Proposed fundraise of approximately US$60 million to fully-fund the construction of Stage 1 of the Sonora Lithium Project in Mexico

Bacanora Lithium plc (AIM:BCN), a lithium development company, is pleased to announce a proposed issuance of new ordinary shares in the Company (“New Ordinary Shares”) at a price of 45p per New Ordinary Share (the “Placing Price”) to raise gross proceeds of approximately US$60 million, comprising (i) a placing (the “Placing”) of New Ordinary Shares to eligible institutional and professional investors (the “Placing Shares”), (ii) concurrent private placements of New Ordinary Shares in certain other jurisdictions and (iii) the Retail Offer (as defined below) (together “the Fundraising”).

The net proceeds from the Fundraising (the “Fundraising Proceeds”) will provide the last element of the Company’s 50% share of the financing required for the construction of Stage 1 of its flagship Sonora Lithium Project (“Sonora” or the “Project”), located in Mexico, being developed in conjunction with joint venture partner Ganfeng Lithium Co., Ltd. (“Ganfeng”), the world’s largest lithium metals producer. The current development timetable is, subject to the approval process set out below, expected to bring the Project into production in 2023, in order to meet the increasing world demand for downstream lithium production for the fast-growing electric vehicle industry.

The Placing Shares are being offered by way of an accelerated bookbuild (the “Bookbuild”) which will be launched immediately following this Announcement. The number of Placing Shares and allocations are at the discretion of Citigroup Global Markets Limited (“Citi”), Canaccord Genuity Limited (“Canaccord”), and WH Ireland Limited (“WH Ireland”) (together, the “Bookrunners”) and a further announcement confirming these details will be made in due course. None of the Placing Shares are being offered or sold in any jurisdiction where it would be unlawful to do so.

The Directors recognise the importance of giving retail shareholders and investors an opportunity to participate in the Company’s ongoing funding should they be unable to participate in the Placing, and consequently intends to raise up to EUR 8m by way of an offer made by the Company on the PrimaryBid platform of new ordinary shares in the capital of the Company (the “Retail Offer Shares”) at the Placing Price (the “Retail Offer”), to provide retail investors with an opportunity to participate. Further details of the Retail Offer will be announced shortly.

In addition to the Fundraising, Ganfeng has stated its intention to potentially exercise its pre-emptive right at the Placing Price and to increase its holding in the Company to up to a maximum of 29.99% in line with its original shareholding in 2019. Completion of this investment from Ganfeng is conditional upon obtaining board approval and certain approvals and consents from authorities in the People’s Republic of China.

Summary

• The net Fundraising Proceeds will complete the Company’s 50% share of the financing package and allow the Company to undertake the construction of Stage 1 of the Project together with its partner Ganfeng and meet its stated intention of commissioning the Project during H2 2023.
• The issue of the New Ordinary Shares is structured as a placing of new ordinary shares pursuant to the authorities granted at the Company’s Annual General Meeting held on 11 June 2020.
• The timing of the closing of the Bookbuild and the final number and allocation of the New Ordinary Shares to be issued are to be determined at the discretion of the Company and the Bookrunners.
• The use of the PrimaryBid platform allows retail shareholders and new investors an opportunity to participate at the same Placing Price.
• Following the closing of the Bookbuild, a further announcement will be made confirming final details of the Fundraising.

Rationale for the Fundraising and Use of Fundraising Proceeds

• Following Ganfeng’s investment at the project level in 2019, Ganfeng has been providing engineering and commissioning services for the hydrometallurgical part of the processing plant that produces the final battery-grade product.
• The capital cost estimated for Stage 1 production of 17,500 tonnes per annum of LCE at the Project has been optimised by Bacanora to US$407m from initial estimates of US$420m. In addition to the US$407m capital cost, the Company estimates that c.US$37m of additional funding will be required for working capital purposes at the Project level. Therefore, the total funding required for Stage 1 of the Project is estimated to be c.US$416m (“Construction Funding”) which is US$444m total Project development cost less the expected cash in SLL of US$28m post completion of the Ganfeng Option exercise. The remittance of SLL funds from Ganfeng is still awaiting final approval from Chinese authorities.
• All required construction and operational approvals are in place, subject to raising the financing, for Bacanora to begin construction of the Project.
• Upon completion of the exercise of its option, Ganfeng will be responsible for funding its 50% pro rata share of the Construction Funding (“Ganfeng Capital Investment”), amounting to a total of approximately US$208m.
• As a result, the Company’s share of the Project financing is US$208m, with an additional working capital requirement of US$15m at the Company level.
• In July 2018, the Company agreed a US$150m senior debt facility with RK Mine Finance (“RK”), of which US$125m remains undrawn. Given the passage of time from the initial agreement and the revised Project timeline, the Company and RK have signed non-binding indicative terms to amend the existing facility to extend the maturity from 31 July 2024 to 31 July 2027 and extend the cash interest payment date commencing from 31 October 2020 to 31 October 2023. The completion of this extension and drawdown of the remaining tranches of the facility is conditional upon final Board approvals from both RK and the Company and entering into definitive legal agreements.
• The combined total of the Fundraising Proceeds, the undrawn RK facility (subject to agreeing the amendments described above) and cash on the Company’s balance sheet, which currently stands at US$38m, will meet the Company’s share of the Construction Funding and projected working capital requirements of the Company to construct and commission the Project by H2 2023.

Overview of Bacanora and Current Trading

Bacanora is an AIM quoted lithium development company. The Company is focused on building, in collaboration with its major shareholder and offtake partner, Ganfeng, a fully integrated, downstream lithium operation to produce 35,000 tonne per annum battery-grade LCE (lithium carbonate equivalent) products at its flagship asset, Sonora. The Project will be built in two stages with Stage 1 targeting production of 17,500 tonnes of LCE and Stage 2 planned to double the LCE production to 35,000 tonnes of production.

Sonora has 8.8 million tonnes of LCE resources, with an approximate 250-year resource life, as detailed in its January 2018 Feasibility Study, demonstrating the Project’s potential to become a leading supplier of high-value lithium products (https://www.bacanoralithium.com/pdfs/Bacanora-FS-Technical-Report-25-01-2018.pdf). The Feasibility Study is deemed to be incorporated into this announcement.

Sonora Lithium Ltd (“SLL”) is the operational holding company for the 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 also owns 70% of the El Sauz and Fleur concessions.

On 13 November 2020 the Company announced that Ganfeng had exercised its option to acquire 50% of SLL and on 1 February 2021 the Company further announced that a new conditional joint venture agreement had been executed between the two parties. On completion of this option exercise, SLL will be owned 50% by Bacanora and 50% by Ganfeng.

Bacanora also owns 44.3% of Zinnwald Lithium Plc (AIM: ZNWD), which in turn owns a 50% interest in the Zinnwald Lithium Project and the Falkenhain and Altenberg Licences in southern Saxony, Germany.

The Company continues to progress the detailed engineering for the production of battery grade lithium and remains on schedule to deliver final engineering packages during H1, 2021. Ganfeng is working with its equipment suppliers to determine equipment delivery times to align with a target of production in 2023. Bacanora therefore remains on schedule to commence initial site works at Sonora in 2021, which should enable commissioning at the plant in 2023.

The business performed in line with management expectations in 2020 and continues to do so in Q1 2021.

The Placing

Bacanora has entered into a placing agreement (the “Placing Agreement”) with Citi, Canaccord and WH Ireland who are acting as joint Bookrunners in relation to the Placing. Pursuant to the Placing Agreement, the Bookrunners have agreed, in accordance with its terms, to use reasonable endeavours to place the Placing Shares with certain new and existing institutional and other investors. The Placing is not underwritten.

The Placing Shares will, when issued, be credited as fully paid and will rank pari passu with the existing ordinary shares including the right to receive all future dividends and distributions declared, made or paid by reference to a record date falling after their issue.

The Company will apply for the Placing Shares to be issued on closing and to be admitted to trading on AIM (“Admission”).

The Placing is conditional upon, inter alia, Admission becoming effective and the Placing Agreement between the Company and the Bookrunners becoming unconditional and not being terminated. Further details of the Placing Agreement can be found in the terms and conditions of the Placing contained in the Appendix to this Announcement (which forms part of this Announcement).

By choosing to participate in the Placing and by making a verbal offer to acquire Placing Shares, investors will be deemed to have read and understood this Announcement (including the Appendix) in its entirety and to be making such offer on the terms and subject to the conditions in this Announcement, and to be providing the representations, warranties and acknowledgements contained in the Appendix.

It should also be noted that pursuant to the Investment Agreement dated 28 June 2019 entered into with Ganfeng International Trading (Shanghai) Limited (“Ganfeng Shanghai”) which was announced on 28 June 2019, Ganfeng Shanghai has the pre-emptive right to subscribe for such number of shares as will maintain its current holding in the Company of 25.7% following completion of the Placing. Ganfeng Shanghai has stated its intention to potentially exercise this pre-emptive right and to increase its holding in the Company to up to a maximum of 29.99% (in each case at the Placing Price) in line with its original shareholding in 2019. Completion of this potential investment from Ganfeng Shanghai is conditional upon obtaining board approval and certain approvals and consents from authorities in the People’s Republic of China. Upon completion of this investment, the new shares to be issued and allotted as a result will be so issued and allotted following Admission (as defined above).

In the TV Clip below, CEO Peter Secker provides an overview of the Bacanora and their development plans for Sonora