest rate of 0.70% 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
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 Group’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.
Under the Group’s Share RSU Plan, all unvested RSUs, vested in full on the Ganfeng Offer becoming unconditional on
17 December 2021.
90
The following table summarises the activities and status of the Company’s RSU plan as at and during the year ended
31 December 2021:
31 December 2019
Granted
Vested
31 December 2020
Granted
Vested
31 December 2021
Share-based payment reserve
Number of units
2,473,600
466,805
(1,192,277)
1,748,128
316,994
(2,065,122)
–
The following table presents changes in the Group’s share-based payment reserve during the year ended 31 December
2021:
In US$
31 December 2019
Issue of share capital - RSUs
Expired options
Share-based payment expense
31 December 2020
Issue of share capital - Options
Lapsed option charge
Vesting of RSUs
Share-based payment expense
Change in control of subsidiaries
31 December 2021
Share-based payment expense
Share-based payment
reserve
3,807,562
(708,097)
(2,712,392)
590,665
977,738
(495,812)
(125,353)
(981,448)
864,228
(239,353)
–
During the year ended 31 December 2021, the Group recognised US$864,228 (year ended 31 December 2020:
US$590,665) of share-based compensation expense. The fair value of the share-based expense was estimated on the
dates of grant using the Black-Scholes option pricing model with the following weighted average assumptions. As a
consequence of all “in the money” unvested options, vesting in full upon the Ganfeng Offer becoming unconditional
on 17 December 2021, the remaining share-based payment expense of these options has been accelerated through
the Consolidated Statement of Comprehensive Income in the year.
Risk-free interest rate
Expected volatility(1)
Expected life (years)
Fair value per option
Year ended
Year ended
31 December 2021
31 December 2020
1.85% - 3.0%
54.73% - 65.01%
3
17.0c - 49.7c
0.7% - 3.0%
54.73% - 91.07%
3
13.9c - 62.2c
(1) Expected volatility is derived from the Company’s historical share price volatility.
91
Merger reserve
On 23 March 2018, the Plan of Arrangement to re-domicile the Bacanora Group from Canada to the UK became
effective resulting in Bacanora Lithium Plc becoming the new holding company for Bacanora Minerals Ltd. Under the
Company’s Act 06 Section 612, a merger reserve has been utilised to account for the difference between the share
capital and net asset investment in Bacanora Minerals Ltd. In addition, on consolidation the difference between the
net investment in Bacanora Lithium Plc and share capital in Bacanora Minerals Ltd is accounted for in the merger
reserve.
Profit/(loss) per share
Basic and diluted profit/(loss) per share for the year ended 31 December 2021 were as follows:
Profit/(loss) after tax attributable to
shareholders of Bacanora Lithium Plc
(US$)
Weighted average number of common
shares for the purposes of basic and
diluted loss per share
Profit/(loss) per share (US$)
Year ended
31 December
2021
Continuing
operations
Year ended
31 December
2021
Discontinued
operations
Year ended
31 December
2020
Continuing
operations
Year ended
31 December
2020
Discontinued
operations
11,543,857
8,661,803
(11,533,371)
(4,068,697)
351,379,131
351,379,131
223,186,881
223,186,881
0.03
0.02
(0.05)
(0.02)
Warrants were excluded from the dilution calculation as they were anti-dilutive.
16 Taxation
Current taxation
There was a US$4,103 tax charge for the year ended 31 December 2021 (year ended 31 December 2020: US$5,114).
The reasons for the difference between the actual tax charge for the period and the standard rate of corporation in
the United Kingdom applied to the loss for the year is as follows:
In US$
Profit/(loss) before tax
Expected income tax recovery at 19% (2019 - 19%)
Unrecognised taxable losses and timing differences
Expenses not deductible for tax purposes
Different tax rates applied in overseas jurisdictions
Non-taxable accounting gains
Utilisation of unrecognised losses
Total income taxes
Year ended
Year ended
31 December 2021
31 December 2020
20,145,994
(15,916,996)
3,827,739
4,375,962
117,291
(6,080)
(8,310,809)
–
4,103
(3,024,229)
1,358,192
1,431,578
389,823
–
(150,250)
5,114
92
Deferred tax
The Group has no recognised deferred tax balance on profit/loss for the year ended 31 December 2021 (year ended
31 December 2020: US$nil). As at 31 December 2021, the Group has, for tax purposes, non-capital losses available to
carry forward to future years as follows:
For the year ended (In US$)
31 December 2021
31 December 2020
Expiry Date
UK
Canada
Mexico
27,725,855
–
–
27,725,855
16,586,410
14,450,159
19,367,528
50,404,097
N/A
N/A
N/A
17 General and administrative expenses
The Group’s general and administrative expenses include the following:
In US$
Legal and accounting fees
Employee and contractor costs
Investor relations
Travel and other expenses
Office expenses
Audit fees for the Group and Company
Audit fees of subsidiaries by Group auditor
Non audit services
Total
Year ended
Year ended
31 December 2021
31 December 2020
3,812,580
2,936,141
596,346
400,174
139,186
87,631
9,101
51,224
893,845
2,576,842
357,527
261,914
177,999
109,239
13,656
34,942
8,032,383
4,425,964
18 Finance income and costs
The Group’s finance income and costs are as follows:
In US$
Interest and other income
Finance income
Financial warrants liability revaluation
Primary Eurobond interest expense
Other finance costs (1)
Early repayment fee
Re-estimation cost
Finance costs
Net finance costs
Year ended
Year ended
31 December 2021
31 December 2020
845,963
845,963
(254,351)
(2,804,832)
(11,499,195)
(749,147)
–
(15,307,525)
(14,461,562)
355,913
355,913
(972,509)
(2,839,013)
(2,242,528)
–
(775,355)
(6,829,405)
(6,473,492)
(1) Other finance costs include Eurobond unwinding of transaction costs and discounts.
93
19 Losses on discontinued operations
Loss on discontinued operation – Deutsche Lithium
The loss in the comparative period for the year ended 31 December 2020 resulted from the Group’s investment in
Deutsche Lithium being sold, with cash, for shares in Zinnwald Lithium Plc. Please refer to the audited Consolidated
Financial Statements for the year ended 31 December 2020 for further information.
Gain/(loss) on discontinued operation – Zinnwald Lithium
The gain in the year ended 31 December 2021 resulted from the distribution of its investment in Zinnwald Lithium
Plc on 22 December 2021. The following gains/losses are included within the gain on discontinued operation –
Zinnwald Lithium:
In US$
Share of loss in associate
Gain on change in net assets
Gain on distribution
Recycled translation difference to profit and loss
Total
20 Segmental information
Year ended
Year ended
31 December 2021
31 December 2020
(120,523)
3,452,893
5,457,308
(127,875)
8,661,803
(102,791)
–
–
–
(102,791)
During the year, the Group had three operating segments which include the exploration and development of mineral
properties in Mexico, primarily the development of the Sonora Lithium Project, through its investment in Sonora
Lithium Ltd, the Group’s corporate entities with head office located in London, UK and the Group’s investment in
Zinnwald Lithium Plc which was distributed on 22 December 2021.
A summary of the identifiable assets, liabilities and net losses by operating segment are as follows:
31 December 2021
(In US$)
Current assets
Receivables from related parties
Investment in joint venture
Total assets
Current liabilities
Total liabilities
Head Office
Continued
operation
Sonora
Lithium
Group
Continued
operation
Zinnwald
Lithium Plc
Discontinued
operation
Consolidated
125,653,591
–
4,626,712
–
–
50,144,596
130,280,303
50,144,596
46,144,845
46,144,845
–
–
–
–
–
–
–
–
125,653,591
4,626,712
50,144,596
180,424,899
46,144,845
46,144,845
94
For the year ended 31 December 2021
(In US$)
Head Office
Continued
operation
Sonora
Lithium
Group
Continued
operation
Zinnwald
Lithium Plc
Discontinued
operation
Consolidated
General and administrative expense
(7,885,821)
(146,562)
Depreciation
Share-based payment expense
Foreign exchange gain/(loss)
Operating loss
Finance income
–
(864,228)
(210,800)
(30,943)
–
4,812
(8,960,849)
(172,693)
845,963
–
Finance costs
Share of loss in investment in joint venture
(15,307,525)
–
–
(1,011,167)
Gain on change in control of subsidiaries
Distribution income on release of payable
31,920,796
4,169,666
–
–
–
–
–
–
–
–
–
–
–
–
(8,032,383)
(30,943)
(864,228)
(205,988)
(9,133,542)
845,963
(15,307,525)
(1,011,167)
31,920,796
4,169,666
Gain on discontinued operation
Tax charge
Segment profit/(loss) after tax
–
–
–
(4,103)
8,661,803
–
8,661,803
(4,103)
12,668,051
(1,187,963)
8,661,803
20,141,891
31 December 2020 (In US$)
Current assets
Investment in associate
Property, plant and equipment
Exploration and evaluation assets
Total assets
Current liabilities
Borrowings
Warrant liability
Total liabilities
Property, plant and equipment
additions
Exploration and evaluation asset
additions
Mexican
entities
Corporate
entities
Zinnwald
Lithium Plc
Deutsche
Lithium
(Germany)
Consolidated
Continued
operation
Continued
operation
Continued
operation
Discontinued
operation
2,074,318
–
32,217,934
570,732
39,209,166
–
–
–
–
7,865,575
–
–
34,862,984
39,209,166
7,865,575
417,343
911,871
–
–
29,197,920
1,549,576
417,343
31,659,367
1,963,424
36,144
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
41,283,484
7,865,575
32,217,934
570,732
81,937,725
1,329,214
29,197,920
1,549,576
32,076,710
1,963,424
36,144
95
For the year ended
31 December 2020 (In US$)
Mexican
entities
Corporate
entities
Zinnwald
Lithium Plc
Deutsche
Lithium
(Germany)
Consolidated
Continued
operation
Continued
operation
Continued
operation
Discontinued
operation
General and administrative expense
Depreciation
Share-based payment expense
Foreign exchange loss
Operating loss
Finance income
Finance costs
Loss on investment in associate
Loss on discontinued operation
Tax charge
(748,387)
(189,130)
(3,677,577)
–
–
(27,315)
(590,665)
(38,942)
(964,832)
(4,307,184)
3,573
352,340
–
–
–
(5,114)
(6,829,405)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(102,791)
–
–
(4,068,697)
(4,425,964)
(189,130)
(590,665)
(66,257)
(5,272,016)
355,913
(6,829,405)
(102,791)
(4,068,697)
–
–
(5,114)
Segment loss after tax
(966,373)
(10,784,249)
(102,791)
(4,068,697)
(15,922,110)
21 Related party disclosures
Related party transactions
The Group’s related parties include:
joint venture: Sonora Lithium Ltd and its subsidiaries, together the “Sonora Lithium Group”;
associate: Zinnwald Lithium Plc;
-
-
- majority shareholder: Ganfeng International Trading (Shanghai) Ltd and
-
the Group’s key management personnel.
The following transactions took place between the Group and related parties (other than with key management
personnel which have been disclosed separately below):
Related party
Type of transaction
Year ended
Year ended
31 December 2021
31 December 2020
Transaction
amount
Balance
receivable/(payable)
Transaction
amount
Balance
receivable/(payable)
US$
US$
US$
US$
Ganfeng International Trading (Shanghai) Ltd
Share purchase - Sonora Lithium1
30,428,986
Ganfeng International Trading (Shanghai) Ltd
Share purchase - pre-emption2
33,916,800
Ganfeng International Trading (Shanghai) Ltd
Share option receivable3
Sonora Lithium Ltd
Release of payable4
Bacanora Chemco S.A. de C.V.
Project funding and interest
Bacanora Minerals Ltd
Working capital
2,691,120
8,339,332
720,310
83,704
–
–
2,726,934
–
3,874,102
752,610
–
–
–
–
–
–
–
–
–
–
–
–
1On 26 February 2021, Ganfeng completed its option to increase its stake in SLL from 22.5% to 50%. Consequently, Ganfeng subscribed for
73,955,680 new ordinary shares in SLL at 29.59 pence at a total value of £21.9 million (US$30.4 million). On completion of the transaction, a
revised JVA came into force, whereby each party is responsible for their portion of Project capex. After review of the provisions of the revised
JVA, which include the unanimous consent of both parties over certain relevant activities, management have assessed that the Company now has
joint control over SLL and its subsidiaries, and therefore performed deconsolidation procedures. For further detail see note 7.
2On 21 May 2021, Ganfeng completed its pre-emption right exercise to increase its holding in the Parent Company to 28.88%. Ganfeng subscribed
for a total of 53,333,333 new ordinary shares at the placing price of 45 pence per share, representing gross proceeds £24.0 million (US$33.9
million).
96
3 On 17 December 2021, 2,991,601 new ordinary shares in relation to the Company’s options were exercised. 1,258,009 were issued at an issue
price of 24.4p, 1,300,863 were issued at an issue price of 33.25p and 432,729 were issued at an issue price of 39.25p. The option holders agreed
to sell the new shares to Ganfeng International Trading (Shanghai) Ltd as part of the Ganfeng Offer at 67.5p. It was agreed by the Company,
Ganfeng and the option holders that Ganfeng would pay the Company the sale funds and the Company would retain the exercise price per share
and pass on the profit to the option holders.
4 On 19 May 2021, SLL performed a US$8.3 million capital reduction. On the same day, the Parent Company and SLL signed a deed of release
relating to a payable balance totaling US$8.3 million. The release of the payable resulted in a deemed distribution of US$8.3 million, Bacanora’s
share has been credited against the Company’s investment in joint venture to reflect the decrease in share of net assets of the Sonora Lithium
Group. A gain of US$4.2 million, resulting from the receipt of Ganfeng’s share of the distribution, has been recognised through the Statement of
Comprehensive Income.
There were no transactions with Ganfeng in the comparative period of the year ended 31 December 2020. Sonora
Lithium Ltd, Bacanora Chemco S.A. de C.V. and Bacanora Minerals Ltd were subsidiaries of the Group during the
comparative period therefore all intergroup transactions and outstanding balances were eliminated.
97
Key management personnel compensation
During the year ended 31 December 2021, key management personnel remuneration totalled US$2,415,533 (year ended 31 December 2020: US$1,727,819). Of the total
amount incurred, US$nil remains in accounts payables and accrued liabilities at 31 December 2021 (31 December 2020: US$nil).
Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Group. Key management
personnel are considered to be the Directors of the Company and the CFO, their remuneration for the year is presented below:
In US$
Year ended
31 December 2021
Year ended
31 December 2020
Fees
Gross Salary
Bonus
Share-based
payment
remuneration
Total
Fees
Gross
Salary
Share-based
payment
remuneration
Total
–
268,868
49,825
149,497
468,190
–
283,844
134,109
417,953
89,412
70,040
54,167
59,608
–
–
–
–
–
–
–
–
–
–
–
–
–
–
89,412
70,040
54,167
73,179
57,305
47,500
59,608
33,831
–
–
–
–
–
6,148
–
–
73,179
63,453
47,500
33,831
515,808
138,716
265,825
920,349
342,315
54,772
356,680
753,767
–
–
424,208
285,445
162,621
586,829
219,629
505,074
273,227
1,126,991
243,313
772,002
2,415,533
211,815
993,497
522,507
1,727,819
Mark Hohnen
Jamie Strauss
Eileen Carr
Andres Antonius
Graeme Purdy
Peter Secker
Janet Blas
Total Director's and
management’s
remuneration
98
On 17 December 2021 the following options and RSUs vested and were exercised by key management personnel. The
options were issued in shares in the Company at the exercise price. The RSUs were elected to be paid in cash by the
Company.
Name
Mark Hohnen
Peter Secker
Janet Blas
Type
Date of Grant
Number
Exercise Price
Options
Options
RSUs
RSUs
RSUs
Options
Options
RSUs
RSUs
RSUs
Options
Options
Options
RSUs
RSUs
RSUs
RSUs
02/10/2020
28/10/2019
15/09/2021
02/10/2020
28/10/2019
02/10/2020
28/10/2019
15/09/2021
02/10/2020
28/10/2019
02/10/2020
28/10/2019
06/09/2018
15/09/2021
02/10/2020
28/10/2019
06/09/2018
179,501
151,439
54,183
97,811
204,970
215,488
205,800
150,850
117,420
278,546
461,687
437,624
206,693
59,563
251,574
592,316
205,491
0.244
0.3325
N/A
N/A
N/A
0.244
0.3325
N/A
N/A
N/A
0.244
0.3325
0.3925
N/A
N/A
N/A
N/A
US$2,592,447 remains in accounts payable and accrued liabilities at 31 December 2021 relating to the vested RSUs
and share options (31 December 2020: US$nil).
In the year ended 31 December 2020, Peter Secker and Mark Hohnen were issued 336,250 and 497,596 shares in the
Company in relation to the vesting of RSUs granted in September 2017. The shares were issued at a price of 24.4p
per share. No Directors exercised any share options in the year ended 31 December 2020.
22 Directors and employees
The below information relates to all Directors and employees:
In US$
Year ended
Year ended
31 December 2021
31 December 2020
Corporate Mexico1
Total
Corporate Mexico
Total
Gross salaries
Bonus
Share-based payments
Employer social security costs
Employer pension costs
1,775,965
243,313
772,002
561,236
31,828
49,985
–
–
8,182
2,091
1,825,950
243,313
772,002
569,418
33,919
1,485,657 393,572
–
–
–
522,507
66,870
236,204
19,886
14,017
1,879,229
–
522,507
303,074
33,903
Total cost
3,384,344
60,258
3,444,602
2,258,385 480,328
2,738,713
Average number of employees and
Directors
13
2
15
12
17
29
1Information shown to the date of deconsolidation of the Sonora Lithium Group from 26 February 2021. See Note 7 for further information.
99
Directors’ remuneration totalled the following:
In US$
Directors' gross salaries
Bonus
Share-based payment expense
Total remuneration
Average number of Directors
Year ended
Year ended
31 December 2021
31 December 2020
1,057,903
188,541
415,322
1,661,766
8
919,867
–
302,878
1,222,745
8
The highest paid Director received remuneration in the year ended 31 December 2021 of US$920,349 (year ended 31
December 2020: US$586,829). The highest paid Director also received 215,488 and 205,800 shares in the Company,
issued at a price of 24.4p and 33.25p per share, respectively, in relation to exercised vested share options. The
highest paid Director also exercised 546,816 vested RSUs, paid in cash, post year end.
The highest paid Director received remuneration in the year ended 31 December 2020 of US$586,829. The highest
paid Director also received 336,250 shares in the Company, issued at a price of 24.4p per share in relation to vested
RSUs. The highest paid Director did not exercise any share options in the year ended 31 December 2020.
23 Commitments
The Group has a commitment on its UK office of US$11,884 for 2 months’ rent.
24 Subsequent events
On 7 January 2022, the Group fully repaid all amounts due under the RK debt facility, as well as settled the 6 million
warrants issued at the time. The payment totalled US$42,307,777. Refer to Note 11 for further details. All charges
are in process of being released following the repayment of the RK debt facility.
The Company delisted from the AIM market on the London Stock Exchange on 26 January 2022.
25 Note to the statement of cash flows
Below is a reconciliation of borrowings from financing transactions:
In US$
Opening balance
Cashflows
Non cash flows:
Primary Eurobond interest expense
Eurobond unwinding
Early repayment fee
Total borrowings
31 December 2021
31 December 2020
29,197,920
(3,745,746)
2,804,832
11,499,195
749,147
40,505,348
24,051,610
(710,535)
2,839,013
3,017,832
–
29,197,920
The adjustment for the share-based payment expense within cash flows from operating activities includes US$864,288
share-based payment expense offset by a cash settlement of US$188,679 on the vesting of RSUs.
100
26 Exemptions for a dormant subsidiary
Bacanora Treasury Ltd and Bacanora Battery Metals Ltd are exempt from preparing individual accounts under the
provisions of Section 394A of the Company’s Act 06. Bacanora Battery Metals Ltd was dissolved on 4 May 2021.
On the date of the Consolidated Financial Statements, Bacanora Lithium Plc, incorporated in the United Kingdom,
company number 11189628, gives a guarantee over all outstanding liabilities, that Bacanora Treasury Ltd, company
number 11413519 may be subject to at the end of the financial year ended 31 December 2021 until they are satisfied
in full. This guarantee is enforceable against Bacanora Lithium Plc by any person to whom Bacanora Lithium Plc is
liable in respect of Bacanora Treasury Ltd’s liabilities.
101
Parent Company Statement of Financial Position
As at 31 December 2021
In US$
Assets
Current assets
Cash and cash equivalents
Receivables from related parties
Other receivables and prepayments
Total current assets
Non-current assets
Investment in joint venture
Receivables from related parties
Investment in subsidiaries
Investment in associate
Total non-current assets
Total assets
Liabilities and shareholders’ equity
Current liabilities
Accounts payable and accrued liabilities
Financial warrants liability
Total current liabilities
Non-current liabilities
Payables to related parties
Financial warrants 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
Total shareholders’ equity
Note
31 December 2021
31 December 2020
15
6
9
15
7
8
10
11
15
11
14
14
14
14
81,556,608
2,726,934
814,311
85,097,853
50,144,596
4,661,587
3
–
54,806,186
38,806,808
–
138,085
38,944,893
–
3,307,094
46,275,239
7,865,575
57,447,908
139,904,039
96,392,801
3,873,968
1,750,000
5,623,968
–
–
–
661,757
–
661,757
37,558,874
1,549,576
39,108,450
5,623,968
39,770,207
53,014,057
813,170
40,708,662
–
–
39,744,182
134,280,071
30,348,183
16,801,168
40,708,662
738,385
304,209
(32,278,013)
56,622,594
Total liabilities and shareholders’ equity
139,904,039
96,392,801
The accompanying notes on pages 105-115 are an integral part of these Parent Company Financial Statements.
For the year ended 31 December 2021, the Company’s loss after tax was US$2,449,933 and total comprehensive loss was
US$2,754,142 (year ended 31 December 2020: loss after tax of US$13,513,816 and total comprehensive loss of US$13,209,607).
The Parent Company Financial Statements of Bacanora Lithium Plc, registered number 11189628, were approved and authorised
for issue by the Board of Directors on 28 February 2022 and were signed on its behalf by:
Peter Secker
102
Parent Company Statement of Changes in Equity
For the year ended 31 December 2021
Share capital
In US$
Note
Number of
shares
Value
Share
premium
Merger
reserve
Share-based
payment
reserve
Foreign
currency
translation
reserve
31 December 2019
222,981,837
30,240,469
16,646,060
40,708,662
1,454,591
Comprehensive income for the year:
Loss for the year
Other comprehensive income
Total comprehensive loss
Contributions by and distributions to owners:
Issue of share capital - RSUs
Lapsed option charge
Share-based payment expense
31 December 2020
Comprehensive loss for the year:
Loss for the year
Other comprehensive loss
Total comprehensive loss
Contributions by and distributions to owners:
Issue of share capital - Capital raise
Issue of share capital - Ganfeng pre-emption
Issue of share capital - Options
Lapsed option charge
Vesting of RSUs
Share-based payment expense
Share premium reduction
Distribution of investment in Zinnwald
–
–
–
–
–
–
–
–
–
833,846
107,714
155,108
–
–
–
–
–
–
–
–
–
–
–
–
223,815,683
30,348,183
16,801,168
40,708,662
–
–
–
–
–
–
–
–
–
106,995,885
14,730,123
48,129,302
53,333,333
7,537,067
26,023,740
2,991,601
398,684
813,170
–
–
–
–
–
–
–
–
–
–
–
–
–
(90,954,210)
–
–
–
–
–
–
–
–
–
–
–
–
14
14
14
14
14
14
14
14
14
14
14
31 December 2021
387,136,502
53,014,057
813,170
40,708,662
–
–
–
(708,097)
(598,774)
590,665
738,385
–
–
–
–
–
(495,812)
(125,353)
(981,448)
864,228
–
–
–
The accompanying notes on pages 105-115 are an integral part of these Parent Company Financial Statements.
103
Retained
earnings
Total equity
(19,695,272)
69,354,510
(13,513,816)
(13,513,816)
–
–
304,209
–
304,209
304,209
(13,513,816)
(13,209,607)
–
–
–
332,301
598,774
(112,974)
–
–
590,665
304,209
(32,278,013)
56,622,594
–
(2,449,933)
(2,449,933)
(304,209)
–
(304,209)
(304,209)
(2,449,933)
(2,754,142)
–
–
–
–
–
–
–
–
–
–
–
62,859,425
33,560,807
495,812
1,211,854
125,353
–
(880,078)
(1,861,526)
–
864,228
90,954,210
–
(16,223,169)
(16,223,169)
39,744,182
134,280,071
Parent Company Statement of Cash Flows
For the year ended 31 December 2021
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
Gain on change in control of subsidiaries
Distribution income on release of payable
(Gain)/loss on discontinued operation - Zinnwald Lithium
Loss on discontinued operation - Deutsche Lithium
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
Advances to related parties
Purchase of investment in associate
Payments to Deutsche Lithium
Net cash flows from investing activities
Cash flows from financing activities
Proceeds from share capital, net of share costs
Interest payments
Repayment of intercompany borrowing
Net cash flows from financing activities
Change in cash during the year
Exchange rate effects
Cash, beginning of year
Cash, end of year
Note
Year ended
Year ended
31 December 2021
31 December 2020
(2,449,933)
(13,513,816)
675,549
163,374
(947,941)
15,307,525
1,011,167
(9,050,193)
(4,169,666)
(8,661,803)
590,665
4,455
(671,153)
6,829,405
–
–
–
102,791
–
3,065,232
(676,227)
19,732
(16,530)
7,988
(8,778,416)
(3,600,963)
202,653
(609,025)
–
–
(406,372)
96,420,232
–
(44,272,897)
52,147,335
42,962,547
(212,747)
38,806,808
81,556,608
352,340
(2,845,372)
(1,627,642)
(679,458)
(4,800,132)
(112,974)
(51)
(657,906)
(770,931)
(9,172,026)
(8,163)
47,986,997
38,806,808
The accompanying notes on pages 105-115 are an integral part of these Parent Company Financial Statements.
104
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 was previously listed on the AIM market of the London Stock Exchange, with its common shares
trading under the symbol, "BCN". On 26 January 2022, the Company delisted from the AIM market of the London Stock
Exchange. The registered address of the 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 UK adopted International
Accounting Standards and applied in accordance with the provisions of the Companies Act 2006.
On 31 December 2020, IFRS as adopted by the European Union at that date was brought into UK law and became UK-
adopted international accounting standards, with future changes being subject to endorsement by the UK
Endorsement Board.
The Parent Company Financial Statements were authorised for issue by the Board of Directors on 28 February 2022.
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.
Investment in associate
Investment in associate is accounted for using the equity method under the same methodology as in note 3 of the
Consolidated Financial Statements.
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
105
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 year ended 31 December 2021.
5 Loss for the year
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. For
the year ended 31 December 2021, the Company’s loss after tax was US$2,449,933 and total comprehensive loss was
US$2,754,142 (year ended 31 December 2020: loss after tax of US$13,513,816 and total comprehensive loss of
US$13,209,607).
6 Other receivables and prepayments
Other receivables and prepayments contain short term receivables from VAT and other indirect taxes, prepaid
expenses and deposits paid. All receivables are due within one year. A provision for impairment is made where there
is objective evidence that the receivable is irrecoverable. All receivables are due within one year.
In US$
Other receivables
Prepayments and deposits
Total
31 December 2021
31 December 2020
678,018
136,293
814,311
60,358
77,727
138,085
106
7
Investments in subsidiaries
The Parent Company has the following subsidiaries, held at cost, at 31 December 2021:
Name of subsidiary
Country of
incorporation
Shareholding on 31
December 2021
Shareholding on 31
December 2020
Nature of business
Bacanora Finco Ltd
Bacanora Treasury Ltd
Battery Finance (Jersey) Ltd1
Bacanora Battery Metals Ltd2
Sonora Lithium Group Companies3
Sonora Lithium Ltd
Bacanora Chemco S.A. de C.V.
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.
Operadora de Litio Bacanora S.A. de
C.V.
Minerales Industriales Tubutama, S.A.
de C.V.
UK
UK
Jersey
UK
UK
Mexico
Canada
Mexico
Mexico
BVI
Mexico
Mexico
Mexico
100%
100%
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
100%
100%
100%
100%
77.5%
77.5%
77.5%
54.25%
54.25%
77.5%
77.5%
77.5%
46.5%
Financing company
Financing company
Dissolved
Dissolved
Holding company
Lithium processing
Holding company
Lithium Mining/exploration
Mineral exploration
Holding company
Lithium mining/exploration
Mexican service organisation
Dormant
1Battery Finance (Jersey) Ltd was dissolved on 4 May 2021.
2Bacanora Battery Metals Ltd was dissolved on 4 May 2021.
3The Company has joint control over SLL and its subsidiaries (the “Sonora Lithium Group”) from 26 February 2021, and therefore performed
deconsolidation procedures during the year.
On 26 February 2021, Ganfeng International Trading (Shanghai) Ltd. completed its option to increase its stake in
Sonora Lithium Ltd from 22.5% to 50%. SLL is the operational holding company for the Sonora Lithium Project.
Consequently, Ganfeng subscribed for 73,955,680 new ordinary shares in SLL at 29.59 pence at a total value of £21.9
million (US$30.4 million). On completion of the transaction, a revised 50:50 Joint Venture Agreement came into
force, whereby each party is responsible for their portion of Project capex. After performing a detailed control
assessment including a review of the provisions of the revised JVA, management have assessed that the Company
now has joint control over the Sonora Lithium Group, and therefore the results of the Sonora Lithium Group have
been consolidated to 26 February 2021. Subsequently, the Group’s investment in the Sonora Lithium Group has been
accounted for using the equity method.
For UK registered subsidiaries, the registered address for each subsidiary is 4 More London Riverside, London, SE1
2AU.
8
Investment in associate
The Parent Company’s investment in Zinnwald Lithium Plc has been disclosed in note 6 of the Consolidated Financial
Statements.
9
Investment in joint venture
The Parent Company’s investment in Sonora Lithium Ltd has been disclosed in note 7 of the Consolidated Financial
Statements.
107
10 Accounts payable and accrued liabilities
The Parent Company’s other payables mainly relate to payables resulting from options and RSUs to key management
personnel.
In US$
Trade payables
Accrued liabilities
Other payables
Total
31 December 2021 31 December 2020
4,587
583,926
3,285,455
3,873,968
62,132
599,625
–
661,757
11 Financial warrants liability
The Parent Company’s financial warrants liability has been disclosed in note 12 of the Consolidated Financial
Statements. All such warrants disclosed were held by the Parent Company.
12 Financial instruments
The Parent Company’s financial assets and liabilities are classified as follows:
As at 31 December 2021 (In US$)
Financial assets
Cash and cash equivalents
Receivables from related parties
Other receivables
Total financial assets:
Financial liabilities
Accounts payable and accrued
liabilities
Warrant liability
At amortised
cost
At fair value
through profit or
loss
Total
81,556,608
7,388,521
678,018
89,623,147
–
–
–
–
81,556,608
7,388,521
678,018
89,623,147
3,873,968
–
3,873,968
–
1,750,000
1,750,000
Total financial liabilities:
3,873,968
1,750,000
5,623,968
Net financial assets/(liabilities):
85,749,179
(1,750,000)
83,999,179
108
As at 31 December 2020 (In US$)
At amortised cost
At fair value
through profit or
loss
Total
Financial assets
Cash and cash equivalents
Receivables from related parties
Other receivables
Total financial assets:
Financial liabilities
Accounts payable and accrued
liabilities
Payables to related parties
Warrant liability
38,806,808
3,307,094
60,358
42,174,260
661,757
37,558,874
–
–
–
–
–
–
38,806,808
3,307,094
60,358
42,174,260
661,757
37,558,874
–
1,549,576
1,549,576
Total financial liabilities:
38,220,631
1,549,576
39,770,207
Net financial assets/(liabilities):
3,953,629
(1,549,576)
2,404,053
13 Financial risk management
The Parent Company is exposed to risks that arise from its use of financial instruments. The principal financial
instruments used by the Company, from which financial risk arises, are set out in note 12. The types of risk exposure
the Company is subjected to in the financial period are as follows:
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 receivables from related parties.
The Parent Company’s cash is held in major UK banks, and as such the Parent Company is exposed to the risks of
those financial institutions. Under Standard & Poor’s short term credit ratings, the Parent Company’s total cash
balance is held in institutions with a A-1 rating.
The Parent Company’s other receivables relate to input tax receivables in the UK. The Parent Company’s current
receivable from related party relates to a receivable from Ganfeng Lithium relating to the vesting of the Parent
Company’s share options. Any changes in management’s estimate of the recoverability of the amount due will be
recognised in the period of determination.
The Parent Company’s non-current receivables from related parties mainly relate to receivables from joint venture
companies, all of which will generate cash flows from future lithium sale profits at the Sonora Lithium Project and
accordingly the Parent 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, other receivables and receivables from related parties
represents the Parent 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 Parent Company considers all its accounts receivables fully collectible.
Liquidity risk
Liquidity risk is the risk that the Parent Company will not be able to meet its financial obligations as they become
due. The Parent Company 's approach to managing liquidity risk is to ensure, as far as possible, that it will have
109
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 Parent Company’s gross financial liabilities
based on exchange rates on the reporting date:
As at 31 December 2021 (In US$)
Within 30
days
30 days to
6 months
6 to 12
months
Over 12
months
Accounts payable and accrued liabilities
3,873,968
Financial warrant liability
1,750,000
–
–
As at 31 December 2020 (In US$)
Within 30
days
30 days to 6
months
6 to 12
months
Accounts payable and accrued liabilities
661,757
Payables to related parties
Financial warrant liability*
–
–
–
–
–
–
–
–
–
–
–
–
–
Over 12
months
37,558,874
–
*No gross cash financial liability is present as the Parent Company had 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 Parent 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 Parent Company’s expenditures, other receivables, accounts payables and accrued liabilities are
predominately denominated in US dollars, Great British pound and euro and are therefore subject to fluctuation in
exchange rates.
As at 31 December 2021, a 10% change in the exchange rate between the United States dollar and euro and Great
British pound, which is a reasonable estimation of volatility in exchange rates, would result in less than US$0.1 million
change to the Parent Company’s total comprehensive loss.
Fair values
The fair value of cash, other receivables, receivables from related parties, accounts payable and accrued liabilities
approximate their carrying values due to the short-term nature of the instruments.
Fair value measurements recognised in the statement of financial position subsequent to initial fair value recognition
can be classified into Levels 1 to 3 based on the degree to which fair value is observable.
Level 1 – Fair value measurements are those derived from quoted prices in active markets for identical assets and
liabilities.
Level 2 – Fair value measurements are those derived from inputs other than quoted prices included within Level 1
that are observable for the asset or liability, either directly, or indirectly.
Level 3 – Fair value measurements are those derived from valuation techniques that include inputs for the asset or
liability that are not based on observable market data.
The level 3 fair value for the financial warrants liability is disclosed in note 12 of the Consolidated Financial
Statements.
There were no transfers between any levels of the fair value hierarchy in the current or prior years.
110
14 Equity
Authorised and issued share capital
The authorised share capital of the Parent Company consists of an unlimited number of voting common shares of par
value £0.10.
The Parent Company has the following shares in issue:
31 December 2019
Issue of share capital - RSUs1
31 December 2020
Shares
Share Capital
(US$)
Share Premium
(US$)
222,981,837
30,240,469
16,646,060
833,846
107,714
155,108
223,815,683
30,348,183
16,801,168
Issue of share capital - Capital raise2
106,995,885
14,730,123
48,129,302
Issue of share capital - Ganfeng pre-emption3
53,333,333
7,537,067
26,023,740
Share premium reduction
Issue of share capital - Options4
–
–
(90,954,210)
2,991,601
398,684
813,170
31 December 2021
387,136,502
53,014,057
813,170
1 The issuance of 833,846 new ordinary shares in relation to the vesting of RSUs granted in September 2017 at an issue price of 24.4p.
2 The issuance of 101,395,885 new ordinary shares in the Company to institutional and professional investors at a price of 45p. In addition, retail
and other investors subscribed for 5,600,000 new ordinary shares at a price of 45p. Amounts are shown net of transaction costs.
3 Ganfeng exercised its pre-emption rights in relation to the above capital raise and subscribed to a total of 53,333,333 new ordinary shares at a
price of 45p. Amounts are shown net of transaction costs.
4 The issuance of 2,991,601 new ordinary shares in relation to the Company’s options being exercised. 1,258,009 were issued at an issue price of
24.4p, 1,300,863 were issued at an issue price of 33.25p and 432,729 were issued at an issue price of 39.25p.
Share options
The Parent Company’s share option plan has been disclosed in note 15 of the Consolidated Financial Statements. All
such options, and only those, disclosed were held by the Parent Company.
Restricted share units
The Parent Company’s restricted share unit plan has been disclosed in note 15 of the Consolidated Financial
Statements. All such units, and only those, disclosed are held by the Parent Company.
111
Share-based payment reserve
The following table presents changes in the Parent Company’s share-based payment reserve:
In US$
31 December 2019
Issue of share capital - RSUs
Lapsed option charge
Share-based payment expense
31 December 2020
Issue of share capital - Options
Lapsed option charge
Vesting of RSUs
Share-based payment expense
31 December 2021
Share-based payment expense
1,454,591
(708,097)
(598,774)
590,665
738,385
(495,812)
(125,353)
(981,448)
864,228
–
During the year ended 31 December 2021, the Parent Company recognised US$864,229 (year ended 31 December
2020: US$590,665) of share-based payment expense. The fair value of share-based compensation was estimated on
the dates of grant using the Black-Scholes option pricing model with the assumptions contained within note 15 of the
Consolidated Financial Statements. As a consequence of all “in the money” unvested options, vesting in full, on the
Ganfeng Offer becoming unconditional on 17 December 2021, the remaining share-based payment expense of these
options has been accelerated through the Statement of Comprehensive Income in the year.
Merger reserve
On 23 March 2018, the Plan of Arrangement to re-domicile the Bacanora Group from Canada to the UK became
effective resulting in Bacanora Lithium Plc becoming the new holding company for Bacanora Minerals Ltd. Under the
Company’s Act 06 Section 612, a merger reserve has been utilised to account for the difference between the share
capital and net asset investment in Bacanora Minerals Ltd.
Loss per share
Basic and diluted loss per share for the year ended 31 December 2021 were as follows:
For the year ended
31 December 2021
31 December 2020
Loss for the year attributable to owners of equity
(2,449,933)
(13,513,816)
Weighted average number of common shares for
the purposes of basic and diluted loss per share
351,379,131
223,186,881
Basic and diluted loss per share ($)
(0.01)
(0.06)
Warrants were excluded from the dilution calculation as they were anti-dilutive.
112
15 Related party disclosures
Related party transactions
The Group’s related parties include:
Its subsidiaries
joint venture: Sonora Lithium Ltd and its subsidiaries, together the “Sonora Lithium Group”;
associate: Zinnwald Lithium Plc;
-
-
-
- majority shareholder: Ganfeng International Trading (Shanghai) Ltd and
-
the Parent Company’s key management personnel.
Transactions with its Directors and key management personnel have been disclosed in note 21 of the Consolidated
Financial Statements.
A summary of the transactions and outstanding balances for the year ended 31 December 2021 are set out below:
Name of related party
Type of transaction
Transaction
value
Balance owed
by / (owed to)
related parties
Ganfeng International Trading (Shanghai)
Ltd
Ganfeng International Trading (Shanghai)
Ltd
Sonora Lithium Ltd
Bacanora Chemco S.A. de C.V.
Bacanora Minerals Ltd
Bacanora Finco Ltd
Share purchase - pre-emption1
33,916,800
–
Share option receivable2
2,691,120
2,726,934
Release of payable3
Project funding and interest
Working capital
Interest rate - 28%,
Maturity date - June 2024
8,339,332
1,070,289
249,344
29,254,402
–
3,874,102
752,610
34,860
Bacanora Treasury Ltd
Non-interest bearing
–
15
1On 21 May 2021, Ganfeng completed its pre-emption right exercise to increase its holding in the Parent Company to 28.88%. Ganfeng subscribed
for a total of 53,333,333 new ordinary shares at the placing price of 45 pence per share, representing gross proceeds £24.0 million (US$33.9
million).
2 On 17 December 2021, 2,991,601 new ordinary shares in relation to the Parent Company’s options were exercised. 1,258,009 were issued at an
issue price of 24.4p, 1,300,863 were issued at an issue price of 33.25p and 432,729 were issued at an issue price of 39.25p. The option holders
agreed to sell the new shares to Ganfeng as part of the Ganfeng Offer at 67.5p. It was agreed by the Parent Company, Ganfeng and the option
holders that Ganfeng would pay the Parent Company the sale funds and the Parent Company would retain the exercise price per share and pass
on the profit to the option holders.
3 On 19 May 2021, SLL performed a US$8.3 million capital reduction. On the same day, the Company and SLL signed a deed of release relating to
a payable balance totaling US$8.3 million. The release of the payable resulted in a deemed distribution of US$8.3 million, Bacanora’s share has
been credited against the Parent Company’s investment in joint venture to reflect the decrease in share of net assets of the Sonora Lithium Group.
A gain of US$4.2 million, resulting from the receipt of Ganfeng’s share of the distribution, has been recognised through the Statement of
Comprehensive Income.
A summary of the transactions and outstanding balances for the year ended 31 December 2020 are set out below:
Name of related party
Commercial terms
Bacanora Finco Ltd
Interest rate - 28%,
Maturity date - June 2024
Sonora Lithium Ltd
Non-interest bearing
Bacanora Chemco S.A. de C.V.
Interest rate - 20% + Libor,
Maturity date - December 2039
Bacanora Minerals Ltd
Non-interest bearing
Bacanora Treasury Ltd
Non-interest bearing
113
Transaction
value
Balance owed by /
(owed to) related
parties
6,670,720
(29,219,542)
8,386,776
2,803,813
8,755,980
–
(8,339,332)
2,803,813
503,266
15
16 Directors and employees of the Parent Company
The below information relates to all Directors and employees:
In US$
Gross salaries
Bonus
Share-based payments
Employer social security costs
Employer pension costs
Total cost
Average number of employees and
Directors
Year ended
Year ended
31 December 2021
31 December 2020
1,775,965
243,313
772,002
561,236
31,828
3,384,344
13
1,485,657
–
522,507
236,204
14,017
2,258,385
12
Directors’ remuneration totalled the following:
In US$
Directors' salaries
Bonus
Share-based payment expense
Total remuneration
Number of Directors
Year ended
Year ended
31 December 2021
31 December 2020
1,057,903
188,541
415,322
1,661,766
8
919,867
–
302,878
1,222,745
8
Details of gains made by Directors on the exercise of share options and RSUs have been disclosed in Note 21 of
Consolidated Financial Statements.
Details of the highest paid Director have been disclosed in Note 22 of Consolidated Financial Statements.
17 Commitments
The Company has a commitment on its UK office of US$11,884 for 2 months’ rent.
18 Subsequent events
Subsequent events relating to the Parent Company have been disclosed in note 24 of the Consolidated Financial
Statements.
114
19 Note to the statement of cash flows
Non-cash transactions from financing activities are shown in the reconciliation of liabilities from financing
transactions below:
In US$
Opening balance
Cash flows
Non cash flows
Finance costs
Release of payable to related party
Related party reclassifications
Total
Payables to related parties
Payables to related parties
31 December 2021
31 December 2020
37,558,874
(44,272,897)
15,053,355
(8,339,332)
–
–
32,264,513
(657,906)
5,856,845
–
95,422
37,558,874
The adjustment for the share-based payment expense within cash flows from operating activities includes US$864,288
share-based payment expense offset by a cash settlement of US$188,679 on the vesting of RSUs.
115