Bacanora Lithium Limited (formerly known as Bacanora Lithium Plc)
Annual Report and Financial Statements
31 December 2022
Company Directory
Board of Directors
Peter Secker
Junichi Tomono
Wang Xiaoshen
Company Secretary
Cherif Rifaat
Registered Office
Registered Number
4 More London
Riverside
London
SE1 2AU
11189628
Contents
Strategic Report ...................................................................................................................... 1
Directors Report ..................................................................................................................... 10
Directors Statement of Responsibilities .......................................................................................... 12
Independent Auditor’s Report to the members of Bacanora Lithium Limited .............................................. 13
Statement of Financial Position ................................................................................................... 16
Statement of Comprehensive Income ............................................................................................ 17
Statement of Changes in Equity ................................................................................................... 18
Statement of Cash Flows ........................................................................................................... 19
Notes to the Financial Statements ................................................................................................ 20
Strategic Report
1 Business model
Bacanora Lithium Limited (the “Company”) is a 100% subsidiary of Ganfeng International Trade (Shanghai) Co., Ltd.
("Ganfeng"). On 3 January 2023, the Company officially re-registered its name from Bacanora Lithium Plc. The
Company’s business model is to create value through the investment in the Sonora Lithium Project ("Sonora Project”)
in Mexico via its 50% joint venture holding in Sonora Lithium Ltd (“SLL”) and by extension SLL’s subsidiaries,
collectively, “Sonora Group” or “Joint Venture”. The Company is the holding company for the Bacanora Lithium group
entities (the “Group”) which manage the development of the Sonora Project. Ganfeng hold the other 50% of SLL.
To capitalise on the fast-growing lithium market, the main focus is to monetise the resources and reserves held in
the Sonora Project, which benefits from a large, scalable and high-grade lithium resource with a global resource
(measured, indicated and inferred) of almost 9 million tonnes of lithium carbonate equivalent (“LCE”). This will be
achieved, initially, by developing the mine and processing plant in several phases. The Company aims to produce a
battery-grade lithium product for sale to downstream cathode and battery manufacturers through existing offtake
partners Ganfeng and Hanwa Co., Ltd (“Hanwa”).
The Sonora Project comprises ten mining concession areas covering approximately 100,000 hectares in the northeast
of Sonora State in Mexico. Seven of these mining concessions were included in the feasibility study published in
January 2018. The feasibility study indicated a US$1.253 billion pre-tax Net Present Value for the Sonora Project
using 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 world’s lowest cost producers. There have been no updates to the
feasibility study since January 2018.
The approach to delivering this core business model is predicated upon 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 from the Sonora Lithium team, the Company’s sole shareholder and joint
4.
venture partner Ganfeng and global network of advisers.
In excess of seven years of pilot plant operations in Mexico, which has proven a pioneering lithium extraction
process.
5. Emphasis on building strong local organisations and skill sets.
6. Commitment to excellence in Environment and Social matters.
7. Securing funding for the Sonora Project.
8. Long-term lithium offtake agreements with Ganfeng and Hanwa.
9. Disciplined capital management and careful handling of Company resources.
On 6 May 2021, the Company and Ganfeng entered into an agreement regarding the terms of a possible cash offer for
the entire issued and to be issued share capital of the Company that Ganfeng did not already own. On 17 December
2021, Ganfeng’s offer became unconditional. Furthermore, on 23 December 2021, Ganfeng had received acceptances
in excess of 75 percent for the Company’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 Company delisted from AIM
on the London Stock Exchange on 26 January 2022. On 8 August 2022, Ganfeng had completed the offer to the
Company and holds 100% equity interest of the Company as at 31 December 2022.
2 Strategy
Bacanora’s vision is 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. Complete.
2. Complete the feasibility study to evaluate and quantify the economic potential of its Sonora Project.
Complete.
3. Validate the quality of its product by securing high quality offtake partners. Complete.
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4. Finalise a detailed design of the mine and processing plant for stage 1 of the Sonora Project. Ongoing.
5. Secure all necessary permissions to construct and run the mine and processing plant. Ongoing.
6. Complete the funding required to construct the Sonora Project. Yet to commence.
7. Construction and commissioning of the Sonora Project’s plant. Yet to commence.
8. Hiring of a team with the expertise to deliver the Sonora Project into production. Ongoing.
3 Key Challenges
The Company plans to move into the project construction stage in late 2023 or early 2024 to develop the Sonora
Project subject to finalisation of the Plant design and all relevant approvals. The Company is a wholly owned
subsidiary of Ganfeng, a world-class majority shareholder and joint venture partner for the Sonora Project. Ganfeng
has a wealth of experience in creating operating lithium producing plants. The Company will face many challenges
during the construction phase of the Sonora Project, principally, ensuring the safe operation of the construction site.
It is a key challenge to ensure that the construction can proceed unabated and deliver the Sonora Project with
expedience and within budget.
On 22 April 2022, the Mexican government published a decree to amend the Mining law1. The amendment declared
lithium to be a strategic mineral and property of the nation. The declaration detailed how lithium and its associated
value chain is to be managed. The exploration, mining exploitation, refining, and use of lithium are reserved in favour
of the people of Mexico; and such activities will be regulated through a government agency, the newly formed
company, Litio para México2 (“LitioMex”). The decree also explained that no further concessions, licenses, contracts,
permits, or authorizations will be granted for lithium related activities and that economic value chains relating to
lithium will also be managed and controlled by LitioMex. The Company has challenged the change to the law through
the Federal Court and is exploring all possible legal recourse available to it. A key challenge is to negotiate a path
and workable solution with the Mexican government and enter into a commercial relationship with LitioMex for the
benefit of the Sonora Project and receiving all construction and operational permissions.
The production of battery-grade lithium products from the Sonora Project is dependent upon successfully recovering
lithium from clay; mined via open pit excavation operations feeding a three-part chemical processing plant comprising
beneficiation, pyrometallurgical and hydrometallurgical sections. The processing plant will require the supply of both
gas and high voltage electricity infrastructure to be established at the site. The long-term plan is for a third-party
service provider to provide an 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.
The planet is facing climate change related risks which may become increasingly challenging until such time that
influencing factors such as greenhouse gas emissions are significantly reduced and better controlled. The Company
is not immune to these risks, particularly extreme weather events which could impact the construction of the Sonora
Project or its operations in future. The Company is committed to minimising adverse environmental impacts of its
operations. By virtue of the Sonora Project’s prospective product, battery-grade lithium compounds, the Company
will be at the forefront of renewable energy and mobility transitions by contributing one of the key raw materials
required. Lithium batteries will enable grid and domestic scale energy storage and are a key component of zero
emission electric vehicles. In this way, the transitions will contribute to the reduction in greenhouse gas emissions.
4 Principal risks and uncertainties
The Board is responsible for putting in place a system to manage current, emerging and future risk types and
implementing internal controls thereof. Risks can manifest themselves as threats or can present as opportunities to
be exploited, both can affect business performance.
1 https://www.dof.gob.mx/nota_detalle.php?codigo=5649533&fecha=20/04/2022#gsc.tab=0
2 https://sidof.segob.gob.mx/notas/5662345
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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. 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 employees are responsible for identifying, evaluating and managing risks. Sonora Group 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 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. Bacanora
has developed procedures for identifying, evaluating and managing significant risks faced by the Group and the Joint
Venture.
a) Financial controls
The Company has an established framework of internal financial controls, the effectiveness of which is regularly
reviewed by the senior management team and the Board and which involves an ongoing assessment of significant
risks facing the Company and the Group.
The Board is responsible for reviewing and approving overall Company strategy, approving budgets and plans.
Monthly results and variances from plans and forecasts are reported to the Board.
There are procedures for budgeting and planning, procurement to pay, financial close and reporting and
treasury. These are used for monitoring and reporting to the Board against those budgets and plans, and for
forecasting expected performance throughout the financial period. These cover income statements,
cashflows, capital expenditures and balance sheets.
b)
Internal controls
The Board is responsible for ensuring that a “fit for purpose” system of internal control exists to safeguard the
shareholder’s 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 and where possible eliminate risk altogether.
However, even the most effective system cannot provide assurance that each and every risk, present and future, has
been addressed.
c) Principal Risks
The Company’s internal risk identification and management process is undertaken by the Executive management
team and Management Risk Committee who own, prepare and regularly review the risk register for the Company.
The risk register details specific known risks to the Company and its investments and with some mitigating actions to
manage these risks. A “traffic-light” management system is used for ongoing review and as a medium for categorising
the severity and likelihood for each risk.
The principal risks and uncertainties outlined in this section reflect the risks that could materially affect Bacanora,
or its ability to achieve 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 to be commercially producing mines. Large capital investments require multi-year execution
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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;
availability of infrastructure capacity (see Risk 4 below);
ability to attract sufficient numbers of suitably qualified personnel;
obtaining sufficient financing for the development of the Sonora Project (see Risk 3 below);
market price of lithium;
environmental and regulatory compliance requirements;
delays in completion of front-end engineering design (“FEED”);
breakdown or failure of equipment or processes;
increased operating costs due to changes in input costs, including plant, material, energy and labour costs;
lack of availability of mining and processing equipment;
construction, procurement and/or performance of the processing plant and ancillary operations falling below
expected levels of output or efficiency;
taxes and imposed royalties;
non-performance by third party contractors, contractor or operator errors;
disruption caused by external groups e.g., non governmental organisations and illegal demonstrators;
unfavourable weather conditions; and
catastrophic events such as fires, earthquakes, 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
successfully managing each of 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: importation of
capital equipment and process chemicals, 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 of many other infrastructure related 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. There is no guarantee that funds will be available to finance construction given that the
Sonora Project is not fully financed. 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 having a material adverse
effect on the Group’s business, prospects, financial position, production volume and cash flows.
Mitigation:
The Sonora Feasibility Study 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 owner of the Company. Furthermore, the Company obtained material additional capital
injections from the equity placings and a 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.
Trend:
There is 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. geopolitical risks and the availability of sufficiently skilled staff
at a reasonable cost. Other risks have decreased e.g., the impact of COVID-19 due to the increased rates of
vaccination and herd immunity. Delays to the FEED may mean that commencement of production is delayed relative
to the original target date.
Risk 2: Geopolitical uncertainty
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Geopolitical risks are challenging for companies as they are hard to predict, interconnected with other business risks
and can significantly impact business operations. Populism and protectionism, with collective backlashes against
globalization coupled with the threat of resource or asset expropriation are becoming increasingly prevalent globally.
Beyond contributing to financial uncertainty and volatility, the rise of economic nationalism, particularly in Mexico
may mean that Bacanora could operate in a market 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.
Geopolitical events, such as the Russian invasion of Ukraine, can be unpredictable and have a severe impact on the
wider economy. Impacts of the war, which are relevant to Bacanora include significantly increasing energy and raw
material costs and the broader effect on inflation.
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 the Company monitors developments in the
jurisdictions in which it operates and performs due diligence ahead of entering a business partnership including
looking at geopolitical implications. The Company behaves as responsible corporate citizens and adds value to the
communities in which it operates 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. The
Company has taken steps to challenge the changes to the law as being illegal and unconstitutional.
Trend:
The increasing rate of change in geopolitics, asset and resource expropriation in Mexico and globally, means that
geopolitical risks remain key. On 22 April 2022, the Mexican government published a decree to amend the law relating
to lithium. The amendment declared lithium to be a strategic mineral and property of the nation. The declaration
detailed how lithium is to be managed. The exploration, mining exploitation, refining, and use of lithium are reserved
in favour of the people of Mexico; and such activities are to be carried out by a government agency, the newly formed
company, LitioMex. The decree also explained that no further concessions, licenses, contracts, permits, or
authorizations will be granted for lithium related activities and that economic value chains relating to lithium will
also be managed and controlled by LitioMex. On 18 February 2023, President Andres Manuel Lopez Obrador of Mexico
signed a decree published in the Official Gazette of the Federation. The decree creates a 234,855 hectares lithium
mining reserve zone in Sonora dubbed “Li-MX 1”, in which no Lithium mining can take place. However, “the rights
and obligations of the holders of current mining concessions that are located within the lithium mining reserve zone
"Li-MX 1" remain safe”. Another decree made on 18 February 2023 gave responsibility for lithium reserves to the
Ministry of Energy, after nationalising lithium deposits last April. That decree instructed the Ministry of Energy to
take necessary actions to give compliance with the provisions of the mining law regarding Lithium. As indicated, 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 achieve
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.
During the reporting period, Bacanora Finco Ltd, the Company’s 100% owned subsidiary, settled all outstanding
liabilities with RK Mine Finance (“RK”) and the Group currently operates with no external debt.
The Company does not have sufficient finance to complete the Sonora Project in its entirety and as the Sonora Project
develops there will be a requirement for significant additional finance at various intervals or stages of development.
However, there is no guarantee that sufficient finance would be available when required throughout this journey.
Ganfeng has provided the Company with a wider reach to the lending community and its reputation in the lithium
industry provides a stronger platform of finance negotiation.
Mitigation:
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As at 31 December 2022, Bacanora Group had US$14.0 million cash on hand and Sonora Group had US$21.3 million
cash on hand and no third party debt. In addition to the existing cash reserves in Bacanora Group and Sonora Group,
Ganfeng, being the sole shareholder of Bacanora, may assist in providing funding for the development of the Sonora
Project.
Trend:
Overall, since the last reporting period Bacanora’s financing risk has diminished significantly as a result of Bacanora
settling all obligations to RK by repaying the debt and settling warrants in full on 7 January 2022. Current and forecast
favourable lithium prices, may support the ability for Bacanora, Ganfeng or a project company to raise further debt
or equity financing as required to finance the Project, however there is no guarantee that these funds would be
available to the Company or the Sonora Project.
Risk 4: Infrastructure
The Sonora Project depends to a significant degree on adequate infrastructure. In the course of developing its
operations, the Company will be required 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 Sonora 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 undertaking discussions with several third parties for the construction of
required infrastructure including the energy cogeneration facility and pipeline.
Trend:
No material change in the risk in comparison to previous periods
Risk 5: 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.
Mitigation:
The Company complies with the applicable laws and regulations of the countries in which it operates. Where these
prove insufficient, standards are adopted based on best international industry practice. Safety is a paramount
consideration, and Bacanora is proud to provide a place of work that is safe for everyone. Policies and procedures
have been constituted with the aim of identifying the hazards associated with mining activities and that they are
effectively managed. All occupational health and safety incidents are recorded, categorized and investigated and
where required corrective and preventive actions are implemented.
Trend:
The COVID-19 pandemic continues as a risk from a health and safety perspective, although the Company has
introduced control measures and government vaccination programmes have significantly reduced the risk from COVID-
19 during 2022. Mexico and the UK have opened up in 2022 and treating COVID-19 on a “business as usual” basis.
There is no intrinsic change in operations that would increase the risk inherent in the 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.
Key Performance Indicators
Key performance indicators (“KPIs”) help the Board and executive management assess performance against strategic
priorities and business plans. However, as a pre-operational business, the use of KPIs is limited, current KPIs relate
to cash management and safety. Currently, the Board receives update reports on a monthly basis for operational and
6
corporate elements of the business. The reports include measures of operational expenditure and capex spend against
the budget and 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’s investments progresses toward construction and production, the KPIs will be reassessed accordingly
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 for the key investment, the Sonora Group joint venture.
Key Performance
indicator
Lost
frequency
(LTIFR)
injury
rate
time
Description
Analysis
A key safety metric, the number
of lost time injuries per 1 million
hours worked on a rolling 12-
month basis
In 2022, there were no Lost time injuries (“LTIs”
resulting in a LTIFR of nil. This follows on from Nil LTIs
in 2021, 2020 and 2019 in Bacanora Group and Sonora
Group combined.
Cash balance
Cash balance available to
continue with the activity of
the Group, including exploration,
development and maintenance on
going concern.
At 31 December 2022, the Bacanora’s cash balance was
US$14.0 million, plus a related party loan receivable of
US$60.0 million plus SLL3 Group’s cash balance of
US$21.3 million, totals US$95.3 million on an
aggregated basis (31 December 2021: US$122.1 million
for the group and 26.6 million for Sonora Group). There
is sufficient cash to continue working on
its
development activities.
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Directors’ section 172 statement
The following disclosure describes how the Directors have had regard to the matters set out in section 172(1)(a) to
(f) and forms the Directors’ statement required under section 414CZA of The Companies Act 2006.
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.
The analysis is split into two distinct sections, the first to address stakeholder engagement, which provides
information on stakeholders, issues and methods of engagement, disclosed by stakeholder group. The second section
addresses principal decisions made by the Board. It focuses on how decision making was influenced with regard for
stakeholder interests.
Section 1. Stakeholder mapping and engagement activities within the reporting period.
The Company continuously interacts with a variety of stakeholders important to its success, particularly the
Company’s equity investor and joint venture partner, Ganfeng. Other important stakeholders include but are not
limited to; potential debt providers, the workforce, government bodies, local community, vendor partners and
offtake partners. The Company has eight corporate employees including its Directors on the reporting date. Both the
CEO and CFO are UK based. The Company strives to strike the right balance between engagement and communication.
3 SLL group is a 50:50 JV with Ganfeng
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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.
Equity investor and customer - Ganfeng
The board promotes the success of the company for the benefit of its shareholders. The Company’s strategy is to
source the provision of finance for the Sonora Project. Consequently, access to capital is of vital importance to the
long-term success of the Company and the Sonora Group. As such, engagement with the shareholder and JV and off-
take partner is of paramount importance. The Company is in close communication with members of Ganfeng’s senior
leadership, charged with their international businesses, Mr. Wang Xiaoshen sits on the Bacanora Lithium Limited
board, whilst he and Mr. Zhang Tong sit on the Sonora Lithium Ltd Board as well. Monthly financial and operational
updates are provided to the board and other members of the management team. One-on-one investor meetings and
calls with the CEO and CFO are commonplace.
Employees
On the reporting date the Company had eight corporate employees including its Directors. Both the CEO and CFO are
UK based. The Sonora Project’s workforce is based in Mexico. The Company and the Sonora Project works to attract,
develop and retain the highest quality talent, equipped with the right skills for the future of Bacanora and the Sonora
Project. The Company maintains an open line of communication between its employees, Senior Executive
Management and Board of Directors. The CEO and CFO report regularly to the Board, including the provision of board
information.
External Stakeholders - Government, community and suppliers
The Company and Sonora Project have an effect on the community and governmental organisations in the UK and
Mexico respectively, conversely these stakeholders provide the Company with the social and operating licences to
execute its strategy. As such the Sonora Project is required to engage with the local communities and governmental
organisations to build trust. Having the community’s trust will mean it is more likely that any fears the community
and government have can be assuaged and the Company’s plans and strategies are more likely to gain acceptance.
Community and governmental engagement will inform better decision making. The local community in Bacadéhuachi
and wider Sonora area will provide employees to the mine and suppliers. A good relationship with community and
government organisations is not taken for granted and is highly coveted in the business, the value of which is
intangible but critically important.
During the construction phase, The Sonora Project will use key suppliers under commercial engineering contracts to
deliver the mine and plant, all of whom will be reputable international vendors. Fostering relationships with these
vendors will be crucial for delivering the Company’s strategies. At a local level, the Company also partners with a
variety of smaller companies, some of whom are independent or family run businesses. There will be a need to
balance the benefits of maintaining strong partnerships with key suppliers alongside the need to obtain value for
money for investors and excellent quality and service. Suppliers are engaged via procurement process and have a
number of preferred suppliers including engineering and banking partners with whom there is regular communications
and Sonora Project updates.
As the Sonora Project moves into a construction and production phase, it will in due course, have a larger social,
environmental and economic impact on the local community and surrounding area. It is an aim that companies
associated with the Sonora Project will be committed to ensuring sustainable growth and minimising adverse impacts
of the Sonora Project.
High standards of business conduct
The board recognises the importance of maintaining high standards of business conduct to protect the Company’s
reputation, which in turn benefits the company in its relationships with its varied stakeholders. As such, the board
has implemented policies and processes to support the company’s operating strategy and beneficial culture.
Section 2, Principal decisions by the Board during the reporting period.
Principal decisions are defined as both those that have long-term strategic impact and are material to the Company,
but also those that are significant to the Company’s key stakeholder groups.
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Provision of US$60m principal loan to Ganfeng.
On 20 September 2022, the board resolved to provide GFL International Co. Limited, a 100% subsidiary of Ganfeng,
with a short term US$60 million related party loan, repayable on demand. The board considered the loan would
support the shareholder’s corporate activities whilst earning interest for Bacanora Lithium Plc on funds that could be
more efficiently utilized by the Ganfeng treasury division. On balance, the loan was aligned with corporate strategy,
to utilize resources productively, whilst the FEED is progressing to completion.
Related party Debt re-organisation.
On 11 November 2022, the board resolved to re-organise a myriad of related party loans and debt structure across
the Company and Sonora Group. The Board weighed the options and decided that on balance a simplified group debt
structure and increased capital in Mexico would be a more appropriate financing structure for the Bacanora Lithium
and Sonora group entities, and therefore, would be beneficial for all relevant stakeholders. To achieve this, from the
Company’s perspective, an intercompany loan from Bacanora Lithium Limited to Bacanora Minerals Limited was
eliminated by legal offset and settled in cash from Sonora Lithium Ltd.
No other long-term strategic decisions have taken place that are material for the Company or its stakeholders.
6 Operational Review
During the year ended 31 December 2022, the Company continued to be the holding company for the Sonora Project
via its Joint Venture, Sonora Lithium Ltd, and continued to provide financing for the Sonora Project.
On 7 January 2022, Bacanora Finco Ltd, the Company’s 100% owned subsidiary, settled all outstanding liabilities with
RK Mine Finance (“RK”).
On 26 January 2022, the Company delisted from the AIM stock exchange as a result of the Ganfeng take over.
On 2 August 2022, Ganfeng completed the compulsory purchase of all outstanding stock of the Company increasing
their shareholding to 100%.
On 20 September 2022, the Company signed a short term US$60 million related party loan facility to GFL International
Co. Limited, a 100% subsidiary of Ganfeng. The loan is repayable on demand, carries a 2 per cent fixed interest rate
and expires on 22 September 2023. The loan was fully drawn at 31 December 2022.
On 3 January 2023, the Company officially re-registered as a Limited UK company and changed its name to Bacanora
Lithium Limited.
On behalf of the Board of Directors
Peter Secker
15 March 2023
9
Directors Report
The Directors present their Annual Report and Financial Statements of the Company for the year ended 31 December
2022.
1 Results and dividends
The results for the year are set out in the Financial Statements. No ordinary dividends were paid and the Directors
do not recommend payment of a dividend.
2 Directors
The Directors who served during the year were:
Peter Secker
Wang Xiaoshen - Appointed Chairman 27 January 2022
Junichi Tomono
No Directors have direct interests in the Company.
3 Substantial shareholdings
The Directors are aware of the following substantial interests or holdings in 3% or more of the Company's ordinary
called up share capital as at 31 December 2022. 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.
The Company has the following substantial shareholders:
Shareholder
Ganfeng International Trading
(Shanghai) Ltd (1)
Hanwa Co Ltd
Shareholding on
31 December 2022
Shareholding on
31 December 2021
100%
-
73.1%
3.2%
(1)Ganfeng International Trading (Shanghai) Ltd is a 100% subsidiary of Ganfeng Lithium Group Co., Ltd.
4 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.
5 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).
6 Branches
The Company does not have any branches outside of the United Kingdom as defined in s1046(3) of the Companies Act
2006.
7 Political donations
The Company has not made any political donations during the financial year.
8 Financial risks
See the Principal risks and uncertainties section of the Strategic Report for the Financial risks present to the Company.
10
9 Going Concern
See the Going Concern section in note 2c to the financial statements.
10 Bacanora Group accounts
Under Companies Act 2006, Section 401, the Company is exempt from the requirement to prepare group accounts as
it is a wholly-owned subsidiary of a company that is not established under the law of any part of the United Kingdom.
The Company’s debt and equity instruments are not traded in a public market. The ultimate parent, Ganfeng Lithium
Group Co., Ltd., produces financial statements in which Bacanora and its subsidiaries are consolidated. These
Financial Statements are available for public use and comply with IFRS. Ganfeng is listed in Shanghai Stock Exchange
and Hong Kong Stock Exchange.
11 Post balance sheet events
See note 19 of the Financial Statements for a detailed discussion on events that occurred subsequent to 31 December
2022.
12 Future developments
The Company will continue to be a holding company and provide a financing role for the Sonora Project.
13 Auditor
BDO LLP was replaced by Ernst and Young LLP who were appointed as auditor to the Company and in accordance with
section 485 of the Companies Act 2006, a resolution proposing that they be re-appointed for 2023 will be put at a
General Meeting.
14 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
Peter Secker
15 March 2023
11
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 Financial Statements in accordance with UK adopted international accounting
standards. 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 Company and of the profit or loss of the Company
for that period.
In preparing these Financial Statements, the Directors are required to:
select suitable accounting policies and then apply them consistently;
make judgements and accounting estimates that are reasonable and prudent;
state whether they have been prepared in accordance with UK adopted international accounting standards,
subject to any material departures disclosed and explained in the Financial Statements;
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.
The board confirms that to the best of its knowledge:
(a) the financial statements, prepared in accordance with the applicable set of accounting standards, give a true
and fair view of the assets, liabilities, financial position and income statement of Bacanora Lithium Limited.
(b) the management report includes a fair review of the development and performance of the business and the
position of Bacanora Lithium Limited, together with a description of the principal risks and uncertainties that the
Company faces.
(c) the annual report and financial statements, taken as a whole, are fair, balanced and understandable and
provide the information necessary for shareholders to assess the Company’s performance, business model and
strategy.
By order of the Board
Peter Secker
15 March 2023
12
Independent Auditor’s Report to the members of Bacanora Lithium Limited
Opinion
We have audited the financial statements of Bacanora Lithium Limited for the year ended 31 December 2022 which
comprise the Statement of Financial Position, the Statement of Comprehensive Income, the Statement of changes in
Equity, the Statement of Cash Flows and the related notes 1 to 19, including a summary of significant accounting
policies. The financial reporting framework that has been applied in their preparation is the applicable law and UK
adopted International Accounting Standards.
In our opinion, the financial statements:
give a true and fair view of the company’s affairs as at 31 December 2022 and of its loss for the year then ended;
have been properly prepared in accordance with UK adopted International Accounting Standards; and
have been prepared in accordance with the requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law.
Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the
financial statements section of our report. We are independent of the 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, and we have fulfilled our other ethical responsibilities in accordance with these requirements.
Emphasis of matter – Investment in joint venture
We draw attention to notes 4a and 19 of the financial statements, which describe the effects of the Mexican
government decree to amend the Mining law on the investment in the Sonora Lithium Ltd joint venture. Our opinion
is not modified in respect of this matter.
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.
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 company’s ability to continue as a
going concern for a period to 31 March 2024.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the
relevant sections of this report. However, because not all future events or conditions can be predicted, this statement
is not a guarantee as to the company’s ability to continue as a going concern.
Other information
The other information comprises the information included in the annual report, other than the financial statements
and our auditor’s report thereon. The directors are responsible for the other information contained within the annual
report.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise
explicitly stated in this 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 the other information, we are required to report that fact.
We have nothing to report in this regard.
13
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
the information given in the strategic report and the directors’ report for the financial year for which the
financial statements are prepared is consistent with the financial statements; and
the strategic report and directors’ report have been prepared in accordance with applicable legal requirements.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the company and its environment obtained in the course of the
audit, we have not identified material misstatements in the strategic report or 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, or returns adequate for our audit have not been received from
branches not visited by us; or
the 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’ Statement of Responsibilities set out on page 12, 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 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 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.
Explanation as to what extent the audit was considered 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 irregularities, including fraud. 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 or intentional misrepresentations, or through collusion. The
extent to which our procedures are capable of detecting irregularities, including fraud is detailed below. However,
the primary responsibility for the prevention and detection of fraud rests with both those charged with governance
of the entity and management.
• We obtained an understanding of the legal and regulatory frameworks that are applicable to the company and
determined that the most significant are those that relate to the reporting framework (UK adopted International
Accounting Standards and the Companies Act 2006) and the local tax legislation. In addition, we concluded that
there are certain significant laws and regulations which may have an effect on the determination of the amounts
and disclosures in the financial statements being laws and regulations relating to health and safety, employee
matters, environmental protection, data protection, anti-bribery and corruption.
• We understood how Bacanora Lithium Limited is complying with those frameworks by making enquiries of
management, the company secretary and those charged with governance. We corroborated our enquiries through
14
our review of Board minutes, the Company’s code of conduct and the Company’s whistle-blower policy and noted
that there was no contradictory evidence. We also enquired directly with the Company’s lawyers.
• We assessed the susceptibility of the Company’s financial statements to material misstatement, including how
fraud might occur by meeting with management to understand where it considered there was susceptibility to
fraud. We considered the programmes and controls that the Company has established to address risks identified,
or that otherwise prevent, deter and detect fraud; and how senior management monitors those programmes and
controls. Where the risk was considered to be higher, we performed audit procedures to address each identified
fraud risk. These procedures included testing journal entries that met our defined risk criteria based on our
understanding of the business and challenging the assumptions and judgements made by management in areas
where judgement is required including those referred to in the Emphasis of Matter paragraph above.
Based on this understanding we designed our audit procedures to identify non-compliance with such laws and
regulations. Our procedures involved understanding management’s internal controls over compliance with laws
and regulations; enquiry of the company secretary and senior management; and reviewing whistleblowing logs.
•
A further description of our responsibilities for the audit of the financial statements is located on the
Financial Reporting Council’s website at https://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 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 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 company and the company’s
members as a body, for our audit work, for this report, or for the opinions we have formed.
Stephney Dallmann
Senior Statutory Auditor
for and on behalf of Ernst & Young LLP
London
15 March 2023
15
Statement of Financial Position
As at 31 December 2022
In US$
Assets
Current assets
Receivables from related parties
Other receivables and prepayments
Cash and cash equivalents
Total current assets
Non-current assets
Investment in joint venture
Investment in subsidiaries
Receivables from related parties
Other receivables and prepayments
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
Payable to related party
Total non-current liabilities
Total liabilities
Shareholders’ equity
Share capital
Share premium
Merger reserve
Retained earnings
Total shareholders’ equity
Note
31 December 2022
31 December 2021
7
8
6
5
7
8
9
12
12
12
60,271,667
264,448
13,969,133
74,505,248
2,726,934
814,311
81,556,608
85,097,853
48,295,448
50,144,596
3
7,974,456
666,099
56,936,006
3
4,661,587
–
54,806,186
131,441,254
139,904,039
124,375
–
124,375
1
1
3,873,968
1,750,000
5,623,968
–
–
124,376
5,623,968
53,014,057
813,170
40,708,662
36,780,989
131,316,878
53,014,057
813,170
40,708,662
39,744,182
134,280,071
Total liabilities and shareholders’ equity
131,441,254
139,904,039
The accompanying notes on pages 20 - 36 are an integral part of these Financial Statements.
The Financial Statements of Bacanora Lithium Limited, registered number 11189628, were approved and authorised
for issue by the Board of Directors on 15 March 2023 and were signed on its behalf by:
Peter Secker
15 March 2023
16
Statement of Comprehensive Income
For the year ended 31 December 2022
In US$
Expenses
General and administrative
Share based payment expense
Operating loss
Finance income
Finance costs
Distribution income of release of payable
Share of loss in investment in joint venture
Gain on deemed disposal of subsidiaries
Other income
Loss before tax from continuing operations
Tax charge
Loss after tax from continuing operations
Gain on discontinued operation - Zinnwald Lithium
Loss after tax
Other comprehensive income/(loss):
Foreign currency translation adjustment
Recycled translation difference to profit and loss - Zinnwald
Lithium
Total comprehensive loss
Note
Year ended
Year ended
31 December 2022
31 December 2021
13
12(c)
14
14
6(a)
15
(3,019,388)
–
(3,019,388)
1,870,754
(52,429)
–
(1,849,148)
–
87,018
(2,963,193)
–
(2,963,193)
–
(2,963,193)
(8,096,614)
(864,228)
(8,960,842)
947,941
(15,307,525)
4,169,665
(1,011,167)
9,050,192
–
(11,111,736)
–
(11,111,736)
8,661,803
(2,449,933)
–
–
(432,084)
127,875
(2,963,193)
(2,754,142)
The accompanying notes on pages 20 - 36 are an integral part of these Financial Statements.
17
Statement of Changes in Equity
For the year ended 31 December 2022
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
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
31 December 2021
Comprehensive loss for the year:
Loss for the year
Other comprehensive loss
Total comprehensive loss
31 December 2022
223,815,683
30,348,183
16,801,168
40,708,662
738,385
304,209
(32,278,013)
56,622,594
–
–
–
–
–
–
–
–
–
12
12
12
12
12
12
12
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)
–
–
–
–
–
–
–
–
–
–
–
–
387,136,502
53,014,057
813,170
40,708,662
–
–
–
–
–
–
–
–
–
–
–
–
387,136,502
53,014,057
813,170
40,708,662
–
–
–
–
–
(495,812)
(125,353)
(981,448)
864,228
–
–
–
–
–
–
–
–
(2,449,933)
(2,449,933)
(304,209)
–
(304,209)
(304,209)
(2,449,933)
(2,754,142)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
495,812
125,353
62,859,425
33,560,807
1,211,854
–
(880,078)
(1,861,526)
–
864,228
90,954,210
–
(16,223,169)
(16,223,169)
39,744,182
134,280,071
(2,963,193)
(2,963,193)
–
–
(2,963,193)
(2,963,193)
36,780,989
131,316,878
The accompanying notes on pages 20 - 36 are an integral part of these Financial Statements.
18
Statement of Cash Flows
For the year ended 31 December 2022
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
Changes in working capital items:
Other receivables and prepayments
Accounts payable and accrued liabilities
Net cash flows used in operating activities
Cash flows from investing activities:
Interest received
Advances to related parties
Repayment from related parties
Net cash flows used in investing activities
Cash flows from financing activities
Proceeds from share capital, net of share costs
Repayment of intercompany borrowing
Proceeds from share options receivables
Settlement of warrant liability
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
31 December 2022
Year ended
31 December 2021
14
14
6(a)
8
9
7
(2,963,193)
(2,449,933)
–
392,010
(1,870,754)
52,429
1,849,148
–
–
–
675,549
163,374
(947,941)
15,307,525
1,011,167
(9,050,193)
(4,169,666)
(8,661,803)
(134,034)
(3,725,309)
(6,399,703)
(676,227)
19,732
(8,778,416)
794,452
(63,637,666)
1,077,003
(61,766,211)
–
–
2,726,934
(1,750,000)
976,934
(67,188,980)
(398,495)
81,556,608
13,969,133
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
The accompanying notes on pages 20 - 36 are an integral part of these Financial Statements.
19
Notes to the Financial Statements
1 Corporate information
These Financial Statements represent the financial statements of the Company, Bacanora Lithium Limited.
The Company was incorporated under the Companies Act 2006 of England and Wales on 6 February 2018. The Company
was previously listed on the AIM of the London Stock Exchange, with its common shares trading under the symbol,
“BCN”. On 26 January 2022, the Company delisted from the AIM of the London Stock Exchange. The registered address
of the Company is 4 More London Riverside, London, SE1 2AU. The ultimate parent of the Company is Ganfeng Lithium
Co., Ltd which is officially listed on Shenzhen Stock Exchange and the Main Board of The Stock Exchange of Hong
Kong Limited. Its registered office is located at Longteng Road, Xinyu Economic Development Zone, Jiangxi Province.
Its principal place of business is People’s Republic of China.
The Company is a mining investment and development company, primarily engaged in the identification, acquisition,
exploration and development of mineral properties located in Mexico, through its joint venture holding in the Sonora
Project.
2 Basis of preparation
a) Statement of compliance
These Company Financial Statements have been prepared in accordance with UK adopted international accounting
standards and as 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 Company Financial Statements were authorised for issue by the Board of Directors on 15 March 2023. The Board
of Directors has the power and authority to amend these Financial Statements after they have been issued.
b) 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 functional and presentational currency of these Financial Statements is United States dollars (“US$”).
c) Going concern
The Directors have, at the time of approving the Financial Statements, a reasonable expectation that the Company
has adequate resources to continue in operational existence for the foreseeable future. The Company has prepared
a cash flow forecast for the going concern period (from the approval of the financial statements to 31 March 2024).
This forecast is a detailed analysis of the capital and operational expenditure for the Company encompassing the
going concern period. As at 31 December 2022 the Company has US$14.0 million (2021: US$81.6 million) of cash and
cash equivalents and a receivable due on demand from the parent company of US$60.3 million (2021: US$2.7 million)
giving total liquidity of US$74.3 million (2021: US$84.3 million). As at 31 December 2022 the Company has no external
debt (2021: US$1.8 million) and has not entered into any significant commitments. The Company does not have any
plans to consider raising external debt or equity in the going concern period. The Company remains a going concern
under all plausible downside scenarios, taking into account all known quantifiable information surrounding the change
to the mining act.
The Board of Directors has considered the impact of climate change, the ongoing impact of the Covid-19 pandemic
and war in Ukraine and concluded that currently there is no direct impact on the Company. The Company has
considered the impact of the Mexican government’s decree to amend the Mining law and has concluded from the
body of evidence and the mining rights in general under the Constitution, that this does not impact the going concern
assessment because the ownership of Sonora assets is protected by Mexican and international law. After an audit by
department of economy, On 17 February 2023, Minera Sonora Borax SA de CV, Mexilit SA de CV and Minera Megalit
20
SA de CV received notifications from the ministry of economy informing the companies of the commencement of
cancellation procedures over nine concession titles, due to what is perceived to be an administrative oversight, the
notification triggers a 60-day period for the concession holders to respond to the notification providing evidence of
compliance with all obligations, as per due process. The Company fully disputes the reasons cited for mal
administration and is confident all of its concessions remain valid and will remain valid. The audit is part of the
process of reviewing all lithium concessions announced by the President in April 2022 when the government amended
the mining act. Sonora Group expect to continue with operations as normal and without political interference.
Having considered the modelling and other factors as described above, the Company has concluded that the going
concern basis of accounting is appropriate to assume when preparing the Company financial statements for the year
ended 31 December 2022.
3 Accounting policies
The preparation of Financial Statements in compliance with IFRS requires management to make certain critical
accounting estimates. It also requires management to exercise judgement in applying the Company’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 Financial Statements
are disclosed in note 4.
d) Standards, amendments and interpretations adopted
During the year, the following standards and amendments have been implemented.
Standard
IFRS 1
IFRS 3
IFRS 9
Standard
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 per cent’ test for derecognition of financial liabilities)
Effective date
1 January 2022
1 January 2022
1 January 2022
Detail
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
Amendments regarding the costs to include when assessing whether a
contract is onerous
Effective date
1 January 2022
1 January 2022
The adopted amendments have not resulted in any changes to the Financial Statements.
e) Standards, amendments and interpretations effective in future periods
At the date of authorisation of these Financial Statements, the following new standards, amendments and
interpretations to existing standards have been published but are not yet effective and have not been adopted early
by the Group.
Standard
IFRS 17
IAS 1
IAS 1
IAS 8
IAS 12
Detail
Insurance Contracts
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 2023
1 January 2023
1 January 2023
1 January 2023
1 January 2023
Management anticipates that all the pronouncements will be adopted in the Company’s accounting policies for the
first period beginning after the effective date of the pronouncement. No material impact to the Company’s financial
statements is expected.
21
f) Foreign currency transactions and balances
In preparing the Financial Statements, 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 Statement of Comprehensive Income in the period in
which they arise.
g) Cash and cash equivalents
Cash and cash equivalents comprise 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.
h) 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.
The method of measuring the expected credit losses can be referred to note 3n(i) below.
i)
Investments in subsidiaries
Unlisted investments are carried at cost, being the purchase price, less impairment. The Company assess at the end
of reporting period whether there is any indication that unlisted investments may be impaired. If any such indication
exists, the Company shall estimate the recoverable amount of the unlisted investments.
j)
Investments in joint venture
Certain company 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 ventures arise when the Company has rights to the net assets of the arrangement. For these arrangements, the
Company uses equity accounting and recognizes initial and subsequent investments at cost, adjusting for the
Company’s share of the joint venture’s income or loss, dividends received and other comprehensive income
thereafter. The transactions between the Company and the joint venture are assessed for recognition in accordance
with IFRS and are disclosed in note 16 to the financial statements.
k) Provisions
Provisions are recognised when the Company 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.
l)
Interest income
Interest income is recorded on an accrual basis using the effective interest method.
22
m) Financial instruments
Financial assets and liabilities are recognised when the Company 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.
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. Financial assets and financial liabilities are subsequently
measured as described below.
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 at fair value through the profit and loss or unless
management elect to do so provided to do so eliminates or significantly reduces a measurement or recognition
inconsistency.
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 the profit or loss, that are carried subsequently at fair value with
gains and losses recognised in the Statement of Comprehensive Income.
The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating
and recognising interest expense in the profit and loss account, 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 to the amortised cost of the financial liability.
n)
Impairment of assets
i
Financial assets
The Company recongnises an allowance for expected credit losses (“ECLs”) for all debt instruments not held at fair
value through profit or loss. ECLs are based on the difference between the contractual cash flows due in accordance
with the contract and all the cash flows that the Company expects to receive, discounted at an approximation of the
original effective interest rate. The expected cash flows will include cash flows from the sale of collateral held or
other credit enhancements that are integral to the contractual terms.
The Company has applied below ECLs model for its other receivables, receivables from related parties as permitted
by IFRS 9 Financial Instruments.
Other receivables and receivables from related parties that are not carried at fair value through the 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 ECLs 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.
23
ii Investments in joint venture
Joint ventures are tested for impairment whenever objective evidence indicates that the carrying amount of the
investment may not be recoverable under the equity method of accounting. The impairment amount is measured as
the difference between the carrying amount of the investment and the higher of its fair value less costs of disposal
and its value in use.
The Company carried out an assessment of the carrying amount of the investment at the balance sheet date and no
impairment was indicated. Management considered the increase in current lithium commodity prices in the market
compared to those applied in the feasibility study performed in previous years.
o)
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.
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.
The Company has not recognized a deferred tax asset associated with its carried forward losses on the basis that its
investment are not likely to distribute dividends in the foreseeable future. Until such time as this can be predicted
with a level of certainty to the extent its losses will be offset against earned profits, it is prudent that the Company
does not recognise a deferred tax asset on its Balance Sheet.
p) Share premium
Share premium represents the excess of proceeds received over the nominal value of new shares issued.
4
Critical accounting estimates and judgements
The preparation of the 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. The following information about the
significant judgements, estimates, and assumptions that have the most significant effect on the recognition and
measurement of assets, liabilities, income and expenses that are relevant to the Company Financial Statements are
discussed below.
a)
Investment in joint venture
The investment in joint venture 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.
On 22 April 2022, the Mexican government published a decree to amend the Mining law. The amendment declared
lithium to be a strategic mineral and property of the nation and detailed how lithium is to be managed. The
exploration, mining exploitation, refining, and use of lithium are reserved in favour of the people of Mexico; and
such activities will be regulated by a government agency, the newly formed company, Litio para México (“LitioMex”).
The decree also said that no further concessions, licences, contracts, permits, or authorizations will be granted for
lithium related activities and that economic value chains relating to lithium will also be under the control of LitioMex.
The Company (and many other affected entities) has taken steps to challenge the change to the law and is awaiting
a ruling from the Mexican judiciary.
For the year ended 31 December 2022, the Sonora Project companies retain their mining concessions and land holdings
despite the events outlined above. This ownership is protected by Mexican and international law. the Company has
taken legal advice and has considered the impact of the Mexican government’s decree to amend the Mining law, at
24
the balance sheet date, and concluded that no impairment charge is required to be recorded against the investment
in joint venture in the year. The Directors consider it appropriate to continue to record the investment in the Sonora
Project and related party loan balances at historic cost.
There were further developments subsequent to the Balance Sheet date. On 17 February 2023, Minera Sonora Borax
SA de CV, Mexilit SA de CV and Minera Megalit SA de CV, which are the Sonora Project operating companies held by
the Sonora Lithium Ltd joint venture, received notifications from the Ministry of Economy informing the companies
of the commencement of cancellation procedures over nine concession titles, this triggers a 60-day period for the
concession holders to respond to the notification as per due process.
On 18 February 2023, President Andres Manuel Lopez Obrador of Mexico signed a decree published in the Official
Gazette of the Federation. The decree creates a 234,855 hectares lithium mining reserve zone in Sonora dubbed “Li-
MX 1”, in which no Lithium mining can take place. However, “the rights and obligations of the holders of current
mining concessions that are located within the lithium mining reserve zone "Li-MX 1" remain safe”. Another decree
made on 18 February 2023 gave responsibility for lithium reserves to the Energy Ministry, after nationalising lithium
deposits last April. That decree instructed the Ministry of Energy to take necessary actions to give compliance with
the provisions of the mining law regarding Lithium.
Following the developments subsequent to year end, the Company has taken updated legal advice and prepared legal
defenses accordingly. As a result, the Company has concluded no adjustments are required to the financial statements
for the year ended 31 December 2022.
The Company and its legal counsel continue to closely monitor developments associated with the change to the
mining law that affect lithium, and stands ready to evaluate the impact on its investments should that become
necessary in the future.
b) Functional currency
The Company transacts in multiple currencies. The assessment of the functional currency of the Company involves
the use of judgement in determining the primary economic environment each entity operates in. The Company first
considers the currency that mainly influences sales prices for goods and services which is USD, and the currency that
mainly influences labour, material and other costs of providing goods or services, which are either in or heavily
influenced by USD denominations. In determining functional currency, the Company also considers the currency from
which funds from financing activities are generated, and the currency in which receipts from operating activities are
usually retained, these either are in USD or will be in USD. The Company also finances the Sonora Project in USD
denominations, where capital expenditure will mainly be USD denominated also.
5
Investments in subsidiaries
In US$
Balance as at 1.1.2022
and 31.12.2022
Investment in Bacanora
Finco Ltd
Investment in Bacanora
Treasury Ltd
Total
1
2
3
The Company has the following subsidiaries, held at cost, at 31 December 2022:
Name of subsidiary
Country
of
incorporation
Shareholding on
31 December 2022
Shareholding on
31 December 2021
Nature of business
Bacanora Finco Ltd
Bacanora Treasury Ltd
UK
UK
100%
100%
Financing company
Dormant Financing
Company
100%
100%
25
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 influence those returns through its application of this power.
The financial statements of the subsidiaries are separately prepared for the same reporting period as the Company,
using consistent accounting policies. For the above UK subsidiaries, the registered address for each subsidiary is 4
More London Riverside, London, SE1 2AU.
6
Investment in joint venture
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$30.4
million). On completion of the transaction, a revised 50:50 joint venture agreement came into force, whereby each
party is responsible for their portion of the Project capital expenditure. After performing a detailed control
assessment including review of the provisions of the revised joint venture agreement, which include the unanimous
consent of both parties over certain relevant activities, management have assessed that the Company has joint
control over SLL and its subsidiaries, and therefore performed deconsolidation procedures for the year ended 31
December 2021. Subsequently, the Company’s investment in Sonora Group has been accounted for using the equity
method.
Name
Country of
incorporation
Principal place
of business
Sonora Lithium Ltd
UK
UK
Shareholding
31 December
2022
50.0%
Shareholding
31 December
2021
50.0%
Investment reconciliations
The reconciliation of the carrying amount of the investment in joint venture is as follows:
In US$
Opening carrying value / Initial recognition
Share of loss on investment in joint venture
Distribution received on release of payable
Closing carrying value
31 December 2022
31 December 2021
50,144,596
(1,849,148)
–
48,295,448
55,325,429
(1,011,167)
(4,169,666)
50,144,596
The summarised financial information of the Sonora Group and reconciliation to the investment carrying value is set
out below. The functional currency of Sonora Group was USD which is the same of the Company and no impact on
foreign currency translation was noted. The summarised information represents amounts shown in SLL’s consolidated
financial statements.
In US$
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets (100%)
31 December 2022
23,574,345
44,565,672
(4,125,458)
(7,974,441)
56,040,118
31 December
2021
28,329,253
76,579,768
(732,352)
(4,626,704)
99,549,965
Net assets attributable to non-controlling interests
149,863
739,227
Share of net assets attributable to the equity shareholders of SLL
56,189,981
100,289,192
The Company share of net assets (50%)
28,094,990
50,144,596
26
In US$
Cash and cash equivalents
Non-current financial liabilities
31 December 2022
21,306,747
7,974,441
31 December 2021
26,593,063
4,626,704
Summarised financial information relating to the consolidated loss of the Sonora Group for the year ended 31
December 2022 is presented below:
In US$
Other income
General and administrative expenses
Depreciation
Exchange gain
Interest income
Interest expense
Loss on dissolution of subsidiary
Loss on disposal of property, plant and equipment
Tax charge
Other comprehensive income
Total loss after tax and total comprehensive loss
31 December 2022
26 February 2021
to 31 December
2021
-
(2,364,543)
(170,566)
61,011
236,626
(804,635)
(623,670)
(799)
(66,025)
–
(3,732,601)
2,027
(1,247,477)
(154,064)
(54,208)
49,544
(643,310)
–
–
2,729
–
(2,044,759)
Company share of total
comprehensive loss
loss after tax and total
(1,849,148)
(1,011,167)
Commitments
At the reporting date, the Sonora Group had capital commitment of construction contracts signed but not provided
for US$0.8 million.
Legal cases
The Sonora Group has two legal cases pending to be heard which are relevant to the Company.
Firstly, Sonora Group has taken legal actions to challenge the change to the Mining law by the Mexican government
and is awaiting a ruling from the Mexican judiciary. For details, please refer to Note 4(a) to the financial statements.
No impairment has been made as reference to legal opinions and assessed by the management that Sonora Group
assets is protected by Mexican and international law.
Secondly, in 2017, Bacanora Minerals Ltd commenced litigation with the Estate of Colin Orr-Ewing (the “Estate”) in
regard to its purported royalty over the Sonora Project, which in turn resulted in the Estate making a counterclaim.
Bacanora Minerals Ltd maintains that the royalty is invalid and unenforceable on the grounds of misrepresentation
and a lack of consideration. The initial litigation was undertaken to have the royalty pre-emptively declared invalid
by the Alberta Courts. In 2021, the Alberta Court heard a summary trial application solely around the matter of
“time limitations” to initiate a pre-emptive declaration of invalidity. The summary trial which was heard was not
around the merits of the royalty. The judgement from the Court was that this specific action by Bacanora was time-
barred. Bacanora has appealed this judgement and the appeal hearing was heard on 13 January 2023. The decision
on this appeal is still to be delivered.
Regardless of the outcome of the Appeal, the Courts have not ruled in any way on the validity of the royalty. Bacanora
maintains that the royalty is invalid and unenforceable. The validity of the royalty will only be determined by the
Courts in the event that (1) Bacanora is successful in its appeal and the action continues; (2) Bacanora is unsuccessful
in its appeal and the Estate pursues its counterclaim, or (3) Bacanora is unsuccessful in its appeal and the Estate
pursues subsequent litigation, once the Project is in production, demanding payment under the purported royalty
agreement. There is currently no further time limitation issue on the first eventuality; there is currently no time
27
limitation issue on the second eventuality and any time limitation on the third eventuality will not begin to run until
the demand for payment is ignored.
The Company and Sonora Group 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. No provisions have been made relating to the validity of
the royalty case and no contingent liability is disclosed by the Company, as Management has assessed an adverse
result of the case as being remote.
7 Receivables from related parties
In US$
Ganfeng International Trading (Shanghai) Ltd
Bacanora Finco Ltd
GFL International Co. Limited (note i)
Bacanora Treasury Limited (note ii)
Sonora Lithium Ltd (note ii)
Bacanora Chemco S.A. de C.V. (note iii)
Bacanora Minerals Ltd (note ii)
Total
Non-current portion
Current portion
31 December 2022
31 December 2021
–
–
60,271,667
15
12,851
7,887,737
73,853
68,246,123
(7,974,456)
60,271,667
2,726,934
34,860
–
15
–
3,874,102
752,610
7,388,521
(4,661,587)
2,726,934
i) A short term loan was provided to GFL International Co. Limited for a period of one year, the loan is interest bearing at 2 per cent
per annum and is repayable on demand. The loan, with accrued interest, must be repaid not later than 20 September 2023. The
loan was fully drawn at 31 December 2022. The receivable had been classified as a short term asset according to the repayment
term of the loan.
ii) The amounts due from related parties are unsecured, non-interest bearing and no fixed terms of repayment.
iii) The amount due from related party is unsecured, interest bearing at 21.5 per cent per annum, and has a final repayment date of 2
July 2038.
8 Other receivables and prepayments
Other receivables and prepayments comprise short term receivables from VAT and other indirect taxes, prepaid
expenses and deposits paid. All receivables are due within one year. They are assessed by the three stage approach
to evaluate any expected credit losses. A provision for impairment is made where there is objective evidence that
the receivable is irrecoverable. All receivables are due with one year.
In US$
31 December 2022
31 December 2021
Other receivables
Prepayments and deposits
Total
Non-current portion:
Prepayments and deposits
Current portion
41,875
888,672
930,547
(666,099)
264,448
678,018
136,293
814,311
–
814,311
As at 31 December 2022, the Company recognised prepaid insurance which covered period to year 2026.
9 Accounts payable and accrued liabilities
The Company’s accounts payable and accrued liabilities as at 31 December 2022 are as follows:
28
In US$
Trade payables
Accrued liabilities
Other payables
Total
31 December 2022
31 December 2021
8,580
78,395
37,400
124,375
4,587
583,926
3,285,455
3,873,968
As at 31 December 2021, the Company’s other payables mainly related to payables resulting from share options and
RSUs to key management personnel which have been settled by acceleration due to a change of control, during the
year ended 31 December 2022.
10 Financial instruments
The Company’s principal financial assets and liabilities are classified as follows:
As at 31 December 2022 (In US$)
At amortised cost
At fair value through
profit or loss
Total
Financial assets
Receivables from related parties
Other receivables
Cash and cash equivalents
Total financial assets:
Financial liabilities
Accounts payable and accrued liabilities
Payable to related party
Total financial liabilities:
68,246,123
41,875
13,969,133
82,257,131
124,375
1
124,376
Net financial assets/(liabilities):
82,132,755
–
–
–
–
–
–
–
–
68,246,123
41,875
13,969,133
82,257,131
124,375
1
124,376
82,132,755
As at 31 December 2021 (In US$)
At amortised cost
At fair value through
profit or loss
Total
Financial assets
Receivables from related parties
Other receivables
Cash and cash equivalents
Total financial assets:
7,388,521
678,018
81,556,608
89,623,147
–
–
–
–
7,388,521
678,018
81,556,608
89,623,147
Financial liabilities
Accounts payable and accrued liabilities
Warrant liability
Total financial liabilities:
3,873,968
–
3,873,968
–
1,750,000
1,750,000
3,873,968
1,750,000
5,623,968
Net financial assets/(liabilities):
85,749,179
(1,750,000)
83,999,179
29
11 Financial risk management
The 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 10. The types of risk exposure the Company
is subjected to in the financial year are as follows:
a) 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 Company’s cash is held in major UK banks, and as such the Company is exposed to the risks of those financial
institutions. Under Standard & Poor’s short term credit ratings, the Company’s total cash balance is held in
institutions with a A-1 rating (2021: A-1 rating).
The Company’s current receivables from related parties mainly relate to receivables from fellow subsidiary in
Ganfeng Group, the Company believes this to be a minimal credit risk. Where management estimate a lower
receivable amount is recoverable, that difference in recoverability will be recognised in the profit and loss account
in the period of determination.
An IFRS 9 expected credit losses impairment assessment on the related party receivable was performed by
management at 31 December 2022. This involved analysing the expected credit loss on the receivables from related
parties to the Company as well as an assessment of the forward projections of cashflows and cash availability by the
counterparty of the loans to Sonora Group joint venture companies. This resulted in no credit loss expected at 31
December 2022 taking into consideration the availability of cash to repay the loan from the counterparty and
expected future profit from the counterparty’s ongoing projects.
The total carrying amount of cash and cash equivalents, other receivables and receivables from related parties
represent the Company’s maximum credit exposure.
The Board of Directors monitors the exposure to credit risk on an ongoing basis and does not consider such risk to be
significant. The Company considers all of its accounts receivables as at the reporting date to be fully collectible.
b) Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. The
Company's approach to managing liquidity risk is to ensure, as far as possible, that it will have sufficient liquidity to
meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses.
The following table illustrates the contractual maturity analysis of the Company’s gross financial liabilities based on
exchange rates on the reporting date. Contractual gross financial liabilities, shown below, are undiscounted
estimated cash outflows which where applicable includes estimated future interest payments.
As at 31 December 2022 (In US$)
Accounts payable and accrued liabilities
Within 30
days
124,375
–
30 days to
6 months
6 to 12
months
Over 12
months
As at 31 December 2021 (In US$)
Within 30
days
30 days to 6
months
6 to 12
months
Accounts payable and accrued liabilities
Financial warrant liability
3,873,968
1,750,000
–
–
–
–
–
Over 12
months
–
–
–
c) Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, commodity prices, and interest
rates will affect the value of the Company’s financial instruments. The objective is to manage and control market
risk exposures within acceptable limits, while maximizing long-term returns.
30
A portion of the Company’s expenditures, other receivables, accounts payables and accrued liabilities are
predominately denominated in US dollars and Great British pound and are therefore subject to fluctuation in exchange
rates.
As at 31 December 2022, a 5% change in the exchange rate between the United States dollar and Great British pound,
which is a reasonable estimation of volatility in exchange rates, would result in US$0.1 million change to the
Company’s total comprehensive loss.
The carrying amounts of short-term financial assets and receivables (e.g. receivables from related parties, other
receivables and prepayments, cash and cash equivalents) and short-term payables (e.g. accounts payable and accrued
liabilities) approximated their fair values, and accordingly no disclosure of the fair values of these items is presented.
d) Capital management
The Company’s objectives in managing capital are to safeguard its ability to operate as a going concern and to support
the development of Sonora Project and thereby maximise shareholder’s value. The Company defines capital as the
equity attributable to equity shareholders of the Company.
At 31 December 2022, the Company held US$131,316,878 (31 December 2021: US$134,280,054) of capital. The
Company sets the amount of capital in proportion to risk and corporate growth objectives. The Company manages its
capital structure and adjusts it in light of changes in economic conditions.
12 Equity
a) Authorised and issued share capital
The authorised and issued share capital of the Company consists of an unlimited number of voting common shares of
par value £0.10 (2021: £0.10).
On 17 December 2021, Ganfeng announced that its recommended cash offer for the entire issued and to be issued
ordinary share capital of Bacanora Lithium Limited had become unconditional, following the satisfaction of Mexican
antitrust clearance and the satisfaction or waiver, of all other conditions to the offer. Furthermore, on 23 December
2021 Ganfeng informed the directors of the Company that it received valid acceptances of the offer representing in
excess of 75 per cent of Bacanora's issued ordinary share capital and Ganfeng's intention to procure that Bacanora
makes an application to the London Stock Exchange for the cancellation of the admission of Bacanora Shares to
trading on AIM. Accordingly, Bacanora informed the London Stock Exchange that it wished to cancel the admission to
trading of Bacanora Shares on AIM (the "Cancellation"). On 26 January 2022, the Cancellation was completed, and
the Company delisted from the AIM stock exchange. On 2 August 2022, Ganfeng completed its purchase of the entire
issued shares of the Company.
The Company has the following shares in issue:
31 December 2021
31 December 2022
b) Merger reserve
Shares
Share Capital
(US$)
Share Premium
(US$)
387,136,502
53,014,057
387,136,502
53,014,057
813,170
813,170
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 Limited becoming the new holding company for Bacanora Minerals Ltd. Under
the Company’s Act 06 Section 612, a merger reserve was created to account for the difference between the share
capital and net asset investment in Bacanora Minerals Ltd.
31
c) Share-based payment expense
There is no share-based compensation granted during the year ended 31 December 2022.
During the year ended 31 December 2021, the Company recognized US$864,228 of share-based compensation
expenses. The fair value of the share-based payment was estimated on the dates of grant using the Black-Scholes
option pricing model. As a consequence of all “in the money” unvested options, vesting in full upon the Ganfeng offer
becoming unconditional on 17 December 2021, the remaining share-based payment expense of these options has been
accelerated through the Statement of Comprehensive Income in the year.
13 General and administrative expenses
The Company’s general and administrative expenses including the following:
In US$
Legal and accounting fees
Employee and contractor costs
Investor relations
Travel
Office and other expenses
Intercompany recharges
Audit fee
Year ended
Year ended
31 December 2022
31 December 2021
181,993
1,635,979
75,143
95,511
887,741
75,632
67,389
3,019,388
3,593,093
2,848,604
595,800
39,020
703,798
242,784
73,515
8,096,614
The audit fee represented provision of annual audit services only.
14 Finance income and costs
The Company’s finance income and costs are as follows:
In US$
Interest income
Finance income
Financial warrants liability revaluation
Intercompany interest expenses
Finance costs
Net finance costs
15 Taxation
Current taxation
Year ended
Year ended
31 December 2022
31 December 2021
1,870,754
1,870,754
–
(52,429)
(52,429)
1,818,325
947,941
947,941
(254,350)
(15,053,175)
(15,307,525)
(14,359,584)
No provision for taxation has been provided in the year ended 31 December 2022 (2021: Nil).
The reasons for the difference between the actual tax charge for the year and the standard rate of
corporation in the United Kingdom applied to the loss for the year is as follows:-
32
In US$
Loss before tax
Tax credit on losses at the statutory tax rate of 19%
(2021: 19%)
Expenses not deductible
Income not taxable
Group relief
Tax losses not recognised
Unrecognised tax losses and timing difference
Tax charge
Year ended
31 December 2022
Year ended
31 December 2021
(2,963,193)
(563,007)
352,160
(12)
14,816
(390,415)
586,458
–
(2,449,933)
(465,488)
117,692
(3,965,394)
–
–
4,313,190
–
Deferred tax
The Company has no recognized deferred tax balance on losses for the year ended 31 December 2022 (2021: Nil)
Economic benefits embodied in deferred tax assets will flow to the entity only if it earns sufficient taxable profits
against which tax deductions can be offset. An entity recognises deferred tax assets only when it is probable that
taxable profits will be available against which the deductible temporary differences can be utilised. Management has
assessed that taxable profits are not probable at this stage of the Company’s development. As at 31 December 2022,
the Company has, for tax purpose, non-capital losses available to carry forward to future years of US$30,949,852
(2021: US$27,725,855).
16 Related party disclosures
Related party transactions
The Company’s related parties include:
-
-
-
-
Its subsidiaries;
joint venture: Sonora Lithium Ltd and its subsidiaries, together the “Sonora Group”;
shareholder: Ganfeng International Trading (Shanghai) Ltd and its parents and fellow subsidiaries,
together the “Ganfeng Group”; and
the Company’s key management personnel i.e. directors of the Company and CFO.
33
The following transactions took place between the Company and related parties (other than with key management
personnel which have been disclosed separately below) for the year ended 31 December 2022:
Name of related party
Type of transaction
Transaction
value
Profit/(loss)
impact
Balance
owed by /
(owed to)
related
parties
Ganfeng International Trading
(Shanghai) Ltd
GFL International Co. Limited
Sonora Lithium Ltd
Sonora Lithium Ltd
Bacanora Chemco S.A. de C.V.
Bacanora Minerals Ltd
Bacanora Minerals Ltd
Bacanora Treasury Limited
Bacanora Finco Limited
Share option receivable1
2,726,934
–
–
Short term loans and interest2
Short term loans and
repayment
Recharge of expenses
Project funding and interest
Working capital and
repayment
Recharge of expenses
Non-interest bearing
Recharge of expenses
60,271,667
271,667
60,271,667
12,283,091
–
–
12,851
5,094,784
1,222,270
12,851
804,635
12,851
7,887,737
–
–
73,853
–
319,907
73,853
–
(128,061)
73,853
15
(1)
1 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. This was settled in financial year 2022.
2 A short term loan was made to GFL International Co. Limited for a period of one year, the loan is interest bearing at 2 per cent per annum and
is repayable on demand. The loan must be repaid not later than 20 September 2023. The loan was fully drawn at 31 December 2022.
A summary of transactions and outstanding balances for the year ended 31 December 2021 are set out below:
Name of related party
Type of transaction
Transaction
value
Profit/(loss)
impact
Share purchase - pre-emption1
33,916,800
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 Limited
Bacanora Treasury Limited
Share option receivable2
Release of payable3
Project funding and interest
Working capital
Interest rate - 28%,
Maturity date - June 2024
Non-interest bearing
Balance
owed by /
(owed to)
related
parties
–
2,726,934
–
3,874,102
752,610
2,691,120
8,339,332
1,070,289
249,344
–
–
–
745,289
–
29,254,402 (15,053,175)
34,860
–
–
15
1 On 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.
34
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 totalling 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 Group. A gain
of US$4.2 million, resulting from the receipt of Ganfeng’s share of the distribution, had been recognised through the Statement of Comprehensive
Income.
Key management personnel compensation
During the year ended 31 December 2022, key management personnel remuneration totalled US$772,046 (2021:
US$2,415,533). Of the total amount incurred, US$nil remains in accounts payables and accrued liabilities at 31
December 2022 (2021: US$nil).
In US$
Year ended
31 December 2022
Year ended
31 December 2021
Gross
Salary
Total
Fees
Gross
Salary
Bonus
Share-based
payment
remuneration
Total
–
–
–
–
–
–
–
–
–
471,875
300,171
–
471,875
300,171
–
89,412
70,040
54,167
59,608
–
–
268,868
–
–
49,825
–
–
149,497
–
–
468,190
89,412
70,040
–
–
–
54,167
–
515,808
342,315
–
138,716
54,772
–
265,825
356,680
59,608
920,349
753,767
772,046
772,046
273,227
1,126,991
243,313
772,002
2,415,533
Mark Hohnen
Jamie Strauss
Eileen Carr
Andres
Antonius
Graeme Purdy
Peter Secker
Janet Blas
Total
Director's and
management’s
remuneration
17 Directors and employees of the Company
The below information relates to all Directors and employees:
In US$
Short-term employee benefits
Post-employment benefits
Share-based payments
Total cost
Average number of employees and Directors
Directors’ remuneration totalled the following:
Year ended
Year ended
31 December 2022
31 December 2021
780,158
25,066
–
805,224
8
2,580,514
31,828
772,002
3,384,344
13
In US$
Short-term employee benefits
Share-based payments
Total remuneration
Number of Directors
Year ended
Year ended
31 December 2022
31 December 2021
471,875
–
471,875
3
35
1,246,444
415,322
1,661,766
8
The highest paid Director received remuneration in the year ended 31 December 2022 of US$471,875 (2021:
US$920,349). The highest paid Director did not exercise any share options or RSUs in the year ended 31 December
2022. For the year ended 31 December 2021, the highest paid Director received 215,488 and 205,800 shares in the
Company, issued at a price of 24.4p and 33.25p pre 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.
18 Commitments and contingencies
Bacanora Lithium Limited had a commitment on its UK office of US$27,720 for 6 months’ rent at 31 December 2022.
19 Subsequent events
On 3 January 2023, Bacanora Lithium Plc re-registered as Bacanora Lithium Limited, with Companies House, retaining
the company registration number 11189628.
On 17 February 2023, Minera Sonora Borax SA de CV, Mexilit SA de CV and Minera Megalit SA de CV received
notifications from the ministry of economy informing the companies of the commencement of cancellation procedures
over nine concession titles, this triggers a 60-day period for the concession holders to respond to the notification as
per due process.
On 18 February 2023, President Andres Manuel Lopez Obrador of Mexico signed a decree published in the Official
Gazette of the Federation. The decree creates a 234,855 hectares lithium mining reserve zone in Sonora dubbed “Li-
MX 1”, in which no Lithium mining can take place. However, “the rights and obligations of the holders of current
mining concessions that are located within the lithium mining reserve zone "Li-MX 1" remain safe”. Another decree
made on 18 February 2023 gave responsibility for lithium reserves to the Ministry of Energy, after nationalising lithium
deposits last April. That decree instructed the Ministry of Energy to take necessary actions to give compliance with
the provisions of the mining law regarding Lithium.
36