Bacanora: Annual Report and Financial Statements

8th March 2021

Bacanora Lithium Plc (AIM: BCN), a lithium development company, is pleased to provide its audited annual financial results for the year ended 31 December 2020. 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 twelve months ended 31 December 2020 and subsequent events:

Corporate – Completion of Company’s 50% share of the funding requirements of the Sonora Lithium Project (“Sonora Project” or “Project”), Mexico

  • Bacanora Lithium plc (“Bacanora” or the “Company”), on 8 February 2021, completed a successful placing and retail offer which raised gross proceeds of approximately US$65.0 million through the issue of a total of 106,995,885 new ordinary shares at a price of 45 pence per placing share (£48.1 million). Together with the undrawn RK Mine Finance (“RK”) facility and cash on the Company’s balance sheet, the gross proceeds will meet the Company’s 50% share of the financing required for the construction of stage 1 of its flagship Sonora Project, located in Mexico.
  • In addition to the placing and retail offer, Ganfeng Lithium Co., Ltd. (“Ganfeng”), Bacanora’s cornerstone investor and offtake partner, received board approval on 5 February 2021 to exercise its pre-emptive right at the placing price and to increase its holding in the Company. Ganfeng will subscribe for a total of 53,333,333 new ordinary shares at the placing price of 45 pence per share, representing gross proceeds £24.0 million. Completion of this investment from Ganfeng is conditional upon obtaining certain approvals and consents from authorities in the People’s Republic of China. On completion of their investment, Bacanora will have 384,144,901 shares in issue and Ganfeng will have an ownership level of 28.88%.
  • Ganfeng completed its option to increase its stake in Sonora Lithium Ltd (“SLL”) from 22.5% to 50% (the “Option”) on 26 February 2021. SLL is the operational holding company for the Sonora Project. Consequently, Ganfeng have subscribed for 73,955,680 new ordinary shares in SLL at 29.59 pence at a total value of £21.9 million. On completion of the transaction, a revised Joint Venture Agreement (“JVA”) came into force, whereby each party is responsible for their portion of Project capex.
  • These additional investments demonstrate Ganfeng’s ongoing commitment to the Project, which targets production in 2023. Bacanora will remain as the project operator in Sonora, while Ganfeng will be responsible for leading certain engineering, procurement and construction (“EPC”) activities including the battery-grade lithium hydrometallurgical plant.
  • Bacanora and its subsidiaries (the “Group”) has a strong cash balance which was US$39.2 million as at 31 December 2020.

Sonora Project – work focused on finalising engineering processes allowing construction activities to commence on completion of the financing package.

  • Whilst COVID-19 has impacted the Company and its partners, work to complete the front-end engineering design (“FEED”) has continued throughout the period, with GR Engineering Services (“GRES”) completing the front-end concentrator and mechanical engineering and Ganfeng completing its flow sheet design testwork for the production of battery-grade lithium from the samples provided by the pilot plant.
  • Ganfeng is continuing to integrate its flow sheet for the production of battery-grade lithium into the overall large scale design and remains on schedule to deliver its final engineering packages to Bacanora in Q2 2021. Ganfeng continues to work with its equipment suppliers to determine equipment delivery times to align with a target of first production in 2023.
  • In Q1 2021, the Company commenced initial site activities for the development of the Sonora Project. Initial works involve the rescue and removal of surface vegetation and topsoil in the area required for the construction of the lithium processing plant. The Sonora construction team also commenced preparatory work to upgrade the main access road to the site in preparation for providing access for heavy equipment for commencing bulk site earthworks later in the year.

Zinnwald Lithium Project, Germany (“Zinnwald”) – Bacanora secured the future of the joint venture and completed the sale of Deutsche Lithium GmbH (“DL”) to Zinnwald Lithium Plc (“ZNWD”) which was formerly known as Erris Resources Plc (“Erris”).

  • The Company completed the sale (the “Zinnwald Transaction”) of Bacanora’s 50% shareholding of DL, on 29 October 2020, to AIM-listed Erris Resources Plc, now renamed Zinnwald Lithium Plc. ZNWD was re-admitted to AIM as the acquisition constituted a reverse takeover under AIM rules for ZNWD. Bacanora contributed its 50% investment in DL and €1.35 million cash. This cash was used to settle the commitment under the second supplemental joint venture agreement with SolarWorld AG and to pay for a portion of the transaction costs. Erris contributed its remaining cash and its Irish zinc and Swedish gold assets. In exchange, Bacanora received 90,619,170 shares or a 44.3% holding in ZNWD and a 2% net profit royalty.

Peter Secker, CEO of Bacanora, commented:

“Bacanora is one of London’s very few listed pure-play lithium development companies. It recently fulfilled a long-standing objective, completing its share of the funding required to commence construction at our world-class Sonora Lithium Project in Mexico in 2021, bringing the Project and Company closer to achieving the goal of monetising its lithium resources by 2023. This was accomplished alongside a strengthening lithium price as a result of attractive demand side fundamentals driven by the EV market.

The Company’s cornerstone investor and offtake partner, Ganfeng, entered into a new JV agreement at the operational holding company level of the Sonora Lithium Project in February 2021, increasing its stake to 50%. At the same time, Bacanora successfully completed a US$65 million fundraise, which provided the last element of the Company’s 50% share of the financing required to bring Stage 1 into production. In addition, Ganfeng agreed to exercise its pre-emptive right to increase its holding in the Company to approximately 28.9%, representing gross proceeds of a further £24 million, subject to the Chinese government approval process. The combined total of the fundraising proceeds, the undrawn RK facility and cash on the Company’s balance sheet, will more than meet Bacanora’s share of the construction funding and projected working capital requirements to construct and commission Sonora in 2023.

It is not possible to review the year without acknowledging COVID-19. This global pandemic has impacted almost all aspects of the planet and the development of a mineral deposit is no exception. Weathering this storm and maintaining our strong cash position has been a testament to the team and our strategic partners.

Fortunately, Bacanora was able to supply its engineering partners with the required samples to progress the FEED during a period of lighter COVID-19 restrictions in the Hermosillo area. GRES completed its concentrator design work and Ganfeng completed its flow sheet design from samples provided by the pilot plant for the hydrometallurgical plant. These results are being integrated into the final engineering packages which Ganfeng will continue to deliver to Bacanora in Q2, 2021. Detailed engineering and vendor equipment pricing is now underway and current development schedules indicate project construction commencing in H2, 2021.

As the Sonora Project transitions into its development phase and activity on site increases, the Company’s health and safety practices become more important than ever. Bacanora will continue to operate and benchmark itself against international reporting standards, alongside working closely with local communities and stakeholders. We are grateful for their ongoing support, alongside the Sonora State government and the Federal government of Mexico, and by remaining transparent throughout this crucial development phase we hope this continues. As part of this transparency, we are pleased to share our first Corporate Governance and Sustainability Committee Report, which lays out the Company’s key Environmental, Social and Corporate Governance initiatives and deliverables. This will be followed by a Sustainability report later in 2021. As we extract a critical mineral for a green energy future, we sincerely wish to protect the planet, not exacerbate existing problems.

Overall, I am delighted to report that Sonora has made the transition to the next development phase and I look forward to updating the market with further progress of works on site as we strive to capitalise on the fast-growing lithium market and transforming the Sonora Project into a lithium producer in 2023.”

News in full

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

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