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 [email protected] 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 [email protected] 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
(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 [email protected] or visit www.rns.com.
END
Original Article: https://uk.advfn.com/stock-market/london/bacanora-lithium-BCN/share-news/Bacanora-Lithium-PLC-Final-Results/81879656?nomobile
