TIDMBCN
RNS Number : 5899E
Bacanora Lithium PLC
02 March 2020
2 March 2020
Bacanora Lithium plc ("Bacanora" or the "Company")
Audited Annual Report and Financial Statements
for the six month period ended 31 December 2019
Bacanora Lithium Plc, (AIM: BCN) the lithium development and
exploration company, is pleased to provide its audited annual
financial results for the six months ended 31 December 2019. Where
applicable, the Company's Annual Report will be posted to
shareholders shortly and will be available electronically on the
Company's website.
Highlights - for the six months ended 31 December 2019 and
subsequent events:
Corporate - significant progress made in securing funding
package for flagship Sonora Lithium Project ("Sonora") in
Mexico
-- In October 2019, Bacanora concluded an Investment and Offtake
Agreement with Ganfeng Lithium Co., Ltd. ("Ganfeng"), the world's
largest lithium metals producer in terms of production capacity and
the world's third largest lithium compounds producer. Having
obtained the government approvals:
o Ganfeng acquired 29.99% of Bacanora and 22.5% of Sonora
Lithium Ltd ("SLL"), the holding company for the Sonora Lithium
Project, for GBP14,400,091 and GBP7,563,649 respectively. Ganfeng
retains pre-emption rights to maintain its shareholding of
Bacanora.
o Mr. Wang Xiaoshen, the Deputy Chairman of Ganfeng, was
appointed to the Board of Bacanora.
o A long-term offtake agreement was signed with Ganfeng for 50%
of Stage 1 production at the Sonora Lithium Project and up to 75%
during Stage 2 production, both at a market-based price per
tonne.
o Ganfeng initiated a review of the engineering design and
capital costs of Stage 1 with a view to optimising capital costs
and timetable to construction.
-- In November 2019, Bacanora raised GBP7,729,150 via a placing of ordinary shares with its longest-standing institutional shareholder, M&G Plc ("M&G"), increasing M&G's strategic holding in Bacanora to 19.9%.
-- The Company retains its US$150 million conditional senior
debt facility with RK Mine Finance, signed in July 2018, to finance
the development of the Sonora Lithium Project. US$125 million
remains to be drawn.
Sonora - work focused on ensuring project construction may
commence after the financing package is completed
-- Work to complete the front-end engineering design ("FEED")
has continued throughout the period, with Ganfeng undertaking a
review of the hydrometallurgical engineering.
-- Our brokers, Citigroup Global Markets ("Citi") and Canaccord
Genuity ("Canaccord"), continue to progress work to secure full
development capital for Stage 1 construction.
Zinnwald Lithium Project, Germany ("Zinnwald") - Bacanora
completes deal securing the future of the Joint venture
agreement
-- On 14 February 2020, Bacanora and the administrators of
SolarWorld AG ("Solarworld") agreed to cancel Bacanora's option to
purchase the remaining 50% shareholding of Deutsche Lithium GmbH
("DL"), not currently held by the Company. The agreement also
cancelled Solarworld's option to buy back Bacanora's existing stake
which was contingent upon the Bacanora not exercising its option.
Bacanora retains its right of first refusal to purchase the
remaining 50% currently held by Solarworld. Under the agreement
Bacanora will provide EUR1.35 million funding to DL over the next
two years.
Peter Secker, CEO of Bacanora, commented:
"During the period under review, Bacanora continued to make
strong progress towards our goal of becoming a leading supplier of
high-value lithium products to fast-growing industries. As
previously announced, the Company was delighted to conclude an
investment and offtake agreement with the world's largest lithium
metals producer, Ganfeng Lithium Co, for our Sonora Lithium Project
located in Mexico and we welcome Mr. Wang Xiaoshen, the deputy
chairman of Ganfeng Lithium Co, to Bacanora's board of directors.
This strategic partnership is a major achievement for Bacanora and
a significant milestone towards securing the full funding package
for Sonora in 2020.
As anticipated, Ganfeng has quickly demonstrated its commitment
to Sonora and initiated a review on the stage one engineering and
design capital costs, with a view to optimising the associated
costs and the timetable to construction. This work is taking place
in tandem with the front-end engineering design work instigated by
the Company which continued to advance throughout the period.
In addition to Ganfeng's support, I was also pleased to announce
further commitment from another one of our blue-chip shareholder's,
M&G Plc, who in November 2019, increased its shareholding in
Bacanora to 19.9% via a placing of ordinary shares. In total
Bacanora has secured in excess of $37 million in equity investment
from Ganfeng and M&G during the period.
Post period end Bacanora has successfully reached agreement with
the administrators of Solarwold to maintain the Company's 50%
ownership of the Zinnwald Lithium Project, a strategic asset
located in close proximity to a thriving market for lithium and
energy products in Germany, with a right of first refusal to
purchase the remaining 50%.
I look forward to updating the market this coming year as we
look to enter the 24-month construction phase at Sonora, once the
final finance structure, subject to market conditions and of course
the recent outbreak of coronavirus, is concluded, in conjunction
with our cornerstone investors and partners, Ganfeng, M&G, RK
Mine Finance and Hanwa. We remain fully committed to our two
high-quality lithium projects and look forward to all our
shareholders and stakeholders reaping the rewards in the years to
come as both projects in turn, generate significant returns."
For further information please visit www.bacanoralithium.com or
contact:
Bacanora Lithium plc info@bacanoralithium.com
Peter Secker, CEO
Janet Blas, CFO
Cairn Financial Advisers LLP,
Nomad
Sandy Jamieson / Liam Murray +44 (0) 20 7213 0880
Citigroup Global Markets,
Joint Broker
Tom Reid / Patrick Evans /
Matthew Kenney +44 (0) 20 7986 4000
Canaccord Genuity, Joint Broker
James Asensio / Edward Montgomery +44 (0) 20 7523 8000
Tavistock, Financial PR Adviser Bacanora@tavistock.co.uk
Jos Simson / Emily Moss / +44 (0) 20 7920 3150
Oliver Lamb +44 (0) 77 8855 4035
The information contained within this announcement is deemed by
the Company to constitute inside information under the Market Abuse
Regulation (EU) No. 596/2014
Notes to editors
Bacanora Lithium Plc is an AIM-listed (ticker 'BCN') lithium
development and exploration company. The Company owns assets in
Mexico and Germany. It is focused on building, in collaboration
with its major shareholder and offtake partner, Ganfeng Lithium
(the world's largest lithium metals producer), a 35,000 tonne per
annum open pit lithium carbonate operation at its flagship asset,
the Sonora Lithium Project in Mexico. The Sonora Lithium Project
has 8.8 million tonnes of lithium carbonate (Li(2) CO(3) )
equivalent resources, with an approximate 250 year resource life,
as detailed in its December 2017 Feasibility Study.
Sonora Lithium Ltd ("SLL") is the operational holding company
for the Sonora Lithium Project and owns 100% of the La Ventana
concession. The La Ventana concession accounts for 88% of the mined
ore feed in the Sonora Feasibility Study which covers the initial
19 years of the project mine life. SLL is owned 77.5% by Bacanora
and 22.5% by Ganfeng Lithium Ltd. SLL also owns 70% of the El Sauz
and Fleur concessions.
In addition, the Company has a 50% interest in the Zinnwald
Lithium Project and the Falkenhain and Altenberg Licences in
southern Saxony, Germany.
Cautionary Statement Regarding Forward-Looking Information
Except for statements of historical fact, this news release
contains certain "forward-looking information" within the meaning
of applicable securities law. Forward-looking information is
frequently characterized by words such as "plan", "expect",
"project", "intend", "believe", "anticipate", "estimate" and other
similar words, or statements that certain events or conditions
"may" or "will" occur. Although we believe that the expectations
reflected in the forward-looking information are reasonable, there
can be no assurance that such expectations will prove to be
correct. We cannot guarantee future results, performance or
achievements. Consequently, there is no representation that the
actual results achieved will be the same, in whole or in part, as
those set out in the forward-looking information.
Forward-looking information is based on the opinions and
estimates of management at the date the statements are made, and
are subject to a variety of risks and uncertainties and other
factors that could cause actual events or results to differ
materially from those anticipated in the forward-looking
information. Some of the risks and other factors that could cause
the results to differ materially from those expressed in the
forward-looking information include, but are not limited to:
commodity price volatility; general economic conditions in the UK,
the United States, Mexico, Germany and globally; industry
conditions, governmental regulation, including environmental
regulation; unanticipated operating events or performance; failure
to obtain industry partner and other third party consents and
approvals, if and when required; the availability of capital on
acceptable terms; the need to obtain required approvals from
regulatory authorities; stock market volatility; competition for,
among other things, capital, skilled personnel and supplies;
changes in tax laws; and the other risk factors disclosed under our
profile on SEDAR at www.sedar.com. Readers are cautioned that this
list of risk factors should not be construed as exhaustive.
The forward-looking information contained in this news release
is expressly qualified by this cautionary statement. We undertake
no duty to update any of the forward-looking information to conform
such information to actual results or to changes in our
expectations except as otherwise required by applicable securities
legislation. Readers are cautioned not to place undue reliance on
forward-looking information.
Important notice
The contents of this announcement have been prepared by and are
the sole responsibility of Bacanora.
Chairman Statement
Bacanora remains focused on its objective to advance the
development of the Sonora Project in Mexico with the ultimate
objective of becoming a producer of high value lithium products for
many years to come. The period under review has been critical for
Bacanora and has resulted in a number of significant developments
that continue to add incremental shareholder value as we work
towards completing the financing to support the construction at
Sonora.
The Company celebrated a number of milestone achievements during
the six month period with Ganfeng becoming a strategic investor and
project partner in Sonora, and long-standing cornerstone
shareholder, M&G, increasing its shareholding in the Company to
19.9%. These serve to highlight the compelling investment case
behind the Company: Sonora's high-quality product, robust
economics, a blue-chip shareholder base, a management team with a
proven track record of delivery, a supportive jurisdiction, and
excellent access to fast-growing end markets such as electric
vehicles and energy storage. Furthermore, Sonora is expected to be
one of the lowest cost operators in the industry at around US$4,000
per tonne production cost. This low-cost profile is a significant
advantage at a time when falling spodumene prices are putting
Australian hard rock producers' higher cost production models under
increasing pressure.
Securing Ganfeng, one of the world's largest lithium producers,
in October 2019 as a 29.9% cornerstone investor as well as a 22.5%
direct investor in Sonora, not only represents a major step towards
securing development capital but also provides us with a highly
credible joint-venture development partner with significant
development and operational expertise. Furthermore, by signing an
offtake agreement with Ganfeng, 100% of Stage 1 production at
Sonora is now covered under two guaranteed offtake agreements with
Hanwa Co., Ltd ("Hanwa") and now Ganfeng. These key milestone
achievements follow the Sonora Feasibility Study for the Project
which was completed in January 2018 along with the US$150 million
RK debt financing finalised in July 2018. The achievements move us
closer to construction and production at Sonora.
Already, Ganfeng has embarked on metallurgical flow sheet
optimisation and FEED work in China in tandem with work being
carried out by GR Engineering Services ("GRES"). Ganfeng continues
to incorporate the Sonora Project in its ongoing work schedules
being undertaken in China, Australia and Argentina as part of a
series of planned manufacturing capacity expansions to capitalise
on the growing demand for lithium and to solidify its leading
position in the lithium products industry. In China, work continues
to increase the capacity of Ganfeng's battery-grade lithium
carbonate production line in Ningdu County, Jiangxi Province which
has reached its 17,500 tonnes per annum designed capacity and
achieved its 2019 production targets. In addition, Ganfeng intends
to build a battery-grade lithium hydroxide production line with a
50,000 tonnes per annum capacity at Basic Lithium Plant in Xinyu
with commissioning targeted in 2020. These initiatives will support
Ganfeng's target of 200,000 tonnes per annum lithium carbonate
equivalent production capacity by 2025 which would represent 20% of
forecast world demand, although final capacity expansion will be
based on changes in, and assessment of, future price fundamentals
for lithium products.
Both Bacanora and Ganfeng are also developing testwork
programmes to evaluate the potential to produce other high value
lithium products at Sonora in addition to battery-grade lithium
carbonate. The results of this work will be reviewed over the next
few months.
In November 2019, the Company raised approximately US$10 million
from one of its long-standing cornerstone shareholders, M&G,
increasing its strategic holding in Bacanora to 19.9%. We believe
this represents an endorsement of Sonora's potential to become a
leading supplier of high-value lithium products to fast-growing
industries such as electric vehicles and energy storage.
The price of lithium spodumene concentrates continued to fall
during the period as significant oversupply from Australian
concentrate producers continued to build overcapacity in West
Australia and stockpile surplus in China. As a result, we have seen
substantial restructuring within the Australian concentrate
industry with some mines placed on care and maintenance and
production capacities at some mines being reduced by as much as
60%. In addition, proposed expansion plans at downstream lithium
plants in West Australia were downsized or halted.
The Australian spodumene oversupply to Chinese end users
impacted downstream lithium prices of lithium carbonate and
hydroxide in China. The price reduction in China exceeded
corresponding reductions in Japan and Korea. The demand for
battery-grade lithium products for the electric vehicle industry
however, continued to be supported by milestone vehicle production
from Tesla, Volkswagen and other automotive manufacturers. Ongoing
environmental legislation and the introduction of affordable family
models of EVs continue to focus attention on the growth of the EV
industry. The spodumene oversupply situation continues to support
Bacanora's strategy to focus on low cost integrated facilities for
downstream lithium production of value-added products in Sonora.
The ongoing Coronavirus outbreak is having an impact on both
Chinese and World economies, and we understand that this will have
a knock-on effect on the lithium market and impacting our project
schedule.
As demand for lithium is forecast to triple by 2025, Bacanora
remains in a strong position to capitalise on this thanks to having
one of the world's largest lithium deposits and the financial
backing of blue-chip partners.
I sincerely thank the Board, our management team and all our
employees for their continued dedication and hard work during this
major phase of development. I also welcome the appointment of Mr
Wang Xiaoshen to our Board and acknowledge the service of Derek
Batorowski, who stood down as Non-Executive Director in September
2019. Lastly, I would like to thank all our shareholders for their
continued support, I look forward to providing updates on our
progress.
Mark Hohnen, Chairman
28 February 2020
Operational Review
a Corporate review
On 14 August 2019, Bacanora Lithium Plc transferred its
shareholding in Bacanora Minerals Ltd to SLL in order to create a
single holding company for the Sonora Project. The resulting
corporate structure showing all operational subsidiaries and a full
list of all Group companies is detailed in the Consolidated
Financial Statements.
On 18 October 2019, the Company completed its investment
agreement with Ganfeng whereby Ganfeng acquired 29.99% of Bacanora
Lithium Plc and 22.5% of SLL with an option to increase its
shareholding up to 50% in SLL within two years. As part of the
investment agreement, Ganfeng appointed a director to the Company's
Board and also to SLL. In conjunction, the Company also entered
into an offtake agreement for Ganfeng to purchase up to 50% of
Stage 1 production at the Sonora Lithium Project and up to 75% of
production during Stage 2.
b Sonora Lithium Project Developments
During the period, Sonora was primarily focused on the
progressing the FEED. As part of completing this objective, Ganfeng
commenced a technical review of the hydrometallurgical circuit.
Ganfeng may source key sections of the lithium production equipment
from their current equipment suppliers in China. Representative
samples have been sent to Ganfeng in China to facilitate test work.
The review is expected to conclude within the next 6 months. In
parallel, work to finalise the FEED is ongoing with experienced
engineering groups, as follows:
-- Front-end ore concentrator and mechanical processing with GR
Engineering Services, an ASX listed engineering, consulting and
contracting company specialising in fixed priced engineering design
and construction services to the resources and mineral processing
industry.
-- Pyrometallurgical engineering, primarily for the kiln
designs, is being engineered by an international manufacturer of
industrial furnace, kilns and heating systems.
-- The hydrometallurgical plant, including the production of the
final battery-grade lithium product, will be engineered by Ganfeng
themselves due to their proven expertise in this field.
Like many companies in China, Ganfeng's operations, have been
impacted by the outbreak of coronavirus. Precautions to limit the
spread of the virus has led to travel restrictions, precautionary
working from home and the extension of the Lunar New Year holiday
break causing shutdowns at their facilities. At the time of
reporting, these measures may continue for some time to come. This
in turn will have an impact of the completion of Ganfeng's review,
which is now expected within the next 6 months.
Survey, geotechnical and hydrogeological work for the plant site
location is being optimised as part of the work with GR Engineering
Services. Detailed design for the permanent access road is underway
including detailed route survey, geotechnical engineering, slope
design and construction material optimisation. The work is expected
to be completed by Q2 2020.
We are currently building the access roads for the borefield
locations and the Company will commence borehole drilling in Q1
2020, thereafter pump test and equipment installation will be
performed. Geotechnical design work for the dry tailings disposal
site is also underway.
Furthermore, proposals for the cogeneration energy facilities
and LNG supply have been received from several suppliers and are
under assessment. It is currently envisaged that trucked LNG
supplies will be initially utilised at Sonora during the early
stages of commissioning and production, whilst gas consumption is
low. Once energy consumption reaches steady state, pipeline supply
to Sonora would be initiated.
Our work with the community is ongoing to develop an integrated
sustainability programme, that will encompass the construction and
operational phases of the Project.
In previous periods the Company has received the relevant
approvals to start construction of the plant and mine. The
environmental impact assessment procedure begins with the
presentation of an environmental impact statement by the developer,
known as the Manifestación de Impacto Ambiental ("MIA"
-Environmental impact assessment permissions). Mexican authority
Secretaría de Medio Ambiente y Recursos Naturales (SEMARNAT)
approved the Project's MIA in October 2017 and its amendment in May
2018 for new site location. Further to these approvals, an
exemption to the MIA for the purpose of road maintenance was
approved in July 2018, which enables interim access to the project
site during construction. In addition, a MIA for permanent road
construction was approved in October 2018.
For land zonation purposes, land use change in non-urban areas
is made through an Estudio Técnico Justificativo de Cambio de Uso
de Suelo en Terrenos Forestales ("ETJ"). The plant site's ETJ has
been approved by the Sonora State forestry council and payment
requirement to CONAFOR's Mexican Forestry Fund has been issued by
SEMARNAT and was paid by the Company in December 2018. This will
allow the project to begin construction as soon as funding is
available. With all relevant construction, land access, water
licences and environmental MIA permits in place, the Company is
currently focussing on secondary permitting such as the process
water borefield and co-gen power supply.
The lithium pilot plant in Sonora Mexico completed its initial
objectives including production of bulk samples for feasibility
studies, final product samples for customers and proof of design.
As such, the plant was operated on an "as needs" basis in the
reporting period. The pilot plant produced battery-grade lithium
carbonate samples as well as other lithium products such as lithium
hydroxide, lithium sulphate and roasted concentrate, which were
distributed to potential customers in Asia as well as our FEED
partners and consultants for detailed design and test work. Placing
the pilot plant into reduced activity led to a reduction in
staffing levels, whilst the Company retained key staff. The pilot
plant continues to form part of our strategy to train operators in
preparation for commissioning of the large-scale plant at the mine
site.
c Zinnwald Lithium Project Developments
Bacanora acquired an initial 50% interest in Deutsche Lithium
(the 100% owner of Zinnwald) in February 2017 and had an option to
acquire the outstanding 50% that it does not own from our joint
venture partner, SolarWorld, for EUR30 million. Since then
Solarworld entered administration. The option to purchase the
remaining 50% interest in DL (the "Bacanora Call Option") was
extended until 17 February 2020. In the event that the Company does
not exercise the Bacanora Call Option, Solarworld had the right but
not the obligation to purchase the Company's 50% interest in DL
(the "Solarworld Call Option"). On 14 February 2020, the Company
signed an agreement with the administrators of Solarworld to remove
both the Bacanora Call Option and Solarworld Call Option. Bacanora
retains its right of first refusal to purchase the remaining 50%
currently held by Solarworld. As part of the agreement, the Company
has committed to providing additional financing of EUR1.35 million
to fund the DL operations over the next two years. The Company is
in discussions with prospective investors with various options to
fund the project.
d Lithium Market Update 2019
The world consumed approximately 315,000 tonnes of lithium
carbonate equivalent in 2019, a 21% increase on 261,000 tonnes in
2018, according to the December 2019 Resources and Energy Report on
Lithium from the Australian government(1) . World lithium
production is estimated to have grown to 470,000 tonnes in 2019, up
18% on 2018(2) . In 2019, oversupply in the lithium market has
caused a significant pull back on price. At the outturn of 2018,
Fastmarkets reported 99.5% lithium carbonate battery-grade spot
prices CIF China, Japan & Korea of US$13,000-15,000 per
tonne(3) . In 2019, prices declined throughout the year. In June
2019, Fastmarkets reported 99.5% lithium carbonate battery-grade
spot prices CIF China, Japan & Korea of US$11,000-12,500 per
tonne(4) , by the end of December prices of US$8,000-9,500 per
tonne were reported(5) . The 99.5% lithium carbonate battery-grade
spot prices Europe and US were reported at US$10,000-11,500 per
tonne(6) .
The outlook for 2020 continues to be bearish with commentators
such as Morgan Stanley expecting lithium prices to fall further or
to at least be stable in the next 1-2 years(7) . However, global
lithium production and consumption is expected to align by 2021(8)
. Consumption is forecast to grow by over 20 per cent a year to
reach 485,000 tonnes by 2021(9) , based on growing uptake of
electric vehicles and improvements in battery capacity. The supply
overhang will narrow considerably as production is forecast to
reach 489,000 tonnes in 2021 thereby rebalancing of the supply and
demand fundamentals over the next 2-3 years(10) . Given the lack of
incentive pricing for the marginal cost producers, it is our belief
that new production will likely originate from existing low-cost
producers and projects that have attractive cost bases.
As mentioned, the reduction in lithium pricing has been
attributed to an oversupply of lithium products. Oversupply has
been caused by a number of new spodumene mines ramping up in
Australia. Tightening of credit in China has forced lithium market
players to reduce stock levels to secure cash, reducing demand and
increasing supply. Subsidies in China's New Energy Vehicles (NEV)
market were reduced in June 2019, when the government cut subsidies
in half by as much as 25,000 yuan (US$3,600) per vehicle(11) .
Chinese NEV sales then began falling in July and led to a reduction
in NEV sales by 47% in October compared with the same month last
year(12) . These changes caused lithium consumers to hold back on
purchases. However, as prices have tightened, high cost, marginal
producers have begun to cut production and call a halt to expansion
plans. In August 2019, Albemarle announced it would delay
construction plans for about 125,000 tons of additional lithium
processing capacity due to the effect of oversupply on prices(13) .
Pilbara Minerals postponed stage two and three expansion projects
that would have seen the Pilgangoora lithium-tantalum project in
Western Australia produce 7.5 million tonnes a year In September
2019, Tianqi stopped work on a part-built US$300 million second
stage of the lithium plant in Kwinana(14) . Tianqi and Albemarle
also postponed a planned US$516 million expansion of their jointly
owned Greenbushes mine in Western Australia as they reconsidered
their investments in downstream processing capacity. In November
2019, Albemarle and Mineral Resources put the Wodgina project into
care and maintenance indefinitely. Albemarle said the Wodgina mine
would remain idle until demand for spodumene warranted a
re-start(15) . The reduction in production from these cutbacks will
take time to work through the supply chain to reduce the stockpile
levels. Nemaska Lithium suspended operations in October 2019 at its
Whabouchi lithium mine and applied for creditor protection in
December 2019, thus removing planned production of 37,000 tonnes of
LiOH and 205,000 tonnes of concentrate from the market(16) . In
January 2020, Galaxy Resources announced that in response to market
conditions, it has reviewed operations at Mount Cattlin, resulting
in a reduction in operations by circa 60%(17) .
Despite the obvious short-term weakness in the lithium market,
the future is brighter and the long-term outlook remain strong. In
research by Signumbox in April 2019, which was commissioned by
Deutsche Lithium for their feasibility study, SignumBox anticipates
a global annual demand for lithium chemicals to reach about 1,700
thousand tonnes of LCE by 2037, equating to an average annual
growth rate of about 11.5% over the next 20 years(18) . A key theme
at the Fastmarkets' 11th Lithium Supply and Markets Conference (11
June 2019) was that global lithium demand could outpace supply in
the coming years(19) , with the number of new projects expected to
fall short of expected production amid doubts on capital
availability and low prices. In research from Canaccord Genuity in
November 2019, the medium-term pricing for lithium carbonate will
reach US$11,500 per tonne for battery-grade by 2025 with lithium
recovering more strongly thereafter as the demand gap is expected
to widen, US$15,000 per tonne by 2027(20) .
Electric vehicles are the main driver for lithium demand, with
forecasts varying widely, based on Chinese uptake. Although China
may not re-subsidise EVs, it is thought to be likely that China
will maintain pressure on its internal combustion engine automotive
sector to incentivise the switch to EVs because cutting carbon
pollution is a national goal. Evidence of this came in January
2020, Miao Wei, China's minister for industry and information
technology (MIIT), told the EV100 automotive conference in Beijing
that the country would not cut subsidies for new energy vehicles
(NEV) again in July 2020(21) . This move was seen as positive
support for the EV sector. Nevertheless, EV makers are on the cusp
of making vehicles that are cost competitive vs conventional
vehicles (Circa US$20,000)(22) , enabling mass market uptake.
China's population base, its siting of local manufacturers
(Volkswagen, BYD, Tesla etc.), developing infrastructure and its
short commute distances make it well placed for larger scale
electric vehicle uptake(23) . Furthermore, there are currently
plans for 103 Gigafactories to be in production by 2030(24) , which
means that we are at the tipping point for affordable mass market
production of EVs. For example, Volkswagen is constructing two EV
factories in China (at Foshan and Anting), with possible first
production in 2020(25) . Ultimate capacity of these two factories
is said to be 600,000 vehicles per annum. Additionally, Tesla has
commenced trial production in Shanghai with planned capacity of
150,000 vehicles that may benefit from subsidies for locally
produced vehicles having a range of over 400 kilometres(26) .
Despite the short-term softness in price caused by oversupply,
investment in the development of battery technology and the low
cost-high quality battery materials supply chain continues apace.
Deal flow and announcements provided evidence of continued
confidence in the underlying fundamentals of the lithium market. In
October 2019, Ganfeng Lithium completed its strategic investment in
Bacanora obtaining 29.99% equity interest in Bacanora Lithium Plc
and 22.5% investment at the Sonora Project level. In November 2019,
the Pallinghurst group and Traxys announced a joint venture to
invest US$2 billion in battery materials(27) . Construction
continues on Orocobre's the Olaroz Stage 2 Lithium Carbonate
expansion project (US$295 million) which is expected to commission
in H1 2021. Furthermore, Orocobre is investing US$90 million in the
Naraha lithium hydroxide converter plant (10 thousand tonnes per
annum) commissioning expected in H1 2021(28) .
With Sonora's estimated cost of production of around US$4,000
per tonne, the Project sits in the lower quartile of lithium
production costs, giving it a significant competitive advantage
when compared to the higher cost producers such as the existing
spodumene production in Australia. Whilst there is a degree of
uncertainty in the nascent lithium market, Bacanora is well placed
to weather the near-term oversupply related price fluctuations
given favourable production costs and the high-quality nature of
our product.
Furthermore, the European lithium market is primed to grow
significantly in the coming years. According to S&P Global
Platts Analytics monthly EV statistics, European EV sales in the
first half of 2019 rose 40% year on year to 198,000, against an
overall 2% decline for EU new car sales(29) . In a sign of growth
in Europe's EV market, Sweden's Northvolt said in June 2019, that
it had raised US$1 billion from Volkswagen AG, BMW and others to
build the continent's biggest lithium-ion battery plant(30) . In
May 2019, France and Germany teamed up on a plan worth up to EUR6
billion (US$6.8 billion) to jointly invest in the European
production of EV batteries(31) . In November 2019, the European
Commission approved EUR3.2 billion euros (US$3.53 billion) of state
aid from seven European Union countries for research and innovation
in battery technology(32) . As part of its expansion into EVs, the
BMW Group is deepening its existing relationship with Ganfeng
Lithium. They have signed a 5-year (2020 - 2024) supply contract
for the Lithium Hydroxide. BMW estimated the value of the contract
at EUR540 million(33) . Clearly, efforts are being made by the
European battery market to rival China's existing dominance. We
believe Zinnwald is strategically positioned to take advantage of
this burgeoning European EV market.
Financial Review
The Company took the decision to move the year end from 30 June
to 31 December in order to align the financial year for Group
companies with local statutory reporting requirements and
stakeholder reporting. Consequently, the reporting period presented
herein is the six month period from 1 July to 31 December 2019,
which may not be directly comparable to the prior twelve month
period of 1 July 2018 to 30 June 2019 previously reported.
The Group made an operating loss of US$4.9 million for the six
month period ended 31 December 2019 compared with a loss of US$11.1
million for the year ended 30 June 2019. This six month operating
loss includes US$2.8 million general and administrative costs (year
ending 30 June 2019: US$7.0 million) and share-based payment
compensation of US$0.3 million (year ending 30 June 2019: US$0.8
million). Overall, the operating loss reduced in the six month
period ended 31 December 2019 due to reduced corporate activities
in the period compared to the prior period.
During the six month period ended 31 December 2019, the Group
incurred finance costs of US$2.4 million in relation to the Group's
debt financing (year ended 30 June 2019: US$4.4 million). Finance
income of US$0.9 million (year ended 30 June 2019: US$1.9 million)
comprised a revaluation of the Group's financial warrants of US$0.7
million and interest on the Group's cash reserves of US$0.2
million.
DL, which holds the Zinnwald Lithium Project, had a US$0.2
million loss during the six month period, of which, Bacanora
Lithium's 50% share was US$0.1 million loss. At 31 December 2019,
the Company had an option valid until 17 February 2020 to purchase
the remaining 50% interest in DL. In the event that the Company
does not exercise the Bacanora Call Option, Solarworld has the
right but not the obligation to purchase the Company's 50% interest
in DL. The Bacanora Call Option was revalued to nil as at 31
December 2019 as a result of the unwinding of the time value of the
option using the Black-Scholes option pricing model, driving a
US$0.2 million charge in the income statement. On 14 February 2020,
the Company has signed an agreement with the administrators of
Solarworld to remove both the Bacanora Call Option and Solarworld
Option, consequently the option was derecognised, see note 3 for
details. As part of the agreement, Bacanora retains its right of
first refusal to purchase the remaining 50% currently held by
Solarworld. Bacanora has committed to providing additional
financing of EUR1.35 million to fund the DL operations over the
next two years.
The total net assets of the Group increased to US$65.0 million
at 31 December 2019 from US$32.4 million at 30 June 2019, due
primarily to the issuance of share capital, net of issue costs, of
US$27.7 million to Ganfeng and M&G, plus an investment in SLL
by Ganfeng of US$9.5 million, offset by the loss for the six month
period of US$4.9 million. See below for further detail on the share
issuances in the six month period.
The Group has a cash balance of US$48.9 million as at 31
December 2019, which increased by US$34.2 million from US$14.8
million in the prior year. During the six month period, the Group
received cashflows from the issues of share capital of US$27.7
million, sale of non-controlling interest in subsidiaries of US$9.5
million and interest income of US$0.2 million on the Group's cash
reserves. These cash inflows are partially offset by the cash used
in the operations which amounted to US$2.3 million, property, plant
and equipment and exploration and evaluation assets cash
expenditures of US$0.6 million and funding DL of US$0.4
million.
a Financing
In addition to the existing US$150 million debt facility with RK
Mine Finance, of which US$125 million remains undrawn, the
following strategic investments were completed during the reporting
period.
b Strategic investment from Ganfeng Lithium Co., Ltd.
On 18 October 2019, the Bacanora Group completed investment and
offtake agreements with Ganfeng where Ganfeng:
-- subscribed for a 29.99% equity interest in Bacanora for a
cash consideration of GBP14,400,091, being 57,600,364 new ordinary
shares in the Company at a price of 25 pence per share,
representing the volume weighted average price ("VWAP") on AIM of
the Company's shares over the previous 20 trading days at the time
of negotiation;
-- acquired an initial 22.5% interest in SLL, for a cash payment
of GBP7,563,649, equivalent to a price of 25 pence per share, with
an option to increase its interest in SLL to up to 50% from 22.5%,
within 24 months of the completion of the initial investment. The
valuation of any additional investment by Ganfeng would be based on
the share price of Bacanora Lithium Plc at the time of the
additional purchase;
-- appointed Mr. Wang Xiaoshen as a Director to the boards of
the Bacanora Lithium Plc and SLL;
-- acquired a long-term offtake at a market-based price per
tonne for 50% of lithium production during Stage 1 and up to 75% of
lithium production during Stage 2;
-- would complete a review of the engineering design and capital
costs of Sonora with a view to reducing costs and accelerating the
timetable, and;
-- provide a plant and process commissioning team to assist
Bacanora in delivering first production in 2022.
Completion of the strategic investment from Ganfeng forms a
major part of the Company's finance package for the construction of
an initial 17,500 tonnes per annum lithium operation at Sonora.
c Strategic investment from M&G Plc.
On 25 November 2019, Bacanora raised GBP7,729,150 via the
placing of 30,916,601 new ordinary shares in the Company with
M&G, one of our long-standing cornerstone shareholders. The
transaction completed at a price of 25 pence per share. The
investment increased M&G's strategic shareholding in Bacanora
to 19.9%. The net proceeds of the placing will be used to support
pre-construction works at the Sonora project.
These financing milestones bring us closer to completing the
construction funding for Stage 1 development of Sonora.
We continue to work towards full financing and development of
our Projects and will update the market in the future.
On behalf of the Board of Directors
Janet Blas
Chief Financial Officer
28 February 2020
(1)
https://publications.industry.gov.au/publications/resourcesandenergyquarterlydecember2019/documents/Resources-and-Energy-Quarterly-December-2019-Lithium.pdf
(2)
https://publications.industry.gov.au/publications/resourcesandenergyquarterlydecember2019/documents/Resources-and-Energy-Quarterly-December-2019-Lithium.pdf
(3)
https://www.metalbulletin.com/Article/3851378/GLOBAL-LITHIUM-WRAP-Chinese-lithium-prices-stable-ahead-of-year-end-other-regional-markets-flat.html
(4)
https://seekingalpha.com/article/4272099-lithium-miners-news-month-june-2019
(5)
https://www.metalbulletin.com/Article/3914427/GLOBAL-LITHIUM-WRAP-Lunar-New-Year-production-logistics-halts-slow-Asian-market-activity.html
(6)
https://www.metalbulletin.com/Article/3914427/GLOBAL-LITHIUM-WRAP-Lunar-New-Year-production-logistics-halts-slow-Asian-market-activity.html
(7)
https://www.spglobal.com/platts/en/market-insights/latest-news/metals/110819-lithium-producers-paint-gloomy-picture-for-2020
(8)
https://publications.industry.gov.au/publications/resourcesandenergyquarterlydecember2019/documents/Resources-and-Energy-Quarterly-December-2019-Lithium.pdf
(9)
https://publications.industry.gov.au/publications/resourcesandenergyquarterlydecember2019/documents/Resources-and-Energy-Quarterly-December-2019-Lithium.pdf
(10)
https://publications.industry.gov.au/publications/resourcesandenergyquarterlydecember2019/documents/Resources-and-Energy-Quarterly-December-2019-Lithium.pdf
(11)
https://www.cnbc.com/2019/06/19/china-subsidy-cuts-for-electric-carmakers-could-lead-to-consolidation.html
https://www.bloomberg.com/news/articles/2019-11-08/china-is-considering-cutting-electric-car-subsidies-again
(12)
https://stockhead.com.au/resources/tim-treadgold-lithium-stocks-close-to-the-bottom-its-time-to-revisit-a-sold-down-sector/
(13)
https://uk.reuters.com/article/us-albemarle-results/albemarle-to-delay-construction-plans-for-125000-tons-of-lithium-processing-idUKKCN1UY1QS
(14)
https://www.afr.com/companies/mining/tianqi-puts-brakes-on-landmark-wa-lithium-plant-expansion-20190910-p52ppp
(15)
https://www.afr.com/companies/mining/minres-reaps-us1-3-billion-for-stake-in-mothballed-lithium-mine-20191101-p536h2
(16)
https://www.nemaskalithium.com/en/investors/press-releases/2019/53f0e3be-0d29-475e-b37f-7090e58ede31/
(17)
https://www.reuters.com/article/galaxy-rsrcs-output/australias-galaxy-resources-to-slash-output-at-flagship-lithium-mine-in-2020-idUSL4N29S077
(18)
http://www.deutschelithium.de/wp-content/uploads/2019/06/NI43-101-Zinnwald_Feasibility-Study_Summary.pdf
(19)
https://www.indmin.com/Article/3878594/LITHIUM-CONF-Lithium-demand-could-outpace-supply-due-to-low-prices-few-projects.html
(20)
https://www.bacanoralithium.com/cms/wp-content/uploads/2020/02/BCN-Presentation-Feb-2020.pdf
(21)
https://www.reuters.com/article/us-china-autos-idUSKCN1ZA09Z?taid=5e19c3752f31770001c26e03&utm_campaign=trueAnthem:+Trending+Content&utm_medium=trueAnthem&utm_source=twitter
(22)
https://electrek.co/2019/05/23/skoda-citigo-iv-electric-car-cheap/
(23)
https://info.ornl.gov/sites/publications/files/Pub72210.pdf
(24)
https://seekingalpha.com/article/4314058-lithium-miners-news-for-month-of-december-2019
(25)
https://cleantechnica.com/2019/05/15/volkswagen-continues-to-ramp-up-its-electric-car-push/
(26)
https://insideevs.com/news/378294/tesla-production-sites-model-capacity/
(27)
https://www.ft.com/content/3723f12e-0549-11ea-a984-fbbacad9e7dd
(28) https://www.orocobre.com/wp/?mdocs-file=6638
(29)
https://www.spglobal.com/platts/en/market-insights/latest-news/metals/110819-lithium-producers-paint-gloomy-picture-for-2020
(30)
https://www.just-auto.com/news/volkswagen-leads-us1bn-northvolt-capital-raise_id189176.aspx
(31)
https://www.reuters.com/article/us-lithium-electric-europe/european-lithium-projects-gain-attention-amid-push-toward-electric-vehicles-idUSKCN1TE34V
(32)
https://www.reuters.com/article/us-eu-batteries/eu-approves-3-2-billion-euro-state-aid-for-battery-research-idUSKBN1YD0WJ
(33)
https://www.greencarcongress.com/2019/12/20191211-bmwganfeng.html
Consolidated Statement of Financial Position
As at 31 December 2019
In US$ Note 31 December 2019 30 June 2019
Assets
Current assets
Cash and cash equivalents 48,903,551 14,763,706
Other receivables and prepayments 1,777,421 2,404,304
Derivative asset 3c - 193,902
Total current assets 50,680,972 17,361,912
============================================ ===== ================= =============
Non-current assets
Investment in joint venture 3a 9,545,993 9,347,086
Property, plant and equipment 4 30,443,640 29,806,113
Exploration and evaluation assets 534,588 523,947
Total non-current assets 40,524,221 39,677,146
============================================ ===== ================= =============
Total assets 91,205,193 57,039,058
============================================ ===== ================= =============
Liabilities and shareholders' equity
Current liabilities
Accounts payable and accrued liabilities 1,451,346 1,474,543
Joint venture obligation 3b 113,697 237,105
Total current liabilities 1,565,043 1,711,648
============================================ ===== ================= =============
Non-current liabilities
Borrowings 5 24,051,610 21,622,167
Warrant liability 6 587,315 1,259,923
Total non-current liabilities 24,638,925 22,882,090
============================================ ===== ================= =============
Total liabilities 26,203,968 24,593,738
============================================ ===== ================= =============
Shareholders' equity
Share capital 30,240,469 18,996,790
Share premium 16,646,060 153,366
Merger reserve 53,557,251 53,557,251
Share-based payment reserve 3,807,562 5,417,193
Foreign currency translation reserve 3,568,358 3,568,358
Retained earnings (55,464,190) (48,539,746)
Equity attributable to equity shareholders
of Bacanora Lithium Plc 52,355,510 33,153,212
============================================ ===== ================= =============
Non-controlling interest 12,645,715 (707,892)
Total shareholders' equity 65,001,225 32,445,320
============================================ ===== ================= =============
Total liabilities and shareholders'
equity 91,205,193 57,039,058
============================================ ===== ================= =============
Consolidated Statement of Comprehensive Income
For the six month period ended 31 December 2019
In US$ Note Six months ended Twelve months
ended
31 December 2019 30 June 2019
---------------------------------------- ----- ----------------- --------------
Expenses
General and administrative 7 (2,763,202) (7,041,319)
Depreciation (101,549) (163,581)
Share-based payment expense (290,391) (800,846)
Foreign exchange (loss)/gain (18,307) 17,581
Operating loss (3,173,449) (7,988,165)
======================================== ===== ================= ==============
Finance and other income 928,796 1,919,124
Finance costs (2,429,443) (4,423,032)
Joint venture investment loss 3a (80,887) (168,679)
Revaluation of derivative asset 3c (191,066) (421,698)
Loss on fixed asset disposals - 28,702
Loss before tax (4,946,049) (11,053,748)
======================================== ===== ================= ==============
Tax charge - (5,012)
Loss after tax (4,946,049) (11,058,760)
======================================== ===== ================= ==============
Other comprehensive income - -
Total comprehensive loss (4,946,049) (11,058,760)
======================================== ===== ================= ==============
Loss attributable to shareholders
of Bacanora Lithium Plc (4,864,910) (11,048,969)
Loss attributable to non-controlling
interests (81,139) (9,791)
Loss after tax (4,946,049) (11,058,760)
======================================== ===== ================= ==============
Total comprehensive loss attributable
to shareholders of Bacanora Lithium
Plc (4,864,910) (11,048,969)
Total comprehensive loss attributable
to non-controlling interests (81,139) (9,791)
Total comprehensive loss (4,946,049) (11,058,760)
======================================== ===== ================= ==============
Net loss per share (basic and diluted) (0.03) (0.08)
======================================== ===== ================= ==============
Consolidated Statement of Changes in Equity
For the six month period ended 31 December 2019
Share capital
---------------------------
In US$ Number Value Share Merger Share-based Foreign Retained Total equity Non-controlling Total
of shares premium reserve payment currency earnings attributable interest equity
reserve translation to Bacanora
reserve Lithium
Plc
30 June 2018 134,164,872 18,958,033 140,592 53,557,251 6,138,085 3,568,358 (39,029,014) 43,333,305 (698,101) 42,635,204
================= ============= ============ ============ ============ ============ ============ ============= ============= ================ =============
Comprehensive
income for
the year:
Loss for the
year - - - - - - (11,048,969) (11,048,969) (9,791) (11,058,760)
Total
comprehensive
loss - - - - - - (11,048,969) (11,048,969) (9,791) (11,058,760)
----------------- ------------- ------------ ------------ ------------ ------------ ------------ ------------- ------------- ---------------- -------------
Contributions by
and
distributions
to owners:
Shares issued on
exercise
of options 300,000 38,757 12,774 - (60,950) - 77,449 68,030 - 68,030
Lapsed option
charge - - - - (1,460,788) - 1,460,788 - - -
Share-based
payment expense - - - - 800,846 - - 800,846 - 800,846
30 June 2019 134,464,872 18,996,790 153,366 53,557,251 5,417,193 3,568,358 (48,539,746) 33,153,212 (707,892) 32,445,320
================= ============= ============ ============ ============ ============ ============ ============= ============= ================ =============
Comprehensive
income for
the period:
Loss for the
period - - - - - - (4,864,910) (4,864,910) (81,139) (4,946,049)
Total
comprehensive
loss - - - - - - (4,864,910) (4,864,910) (81,139) (4,946,049)
----------------- ------------- ------------ ------------ ------------ ------------ ------------ ------------- ------------- ---------------- -------------
Contributions by
and
distributions
to owners:
Issue of share
capital
- Ganfeng
investment 57,600,364 7,251,886 10,877,829 - - - - 18,129,715 - 18,129,715
Issue of share
capital
- M&G
investment 30,916,601 3,991,793 5,987,690 - - - - 9,979,483 9,979,483
Share issue
costs - - (372,825) (372,825) (372,825)
Adjustment
arising from
change in
non-controlling
interest - - - - - - (3,959,556) (3,959,556) 13,434,746 9,475,190
Lapsed option
charge - - - - (1,900,022) - 1,900,022 - -
Share-based
payment expense - - - - 290,391 - - 290,391 - 290,391
31 December 2019 222,981,837 30,240,469 16,646,060 53,557,251 3,807,562 3,568,358 (55,464,190) 52,355,510 12,645,715 65,001,225
================= ============= ============ ============ ============ ============ ============ ============= ============= ================ =============
Consolidated Statement of Cash Flows
For the six month period ended 31 December 2019
In US$ Note Six months ended Twelve months
ended
31 December 30 June 2019
2019
------------------------------------------- ----- ----------------- --------------
Cash flows from operating activities
Loss for the period before tax (4,946,049) (11,053,748)
Adjustments for:
Depreciation of property, plant and
equipment 101,549 163,581
Share-based payment expense 290,391 800,846
Foreign exchange 58,755 66,931
Finance and other income (928,796) (1,919,124)
Finance costs 2,429,443 4,423,032
Joint venture investment loss 3a 80,887 168,679
Revaluation of derivative asset 3c 191,066 421,698
Gain on disposal of property, plant
and equipment - (28,702)
Changes in working capital items:
Other receivables 525,594 (844,708)
Accounts payable and accrued liabilities (82,356) (1,108,972)
Income tax paid - (5,012)
Net cash used in operating activities (2,279,516) (8,915,499)
=========================================== ===== ================= ==============
Cash flows from investing activities:
Interest received 214,408 249,422
Purchase of property, plant and equipment (560,950) (8,262,991)
Purchase of exploration & evaluation
assets (10,641) (21,000)
Proceeds on disposal of property,
plant and equipment - 119,759
Proceeds on sale of subsidiaries 9,475,190 -
Payments to the joint venture 3b (401,972) (2,421,090)
Net cash from/(used) in investing
activities 8,716,035 (10,335,900)
=========================================== ===== ================= ==============
Cash flows from financing activities
Issues of share capital, net of share 27,736,373 -
costs
Proceeds from borrowing, net of fees - 20,875,000
Exercise of options - 68,501
Net cash flows from financing activities 27,736,373 20,943,501
=========================================== ===== ================= ==============
Change in cash and cash equivalents
during the period 34,172,892 1,692,102
Exchange rate effects (33,047) (131,448)
Cash and cash equivalents, beginning
of the period 14,763,706 13,203,052
Cash and cash equivalents, end of
the period 48,903,551 14,763,706
=========================================== ===== ================= ==============
Notes to the Consolidated Financial Statements
1 Corporate information
Bacanora Lithium Plc (the "Company" or "Bacanora") was
incorporated under the Companies Act 2006 of England and Wales on 6
February 2018. The Company is listed on the AIM market of the
London Stock Exchange, with its common shares trading under the
symbol, "BCN". The registered address of the Company is 4 More
London Riverside, London, SE1 2AU.
The Group is a development stage mining group engaged in the
identification, acquisition, exploration and development of mineral
properties located in Mexico and Germany.
The Group issued the results of the feasibility study for the
Sonora Lithium Project in Mexico on 25 January 2018, effective from
12 December 2017. The feasibility study confirmed the positive
economics and favourable operating costs of a 35,000 tpa
battery-grade lithium carbonate operation. The feasibility study
estimates a pre-tax project net present value of US$1.253 billion
at an 8% discount rate and an internal rate of return of 26.1%. Key
estimates and judgements assessed by management on the Group's
Sonora Lithium Project assets have been disclosed in full
Consolidated Financial Statements.
In June 2019, Deutsche Lithium published the results of the
feasibility study for the Zinnwald Lithium Project in Germany,
which confirmed the positive economics and favourable operating
costs for the production of 5,112 tpa (7,285 tpa LCE) of
battery-grade lithium fluoride, a high value, downstream product
used in the manufacture of lithium battery electrolytes for the
European electric vehicle industry. With a long life of project of
30 years, the feasibility estimates a pre-tax project net present
value of EUR428 million at an 8% discount rate, an internal rate of
return of 27.4%, and a 46% EBITDA operating profit margin.
For assets outside of the feasibility studies, the Group has not
yet determined whether its mineral properties contain economically
recoverable reserves. The recoverability of amounts capitalised is
dependent upon the discovery of economically recoverable reserves,
maintaining title in the properties and obtaining the necessary
financing to complete the exploration and development of these
projects and upon attainment of future profitable production. The
amounts capitalised as exploration and evaluation assets represent
costs incurred to date, and do not necessarily represent present or
future values.
2 Basis of preparation
a Statement of compliance
These Consolidated Financial Statements have been prepared in
accordance with International Financial Reporting Standards,
International Accounting Standards and Interpretations
(collectively "IFRS") as adopted by the European Union ("EU")
applied in accordance with the provisions of the Companies Act
2006.
IFRS is subject to amendment and interpretation by the
International Accounting Standards Board ("IASB") and the IFRS
Interpretations Committee, and there is an ongoing process of
review and endorsement by the European Commission.
They have been prepared for the short period of six months from
1 July 2019 to 31 December 2019. The Company changed its accounting
period end from 30 June to 31 December to align its reporting
period with Mexican financial and tax reporting and other
stakeholders reporting period.
The financial information for the period ended 31 December 2019
and year ended 30 June 2019 does not constitute statutory accounts
as defined by section 435 of the Companies Act 2006 but is
extracted from the audited accounts for those periods. The 31
December 2019 accounts will be delivered to Companies House within
the statutory filing deadline. The auditors have reported on those
accounts. Their report was unqualified and did not contain
statements under Section 498 (2) of (3) of the Companies Act
2006.
b Basis of measurement
These Consolidated Financial Statements have been prepared on a
historical cost basis, except for certain financial instruments
that have been measured at fair value.
These Consolidated Financial Statements are presented in United
States dollars ("US$"). The functional currency of the Company and
its subsidiaries is the United States dollar.
c Going Concern
The Directors have, at the time of approving the Consolidated
Financial Statements, a reasonable expectation that the Company has
adequate resources to continue in operational existence for the
foreseeable future. The Group has not entered into commitments to
develop the Sonora Lithium Project. In relation to Deutsche
Lithium, the total commitments entered into by the Company amounts
to US$1.58 million. Thus, the going concern basis of accounting in
preparing the Financial Statements continues to be adopted.
3 Investments in jointly controlled entities
a Investment in Deutsche Lithium
On 17 February 2017, the Group acquired a 50% interest in a
jointly controlled entity, Deutsche Lithium GmbH located in
southern Saxony, Germany that is involved in the exploration of a
lithium deposit in the Altenberg-Zinnwald region of the Eastern Ore
Mountains in Germany. The joint venture has a functional currency
of euros. The determination of Deutsche Lithium as a joint venture
was based on Deutsche Lithium's structure through a separate legal
entity whereby neither the legal form nor the contractual
arrangement gives the owners the rights to the assets and
obligations for the liabilities within the normal course of
business, nor does it give the rights to the economic benefits of
the assets or responsibility for settling liabilities associated
with the arrangement. Accordingly, the investment is accounted for
using the equity method.
The Group acquired its interest in Deutsche Lithium for a cash
consideration of EUR5.1 million from SolarWorld AG and an
obligation to contribute EUR5 million toward the costs of
completion of a feasibility study. Additionally, legal fees of
US$0.2 million were paid in connection to this transaction.
The following table summarises the purchase price allocation for
the joint venture acquisition:
In US$ 17 February
2017
------------------------------- ------------
Working capital 136,578
Exploration and evaluation
assets 10,486,400
Property, plant and equipment 83,270
Less deferred tax liability (2,485,090)
Enterprise value 8,221,158
=============================== ============
Consideration for the joint venture acquisition consisted of the
following:
In US$ 17 February 2017
------------------------- --------------------
Cash (including transaction
costs) 5,616,886
Joint venture obligation 4,595,457
Less derivative asset (1,991,185)
Total consideration 8,221,158
================================= ============
The value of Deutsche Lithium is substantially attributed to the
exploration and evaluation assets, and therefore, on recognition,
the contribution paid in excess of the carrying value of net assets
was attributed to the exploration and evaluation assets.
On 28 May 2019 a supplemental agreement was signed between the
Bacanora Lithium Plc, Bacanora Minerals Ltd and the nominated
administration of Solarworld. As a result:
1) Bacanora Minerals Ltd's 50% share in Deutsche Lithium was novated to Bacanora Lithium Plc
2) The Deutsche Lithium option exercise period extended for six
months until February 2020, see note 3c for further details.
3) Additional funding will be provided by Bacanora Lithium Plc,
totalling EUR543,221, becoming payable progressively throughout the
option period.
On 14 February 2020, Bacanora Lithium Plc and the nominated
administrator of Solarworld, signed a second supplemental
agreement. As a result:
1) Bacanora Lithium Plc will provide a further EUR1.35 million
prior to 28 February 2022, the first payment was made on 21
February 2020 for EUR30,000 and subsequently, EUR55,000 per month
will be payable for a further 24 months.
2) The call option which gives Bacanora Lithium Plc the option
to purchase the remaining 50% of the joint venture for EUR30
million was cancelled.
3) The call option which gives Solarworld the right to purchase
the remaining 50% of the joint venture for EUR1, if Bacanora
Lithium Plc did not exercise the above option, was cancelled.
4) Bacanora retains its right of first refusal to purchase the
remaining 50% currently held by Solarworld.
Reconciliation of the carrying amount of net investment in joint
venture is as follows:
In US$ Joint venture investment
30 June 2018 8,426,134
========================== =========================
Joint venture investment
loss (168,679)
Additional investment 1,089,631
30 June 2019 9,347,086
========================== =========================
Joint venture investment
loss (80,887)
Additional investment 279,794
31 December 2019 9,545,993
========================== =========================
Summarised financial information in respect of the Group's joint
venture in Deutsche Lithium is set out below on a stand-alone
basis. The summarised information represents amounts shown in
Deutsche Lithium's financial statements, as adjusted for
differences in accounting policies and fair value adjustments
required related to the Group's investment in the joint venture.
Amounts have been translated in accordance with the Group's
accounting policy on foreign currency translation.
In US$ 31 December 2019 30 June 2019
--------------------------------- ----------------- -------------
Cash and cash equivalents 189,671 132,071
Current assets including cash
and cash equivalents 208,594 184,095
Non-current assets 28,470,901 27,291,419
Current liabilities (4,440,433) (4,438,664)
Depreciation 10,124 22,069
Loss from continuing operations (161,773) (493,639)
Total comprehensive income (161,773) (493,639)
--------------------------------- ----------------- -------------
b Deutsche Lithium obligation
As part of the first supplemental agreement, discussed in note
3a, Bacanora agreed to further fund the joint venture until the end
of the option period on 17 February 2020, for a total of
EUR543,221. Of this amount EUR101,400 (US$113,697) was payable at
31 December 2019, of which EURnil was paid post period end. The
remaining EUR80,421 is committed until 17 February 2020. As part of
the second supplemental agreement, a further EUR1.35 million was
committed prior to 28 February 2022, of which EUR30,000 was paid
post period end.
The movement in the obligation is detailed below:
In US$ Joint venture liability
-------------------------------------- ------------------------
30 June 2018 (1,591,652)
====================================== ========================
Payments of joint venture obligation 1,568,565
Foreign exchange gain 23,087
First supplemental agreement
obligation (237,105)
30 June 2019 (237,105)
====================================== ========================
Payments of joint venture obligation 401,972
Foreign exchange gain 1,230
First supplemental agreement
obligation (279,794)
31 December 2019 (113,697)
====================================== ========================
c Derivative asset - Deutsche Lithium option
The Group's joint venture arrangement with SolarWorld AG stated
above gave it the right, either alone or together with another
party, to purchase the remaining 50% of the voting rights of
Deutsche Lithium for EUR30 million. In the event that the Group did
not exercise this right prior to the termination date, SolarWorld
had the right but not the obligation to purchase the Group's 50%
interest for EUR1. As at 31 December 2019, the Option was revalued
at its fair value using the following inputs to the Black-Scholes
option pricing model. The fair value of the Option at 31 December
2019 was US$nil (30 June 2019: US$193,902).
31 December 30 June 2019
2019
---------------- ------------ -------------
Term 0.13 0.64
Share Price
(EUR) 8,541,182 8,614,053
Exercise Price
(EUR) 30,000,000 30,000,000
Volatility 87.83% 87.97%
Risk Free
rate 1.92% 2.00%
---------------- ------------ -------------
On 14 February 2020, Bacanora Lithium Plc and the nominated
administrator of Solarworld, signed a second supplemental agreement
which agreed that the above option was cancelled.
4 Property, plant and equipment
a Sonora Lithium Project
The Group owns ten contiguous mineral concessions in Sonora,
Mexico. Seven of these ten concessions form the "Sonora Lithium
Project" covered by the technical Feasibility Study released in
January 2018.
Group company owner Concession Group ownership
name
MSB La Ventana 77.5%
La Ventana
MSB 1 77.5%
Mexilit El Sauz 54.25%
Mexilit El Sauz 1 54.25%
Mexilit El Sauz 2 54.25%
Mexilit Fleur 54.25%
Mexilit Fleur 1 54.25%
On 25 January 2018, the Group published a technical Feasibility
Study for the Sonora Lithium Project in accordance with NI 43-101.
Under IFRS 6 - Exploration for and Evaluation of Mineral Resources,
an impairment test is required when the technical feasibility and
commercial viability of extracting a mineral resource become
demonstrable, at which point the asset falls outside the scope of
IFRS 6 and was reclassified in the Financial Statements. The
Feasibility Study financial assessment performed by independent
mining specialists, IMC, SRK and Ausenco, gave a post-tax
discounted cash flow valuation of US$802 million at 8% discount
factor based on a long-term price of US$11,000 per tonne Li2CO3.
Thus, there was no impairment for these mining assets as the
combined value of the exploration and evaluation assets totalled
US$16,918,190, at the point of transfer, giving significant
headroom. As a result, these costs were transferred to evaluated
mining property on 25 January 2018.
As previously reported to shareholders, Bacanora is challenging
the validity of the previously reported 3% royalty over the MSB
concessions within the Sonora Lithium Project, payable to the
Orr-Ewing Estate, and is seeking a judgment of the Court in Alberta
declaring such royalty invalid. Bacanora Minerals Ltd is currently
challenging the validity of such royalty. The basis of Bacanora
Minerals Ltd claim is that the royalty was originally granted based
on a negligent or fraudulent misrepresentation by Mr. Orr-Ewing
that he held a pre-existing royalty granted prior to the
acquisition of the MSB concessions by Bacanora Minerals Ltd. The
Company engaged in voluntary, independent mediation in early 2019,
but was unable to reach an agreement with the Estate's advisers.
The Estate applied for a Summary Trial of the action in December
2019. At this time, the Alberta Court has decided to hear only the
preliminary issue of whether the action is limitation barred in May
2020. Otherwise, both sides continue to provide evidence as part of
the process. The Company has at all times taken a conservative
approach to the treatment of the purported royalty and included it
fully in the financial model for the Feasibility Study published in
2018, as well as all financial projections to investors and debt
funding partners.
Cost (US$) Evaluated Land Buildings Plant and Office Transportation Total
mineral machinery furniture
property and equipment
---------------- -------------- ----------- ---------- ----------- --------------- --------------- ------------
30 June 2018 21,935,716 2,995,614 974,249 737,266 272,176 120,734 27,035,755
================ ============== =========== ========== =========== =============== =============== ============
Additions 3,465,438 39,386 - - 164,505 - 3,669,329
Disposals - - (133,777) - (984) - (134,761)
30 June 2019 25,401,154 3,035,000 840,472 737,266 435,697 120,734 30,570,323
================ ============== =========== ========== =========== =============== =============== ============
Additions 739,076 - - - - - 739,076
31 December
2019 26,140,230 3,035,000 840,472 737,266 435,697 120,734 31,309,399
================ ============== =========== ========== =========== =============== =============== ============
Depreciation
---------------- -------------- ----------- ---------- ----------- --------------- --------------- ------------
30 June 2018 - - 185,496 261,560 91,060 106,217 644,333
================ ============== =========== ========== =========== =============== =============== ============
Charge for the
period - - 46,733 70,427 36,782 9,639 163,581
Disposals - - (42,693) - (1,011) - (43,704)
30 June 2019 - - 189,536 331,987 126,831 115,856 764,210
================ ============== =========== ========== =========== =============== =============== ============
Charge for the
period - - 18,665 46,417 34,049 2,418 101,549
31 December
2019 - - 208,201 378,404 160,880 118,274 865,759
================ ============== =========== ========== =========== =============== =============== ============
Net Book Value
---------------- -------------- ----------- ---------- ----------- --------------- --------------- ------------
30 June 2018 21,935,716 2,995,614 788,753 475,706 181,116 14,517 26,391,422
================ ============== =========== ========== =========== =============== =============== ============
30 June 2019 25,401,154 3,035,000 650,936 405,279 308,866 4,878 29,806,113
================ ============== =========== ========== =========== =============== =============== ============
31 December
2019 26,140,230 3,035,000 632,271 358,862 274,817 2,460 30,443,640
================ ============== =========== ========== =========== =============== =============== ============
5 Borrowings
On 3 July 2018, the Group entered into a US$150 million senior
debt facility with RK Mine Finance ("RK"), a specialist in the
provision of senior debt capital to mining companies, for the
development of Stage 1 of the Sonora Lithium Project in Mexico.
The Facility is structured as two separate Eurobonds, listed in
Jersey:
Primary bond: US$150 million nominal amount secured notes issued
at a purchase price of US$138 million with a 6-year term and
bearing an interest rate of three months USD LIBOR + 8% per annum
based on a nominal amount of US$150 million but payable only on
drawn down principal. Interest will be capitalised every three
months for the first 24 months and thereafter interest will be paid
every three months in cash;
Second bond: US$56 million nominal amount, zero
interest-bearing, secured notes issued at a purchase price of US$12
million with a 20-year term. The nominal amount is repayable by
reference to monthly production of lithium at a rate of US$160 per
tonne of lithium produced, with any remaining amount repayable at
the end of the 20-year term.
The bonds may be drawn in three tranches of US$25 million, US$50
million and US$75 million, subject to certain conditions precedent.
The first tranche was drawn down in July 2018. The conditions
precedent to further drawdowns include but are not limited to:
various matters in respect of the execution, registration and
perfection of certain security, the granting of listing consent by
The International Stock Exchange, a minimum of US$200 million
equity funding raised, energy and engineering contracts executed,
relevant permits obtained and security over offtake agreements. All
drawdowns under the RK Facility will be pro-rata across the two
Eurobond instruments. The loans can be voluntarily redeemed at any
stage by repayment of the principal and any outstanding interest
and early repayment charges.
RK holds a fixed charge security over the shares of various
subsidiaries of the Group except for Bacanora Lithium Plc, Deutsche
Lithium GmbH and Zinnwald Lithium Ltd. RK also holds a fixed charge
security over certain bank accounts held by the relevant UK and
Canadian holding companies and Mexican subsidiaries. RK holds a
floating charge over Bacanora Lithium Plc's assets not covered by
the fixed charge. RK holds fixed and floating charge over the
assets of the relevant Mexican subsidiaries related to the Sonora
Lithium Project.
The Facility has a debt covenant for the Group to maintain a
minimum working capital balance of US$10 million measured monthly
until 31 March 2020, after which it increases to US$15 million.
Working capital for the purpose of the debt covenant is defined as
current assets minus current liabilities, excluding assets and
liabilities relating to the German assets and overdue VAT
receivables. In addition, there are certain conditions precedent to
the second drawdown to the debt facility, including but not limited
to a minimum equity funding raise of US$200 million, the completion
of certain operational permits and entering into direct agreement
in relation to the offtake agreements.
The effective interest rate of the primary and secondary
Eurobonds is 21.2% and 23.5% respectively.
The carrying value of the Group's borrowings at 31 December 2019
is as follows:
In US$ Interest rate Maturity 31 December 30 June 2019
2019
-------------------- --------------- ---------- ------------ -------------
Primary Eurobond LIBOR + 8% 2024 21,607,156 19,418,800
Zero interest
Secondary Eurobond bearing 2038 2,444,454 2,203,367
Total non-current borrowings 24,051,610 21,622,167
===================================== ========== ============ =============
The movement in the Group's borrowings in the six month period
ended 31 December 2019 is as follows:
In US$ Primary Eurobond Secondary Eurobond Total
-------------------------- ----------------- ------------------- ------------
Opening balance - - -
Initial recognition 20,304,746 1,765,630 22,070,376
Transaction fees (4,871,235) - (4,871,235)
Primary Eurobond finance
cost 2,768,480 - 2,768,480
Eurobond unwinding 1,216,809 437,737 1,654,546
30 June 2019 19,418,800 2,203,367 21,622,167
========================== ================= =================== ============
Primary Eurobond finance
cost 1,466,824 - 1,466,824
Eurobond unwinding 721,532 241,087 962,619
31 December 2019 21,607,156 2,444,454 24,051,610
========================== ================= =================== ============
6 Financial warrants liability
The Company granted RK with 6 million warrants alongside the
above Eurobonds. The warrants are exercisable over five years at an
exercise price of a 20% premium to the 20-day VWAP determined on 3
July 2018, subject to normal anti-dilution provisions, cash
settlement at the Company's option, and share exercise at either
party's option. The warrants have been initially recorded, as a
non-current liability, at their level 3 hierarchy fair value on 3
July 2018 of US$2.9 million and subsequently revalued at each
reporting period, determined using the Black-Scholes pricing model
with the following inputs.
The expected volatility has been determined by calculating the
historical volatility of the Company's share price since listing.
The term used in the model has been adjusted to reflect the period
in which the warrants can be exercised.
31 December 2019 30 June 2019
---------------- ----------------- -------------
Term 3.50 4.01
Share Price
(GBP) 0.35 0.50
Exercise Price
(GBP) 0.99 0.99
Volatility 65.06% 64.95%
Risk Free rate 1.92% 2.05%
Valuation ($) 587,315 1,259,923
---------------- ----------------- -------------
A 10% increase in volatility equates to an increase in value of
US$132,680 to US$719,995. A 10% decrease in volatility equates to a
decrease in value of US$117,539 to US$469,779.
A 10% increase in share price equates to an increase in value of
US$120,912 to US$708,227. A 10% decrease in share price equates to
a decrease in value of US$102,251 to US$485,064.
7 General and administrative expenses
The Group's general and administrative expenses include the
following:
For the period ended Six months ended Twelve months ended
(In US$) 31 December 2019 30 June 2019
--------------------------- ----------------- --------------------
Management fees 1,184,934 2,708,967
Legal and accounting fees 992,063 2,758,577
Travel and other expenses 208,669 715,369
Investor relations 147,696 332,759
Office expenses 138,844 358,721
Audit fee 90,996 141,046
Audit related services - 25,880
Total 2,763,202 7,041,319
=========================== ================= ====================
8 Segmental information
The Group currently operates in three operating segments which
includes the exploration and development of mineral properties in
Mexico through the development of the Sonora mining concessions and
the exploration and development of mineral properties in Germany
through its interest in the Deutsche Lithium joint venture. The
Group's head office is located in London, UK. Operating segments as
per IFRS 8 are identified by management of the Group as those who,
engage in business activities from which revenues may be earnt,
whose operating results are regularly reviewed by the Group's
management to make decisions about resources to be allocated to the
operating segments and to assess its performance, and for which
discrete financial information is available. A summary of the
identifiable assets, liabilities and net losses by operating
segment are as follows:
31 December 2019 (In US$) Mexico Germany Head Office Consolidated
---------------------------------- ------------ ----------- ------------ -------------
Current assets 1,840,652 - 48,840,320 50,680,972
Investment in jointly controlled
entity - 9,545,993 - 9,545,993
Property, plant and equipment 30,443,640 - - 30,443,640
Exploration and evaluation
assets 534,588 - - 534,588
Total assets 32,818,880 9,545,993 48,840,320 91,205,193
================================== ============ =========== ============ =============
Current liabilities 417,864 113,697 1,033,482 1,565,043
Borrowings - - 24,051,610 24,051,610
Warrant liability - - 587,315 587,315
Total liabilities 417,864 113,697 25,672,407 26,203,968
================================== ============ =========== ============ =============
Property, plant and equipment
additions 739,076 - - 739,076
Exploration and evaluation
asset additions 10,641 - - 10,641
For the period ended Mexico Germany Head Office Consolidated
31 December 2019 (In US$)
------------------------------ ---------- ---------- ------------ -------------
General and administrative
expense (432,753) - (2,330,449) (2,763,202)
Depreciation (101,549) - - (101,549)
Share-based payment expense - - (290,391) (290,391)
Foreign exchange gain/(loss) 345 - (18,652) (18,307)
Operating loss (533,957) - (2,639,492) (3,173,449)
============================== ========== ========== ============ =============
Finance income 18,962 - 909,834 928,796
Finance costs - - (2,429,443) (2,429,443)
Joint venture investment
loss - (80,887) - (80,887)
Revaluation of derivative
asset - (191,066) - (191,066)
Segment loss for the period (514,995) (271,953) (4,159,101) (4,946,049)
============================== ========== ========== ============ =============
30 June 2019 (In US$) Mexico Germany Head Office Consolidated
---------------------------------- ------------ ----------- ------------ -------------
Current assets 2,489,568 193,902 14,678,442 17,361,912
Investment in jointly controlled
entity - 9,347,086 - 9,347,086
Property, plant and equipment 29,806,113 - - 29,806,113
Exploration and evaluation
assets 523,947 - - 523,947
Total assets 32,819,628 9,540,988 14,678,442 57,039,058
================================== ============ =========== ============ =============
Current liabilities 436,613 237,105 1,037,930 1,711,648
Borrowings - - 21,622,167 21,622,167
Warrant liability - - 1,259,923 1,259,923
Total liabilities 436,613 237,105 23,920,020 24,593,738
================================== ============ =========== ============ =============
Property, plant and equipment
additions 3,669,329 - - 3,669,329
Exploration and evaluation
asset additions 21,000 - - 21,000
For the year ended Mexico Germany Head Office Consolidated
30 June 2019 (In US$)
------------------------------ ------------ ---------- ------------ -------------
General and administrative
expense (1,188,846) - (5,852,473) (7,041,319)
Depreciation (163,581) - - (163,581)
Share-based payment expense - - (800,846) (800,846)
Foreign exchange gain/(loss) 67,928 - (50,347) 17,581
Operating loss (1,284,499) - (6,703,666) (7,988,165)
============================== ============ ========== ============ =============
Finance income 784 - 1,918,340 1,919,124
Finance costs - - (4,423,032) (4,423,032)
Joint venture investment
loss - (168,679) - (168,679)
Revaluation of derivative
asset - (421,698) - (421,698)
Gain/loss on fixed asset
disposals 28,702 - - 28,702
Tax charge (5,012) - - (5,012)
Segment loss for the year (1,260,025) (590,377) (9,208,358) (11,058,760)
------------------------------ ------------ ---------- ------------ -------------
9 Subsequent events
On 14 February 2020, Bacanora Lithium Plc and the nominated
administrator of Solarworld, signed a second supplemental
agreement. It was agreed that:
1) Bacanora Lithium Plc would provide a further EUR1.35 million
prior to 28 February 2022, the first payment paid on 21 February
2020 for EUR30,000 and subsequently, EUR55,000 per month for a
further 24 months.
2) The call option which gives Bacanora Lithium Plc the option
to purchase the remaining 50% of the joint venture for EUR30
million was cancelled
3) The call option which gives Solarworld the right to purchase
the remaining 50% of the joint venture for EUR1, if Bacanora
Lithium Plc did not exercise the above option, was cancelled.
4) Bacanora retains its right of first refusal to purchase the
remaining 50% currently held by Solarworld.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR SSMFWFESSELD
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March 02, 2020 02:00 ET (07:00 GMT)
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