TIDMBCN
RNS Number : 7460G
Bacanora Minerals Ltd
31 May 2017
BACANORA MINERALS LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE AND NINE MONTH PERIODED MARCH 31, 2017
DATE - MAY 31, 2017
The following Management's Discussion and Analysis ("MD&A")
should be read in conjunction with Bacanora Minerals Ltd.
("Bacanora" or the "Company") unaudited condensed consolidated
interim financial statements for the period ended March 31, 2017,
together with the accompanying notes.
The following discussion and analysis provides information that
management believes is relevant to the assessment and understanding
of the Company's results of operations and financial position. In
the opinion of management, all adjustments consisting of normal
recurring adjustments, considered necessary for a fair presentation
of the Company's financial position, results of operations and
funds flow, have been included. This MD&A is presented in
Canadian dollars, unless stated otherwise. Additional information
relating to Bacanora is available on SEDAR at www.sedar.com.
THE COMPANY
Bacanora is an exploration and development company focused on
developing its Sonora Lithium Project ("Sonora") (see Sonora
Lithium Properties - Mexico) in Sonora, Mexico, and it's newly
acquired lithium project, Deutsche Lithium, (see Deutsche Lithium
Project - Germany) located in southern Saxony, Germany. In
addition, the Company has a borates project located near the town
of Magdalena de Kino, north of Hermosillo, Mexico (see Mineral
Properties - Borates). Bacanora was incorporated in Alberta, Canada
in September 2008 and is listed on the TSX Venture Exchange and the
AIM Market of the London Stock Exchange, and its common shares
trade under the symbol, "BCN" on both exchanges. Please refer to
section Company Structure for further details on the Company's
legal and operational structure.
QUARTERLY HIGHLIGHTS
Operational
-- On April 10, 2017, the Company announced that it has entered
into a strategic partnership (the "Agreement") with Hanwa Co., LTD.
("Hanwa"), a leading Japan-based global trading company and one of
the larger traders of battery chemicals in Japan, with reported net
sales of more than Yen1,000 billion in 2016. The Agreement is
comprised of:
o an initial 10% equity investment in the Company
o an off-take agreement for up to 100% of the lithium carbonate
("Li(2) CO(3) ") produced at Sonora at market pricing
o an option to increase its equity interest in the Company to
19.9%
o to provide assistance with a debt financing package with
Japanese banking institutions
-- Feasibility Study ("FS") activities continue on the Sonora
Project. Metallurgical test work is ongoing at the SGS Laboratories
in Perth and Ausenco Engineers are currently completing the flow
sheet design and mass balance to finalise operating and capital
cost estimates. IMC Mining Consultants in Tucson has commenced mine
planning and equipment selection for the open pit mining operation.
Within Sonora, local infrastructure, energy and natural gas
supplies and consumable chemicals for the project continue to be a
focus as a result of the previously reported increases in costs for
natural gas and chemical reagents. The FS report, scheduled for
later in 2017, will also include an updated Mineral Resource
Estimate ("MRE") and geological model by SRK Consulting (UK)
Limited based on the infill drilling programme which was completed
in Q3 2016.
-- On February 21(st) , 2017, the Company announced the
acquisition of a 50% interest in, and joint operational control of,
the Zinnwald Lithium Project ("Zinnwald") in southern Saxony,
Germany from SolarWorld AG ("SolarWorld"), the largest solar panel
producer in Europe. The Company acquired its interest for a cash
consideration of EUR5 million (approximately CAD 7,105,000) and an
undertaking to contribute up to EUR5 million toward the costs of
completion of a Feasibility Study, which is anticipated to take
approximately 18-24 months. The Company holds its interest through
a 50% interest in Deutsche Lithium GmbH ("Deutsche Lithium") which
owns Zinnwald 100%. The Company also has an option to acquire the
outstanding 50% held by SolarWorld, alone or together with any
reasonably acceptable third party within a 24 month period for EUR
30 million, subject to the successful completion of a feasibility
study.
-- The Company continues to operate its large scale lithium
carbonate pilot plant in Hermosillo, currently focusing on:
o production of battery grade lithium carbonate samples for
distribution to potential customers in Asia
o optimising the metallurgical flow sheet and ongoing FS
testwork
o operator training in preparation for the construction of the
large scale plant.
Corporate
-- On May 15(th) , 2017, the Company announced the appointment
of Dr. Andres Antonius, who is based in Mexico City, and Mr.
Junichi Tomono, head of the Speciality Metals and Alloys department
of Hanwa, as non-executive directors of the Company. The two
appointments replace Mr. James Leahy, who has stepped down from the
board to pursue other business interests, and Mr. Kiran Morzaria
who resigned from his position as Non-Executive Director of the
Company earlier this year. Mr. Tomono's appointment to the board
follows the signing with Hanwa of a strategic partnership and
offtake agreement for Sonora. Please refer to the press release
dated May 15(th) , 2017 for further details.
-- On May 15(th) , 2017, the Company also announced the
appointment of Canaccord Genuity Limited as its sole broker with
immediate effect.
Financial
-- On May 2(nd) , 2017, in conjunction with the strategic
partnership with Hanwa, the Company announced the issuance of
12,333,261 new common shares to Hanwa at a price of GBP0.825
(approximately $1.37) per share to raise approximately
GBP10,175,000 (approximately $16,896,000). The new shares represent
10.0% of the issued and outstanding share capital of the
Company.
-- On May 24(th) , 2017, the Company announced the issuance of
8,573,925 new shares at price of GBP0.86 (approximately $1.51) to
Capital Research and Management Company, for total gross proceeds
of approximately GBP7.4 million (approximately $13 million). When
combined with the previous investments by Blackrock Inc. and
M&G Investment Funds, the Company is continuing to build a
strong institutional shareholder base.
LITHIUM MINERAL PROPERTIES
SONORA LITHIUM PROJECT - MEXICO
The Sonora Lithium Project consists of ten contiguous
concessions covering 97,389 hectares. Two of the concessions (La
Ventana, La Ventana 1) are owned 100% by Bacanora through its
wholly-owned subsidiary Minera Sonora Borax S.A de C.V. ("MSB").
The El Sauz, El Sauz 1, El Sauz 2, Fleur and Fleur 1 concessions
are owned by Bacanora's subsidiary, Mexilit S.A. de C.V.
("Mexilit") (which is owned 70% by Bacanora and 30% by Cadence
Minerals Plc ("Cadence")). These concessions are located
approximately 190 kilometres northeast of the city of Hermosillo,
in Sonora State, Mexico. They are roughly 200 kilometres south of
the border with Arizona, USA. The San Gabriel and Buenavista
concessions are owned by Bacanora's subsidiary, Minera Megalit S.A.
de C.V. ("Megalit") (which is owned 70% by Bacanora and 30% by
Cadence).
The Company currently holds the Megalit concession in MSB, but
intends to transfer it to the Megalit subsidiary once the license
is received from the Mexican Federal Mining Ministry. Because of
the size of the concession the Mining Ministry is taking longer
than usual to grant the license. The Company has held the
exploration rights to the concession since the claim application
and surveys were submitted to the Mining Ministry on November 7,
2013. The Mining Ministry turned the authorization for title to the
General Direction of Mining Regulation on February 3, 2015 but to
date the title has not been received. Management has no reason to
believe that the license will not be eventually granted, but in the
unlikely event that it may not, management does not believe that it
will impact the Company's future development activities, as the
Megalit concession is not part of the MRE or the Pre-Feasibility
Study ("PFS").
The Company has previously disclosed the existence of an
agreement between the late Mr. Colin Orr-Ewing, the past Chairman
of the Company, and the Company subjecting the Sonora Lithium
Project to a 3% gross overriding royalty on production from certain
concessions within the Sonora Lithium Project. The Company
understands that the royalty is now held by the estate of Mr. Colin
Orr-Ewing. The circumstances of the granting of this royalty are
currently under investigation by the Company.
Based on the Company's updated Mineral Resource Estimate ("MRE")
(prepared with accordance with National Instrument 43-101 -
Standard of Disclosure for Mineral Projects ("NI 43-101") announced
on April 15, 2016, the Sonora Lithium Project concessions have an
estimated Indicated Mineral Resource of 4.5 Mt LCE[1] contained in
259 Mt of clay, at Li grade of 3,200 ppm, and an estimated Inferred
Mineral Resource of 2.7 Mt LCE contained in 160 Mt of clay at a Li
grade of 3,200 ppm. A Pre-Feasibility Study completed in Q1 2016
established Probable Mineral Reserve (in accordance with NI 43-101)
of 2.1 million tonnes LCE and demonstrated the economics associated
with becoming a 35,000 tpa lithium carbonate and 50,000 tpa SOP
producer in Mexico.
Lithium Pilot Plant
Over the past sixteen months, the Company has continued to
expand the production capacity of its pilot plant located in
Hermosillo, Sonora, Mexico. Metallurgical test work is ongoing with
a significant focus on off-taker samples, continuous flow sheet
development plus plant operations and ongoing operator training.
The initial focus has been the production of battery-grade lithium
carbonate samples for delivery to off-takers in Asia and Europe.
Some of the specific achievements over the last twelve months
are:
-- Ore-to-product metallurgical test work on bulk samples taken
from trenches on the clay units from the planned mining areas
within the 100% owned La Ventana concession is in progress.
-- Upgrading of concentrate and pre-concentrate front-end
processes to optimise lithium recovery.
-- Hydrometallurgical recoveries have been improved by the
addition of gas-fired stationary calcining units for continuous
roasting of the lithium concentrate.
-- Optimisation of gypsum consumption and evaporation and crystalisation parameters.
-- Increased capacity in the Pregnant Liquor Solution circuits
to allow continuous leaching operations.
-- Installation of additional resin columns in the lithium
carbonate recovery circuit for the refining of the product to
battery-grade lithium carbonate.
-- Approximately 20 professional and operational personnel are now working at the pilot plant.
-- Training and quality control processes are in full swing to
negate risk associated with execution of commissioning and
operational phases after construction of the Stage 1, 17,500 tpa
plant and to ensure accelerated commissioning schedules in terms of
operations and quality control.
-- Additional operations and technical personnel will continue
to be employed at the pilot plant as sample production continues to
ramp up.
In addition to the significant flow sheet development and
optimisation being undertaken at the pilot plant, all of the flow
sheet development is being audited by independent consultants
supervised by Ausenco Engineers, as part of the ongoing FS
process.
Over the next 12 months the Company will continue a recruitment
campaign of engineers and operators in order to maintain the plant
in continuous operation and to gain expertise in those processes
that require supervision and monitoring for optimisation and
quality control. To date, the plant has operated continuously on
the beneficiation and hydro-metallurgical processes. This
investment in people and training is expected to provide
significant operational and quality control benefits once
commissioning of the full scale lithium carbonate plant commences.
Over the fiscal year 2017 the Company has budgeted to spend an
aggregate of approximately $2 million dollars on the pilot
plant.
Feasibility Study
The Company has continued to work with the same consultants that
prepared the PFS. Process engineering for the FS is being carried
out by Ausenco. SRK is undertaking the MRE and IMC is carrying out
the reserve estimate and mine planning. Other specialised
consulting groups will be appointed for additional sections of the
FS.
The FS is focussed on delivering the most economically robust
development strategy for an initial 17,500 tpa of lithium carbonate
production at the Sonora Lithium Project (subsequently increasing
to 35,000 tpa in later years). The FS is budgeted to cost
approximately $7 million and is now targeted for completion in late
summer of 2017. The Company is delivering a strategy of optimizing
the projects operating costs and energy requirements given the
continued strengthening in reagent input costs. The rising costs
are relevant to all of Bacanora's peers, and importantly, are being
experienced in tandem with a rise in lithium carbonate pricing. The
Company is fully financed through to the completion of FS
stage.
DEUTSCHE LITHIUM PROJECT - GERMANY
The Company holds 50% interest in a jointly controlled entity,
Deutsche Lithium GmbH, a project located in southern Saxony,
Germany, adjacent to the border of the Czech Republic and within 5
kilometres of the towns of Altenberg and Freiberg. The Company
acquired its interest in February of 2017 for a cash consideration
of EUR 5 million (approximately $7,105,000) and an undertaking to
contribute up to EUR 5 million toward the costs of completion of a
feasibility study, which is anticipated to take approximately 18 -
24 months. The Company has an option to acquire the remaining 50%
of the jointly controlled entity, alone or together with any
reasonably acceptable third party within a 24 month period for EUR
30 million.
Deutsche Lithium represents a strategic asset located in close
proximity to a thriving market for lithium and energy products,
which is being fuelled by Germany's electric automotive industry
and the rise of renewable energy storage. Zinnwald is located in a
world-class granite hosted Sn/W/Li belt that has been mined
historically for tin, tungsten and lithium at different times over
the past 300 years.
The project has a historical resource estimate which was
reported in accordance with the PERC Code[2], comprised of
Measured, Indicated and Inferred Resources.[3] A Qualified Person
(under NI 43-101) has not done sufficient work to confirm the
historical estimate; hence the Company is not treating the
historical estimate as current Mineral Resources or Mineral
Reserves.
Resource Category Tonnes* (000) Li Grade (ppm) Contained
LCE** (Tonnes)
------------------- -------------- --------------- ----------------
Measured 10,283 3,661 200,277
------------------- -------------- --------------- ----------------
Indicated 16,287 3,594 311,408
------------------- -------------- --------------- ----------------
Inferred 9,867 3,705 194,484
------------------- -------------- --------------- ----------------
Notes:
* Li cut-off 2,500pm and >2 metres vertical thickness.
** LCE is the industry standard terminology for, and is
equivalent to, Li(2) CO(3) . 1 ppm Li metal is equivalent to 5.32
ppm LCE / Li(2) CO(3) . Use of LCE is to provide data comparable
with industry reports and assumes complete conversion of lithium in
clays with no recovery or process losses.
The Company believes that both historic work at Zinnwald and the
geological context of the deposit demonstrates its potential for
economic extraction of lithium products, as well as potential
by-products of tin, tantalum and SOP. Bacanora's investment and
expertise will facilitate further development in order to achieve
higher-value, downstream lithium products which command higher
prices in the market.
SolarWorld recently announced its intention to file for
bankruptcy protection in Germany due to ongoing pricing pressures
in its core solar markets. The Company believes that the SolarWorld
insolvency process will have no material impact on the Company's
interest in Deutsche Lithium and the Zinnwald project, nor its
agreement with SolarWorld.
LITHIUM PROPERTIES OUTLOOK
The Company's strategy is to position itself to satisfy ongoing
strong growth for lithium carbonate in the fast growing sectors of
electric vehicles and energy storage. The Company is fully financed
with approximately $42,000,000 in the bank at the date of this
MD&A and is therefore fully funded through to the initial
project development and the start of the construction stages.
The pricing environment for lithium carbonate has strengthened
to close to US$12,000/t from an average of around US$6,000/t in
2015 (source: http://trugroup.com/lithium-market-conference.shtml).
The pricing of lithium carbonate shipments to China and Japan
remained strong in January 2017, with reported sales by major
producers in the region of $12,000/t and spot sales in Japan and
China around $15,000/t (source:
(https://seekingalpha.com/article/4040100-lithium-miner-news-month-january-2017).
With this in mind, the Company will update the pricing assumptions
in its FS and expects to announce the updated long term pricing
forecast for lithium carbonate for the FS prior to the FS being
released.
MINERAL PROPERTIES - BORATES
Magdalena Borate
The Magdalena Borate Project consists of eight concessions, with
a total area of 7,105 hectares. The Magdalena Borates Project is
road accessible and located immediately east of the town of
Magdalena de Kino, north of Hermosillo, Mexico. The Company has
estimated drill-indicated boron resources in accordance with NI
43-101 on its Cajon borate deposit. The Magdalena property is
subject to a 3% gross overriding royalty payable to Minera Santa
Margarita S.A. de C.V., a subsidiary of Rio Tinto PLC, and a 3%
gross overriding royalty payable to the past Chairman of the
Company on sales of borate produced from this property.
Borates property outlook
A metallurgical testing of unit B samples from the Magdalena
Borate Project is continuing at Bureau-Veritas Lab in Canada and in
LTM lab in Hermosillo in parallel.
The objectives of this metallurgical testing program are:
-- To conduct bench-scale metallurgical test work to obtain B(2)
O(3) concentrates targeting 30% B(2) O(3) from the composite
samples of shallow portion of the borate deposit.
-- To evaluate the conversion of produced B(2) O(3) concentrates into boric acid.
The scope of this study consists of sample preparation, head
sample characterization, de-sliming by attrition to remove clays,
grinding followed by flotation using various reagents to produce
about 30% B(2) O(3) concentrate and boric acid preparation
according to the boric acid preparation process.The Company has
budgeted approximately $300,000 for the borate related activities
for the remainder of calendar 2017.
The Company has entered into a 12 month exclusivity agreement
with a potential local investor to evaluate the borates leases and
metallurgical testwork results, following which the investor may
elect to acquire up to 80% of the Company's interest in the project
upon terms that are subject to negotiation between the parties in
the event that the investor expresses a desire to acquire such an
interest. The Company will be providing technical support to the
investor during the evaluation period.
COMPANY STRUCTURE
The Company is a public company engaged in the exploration and
development of mineral deposits in Mexico and Germany. The Company
is in various stages of exploration and development on all of its
properties. The Company's common shares are listed on the TSX
Venture Exchange as a Tier 2 issuer and on the AIM Market of the
London Stock Exchange, under the symbol "BCN" on both
exchanges.
In 2013, the Company established the subsidiary Mexilit to hold
the El Sauz, El Sauz 1, El Sauz 2, Fleur and Fleur 1 concessions,
which are related to its agreement with Cadence. In 2014, the
Company established the subsidiary Megalit to hold the San Gabriel,
Buenavista and Megalit concessions which are also under a second
agreement with Cadence. Cadence owns 30% of the shares of each of
Mexilit and Megalit.
The Company's main lithium and borates concessions are held in
these Mexican companies:
-- MSB holds the Magdalena borates and La Ventana lithium concessions.
-- MIT holds the Carlos, Carlos I, Carlos II and Carlos III borates concessions.
-- Mexilit holds the El Sauz, El Sauz 1, El Sauz 2, Fleur, and
Fleur 1 lithium concessions. Cadence owns 30% of this company.
-- Megalit holds the Buenavista, and San Gabriel lithium
concessions, and will also hold the Megalit concession. Cadence
owns 30% of this company.
EVALUATION AND EXPLORATION EXPITURES
The Company capitalizes all exploration costs subsequent to
obtaining the right to explore related to the projects to
Exploration and Evaluation assets. Below is a summary of
expenditures capitalized during the period ended March 31, 2017 and
the year ended June 30, 2016.
Magdalena La Ventana Mexilit Megalit
Borate Lithium Lithium Lithium Total
-------------------------- ------------ ------------ ------------ ---------- -------------
Balance, June
30, 2015 $ 7,246,158 $ 1,931,837 $ 2,091,527 $ 637,905 $ 11,907,427
-------------------------- ------------ ------------ ------------ ---------- -------------
Additions:
Concession tax $ 21,988 $ 62,662 $ 70,791 $ 14,772 $ 170,213
Exploration - 489,444 113,086 - 602,530
Drilling - 1,053,428 496,699 - 1,550,127
Analysis and
assays - 262,032 15,589 - 277,621
Technical services 976,336 2,351,573 373,525 37,689 3,739,123
Travel 17,368 286,807 9,300 73,114 386,589
Foreign exchange
adjustments (537,109) (60,295) (186,935) (32,578) (816,917)
Total net additions $ 478,583 $ 4,445,651 $ 892,055 $ 92,997 $ 5,909,286
-------------------------- ------------ ------------ ------------ ---------- -------------
Balance, June
30, 2016 $ 7,724,741 $ 6,377,488 $ 2,983,582 $ 730,902 $ 17,816,713
-------------------------- ------------ ------------ ------------ ---------- -------------
Additions:
Concession tax $ - $ 136,798 $ 5,980 $ 6,276 $ 149,054
Exploration 10,061 130,194 - - 140,255
Drilling - 674,938 - - 674,938
Analysis and
assays - 731,157 - - 731,157
Technical services 20,128 4,309,113 8,322 4,829 4,342,392
Travel and miscellaneous - 141,642 - - 141,642
Foreign exchange
adjustments 293,604 578,608 124,792 37,792 1,034,796
Total net additions $ 323,793 $ 6,702,450 $ 139,094 $ 48,897 $ 7,214,234
-------------------------- ------------ ------------ ------------ ---------- -------------
Balance, March
31, 2017 $ 8,048,534 $13,079,938 $ 3,122,676 $ 779,799 $25,030,947
-------------------------- ------------ ------------ ------------ ---------- -------------
RESULTS OF OPERATIONS
Selected annual information
The Company is in the exploration stage and is entering into the
development stage, though it does not have any mining operations
and has not earned any revenue, except for interest income. While
the information set out in the tables below is mandated by National
Instrument 51-102, it is management's view that the variations in
financial results that occur from year to year and quarter to
quarter are not particularly helpful in analyzing the Company's
performance. It is in the nature of the business of junior
exploration companies that unless they sell a mineral interest for
a sum greater than the costs incurred in acquiring such interest,
they have no significant net sales or total revenue. Because the
majority of their expenditures consist of exploration and
evaluation costs that are capitalized, exploration companies'
annual and quarterly losses usually result from costs that are of a
general and administrative nature.
Significant variances in the Company's reported loss from year
to year and quarter to quarter most commonly arise from several
factors that are difficult to anticipate in advance or to predict
from past results. These factors include: (i) decisions to write
off deferred exploration costs when management concludes there has
been an impairment in the carrying value of a mineral property, or
the property is abandoned, (ii) the vesting of incentive stock
options, which results in the recording of amounts for stock based
compensation expense that can be quite large in relation to other
general and administrative expenses incurred in any given period,
and (iii) fluctuations in foreign exchange rates.
During the year ended June 30, 2016, the Company recorded a
total comprehensive loss of $11,541,808 (2015 - $1,315,929), used
$6,476,706 (2015 - $1,666,525) of cash in operations, incurred
$6,726,203 (2015 - $1,941,318) on exploration expenditures as well
as $4,226,962 (2015 - $2,763,164) on general and administrative
expenses.
For the
year ended
June 30,
For the For the
year ended year ended
($, except shares June 30, June 30,
amounts) 2016 2015 2014
------------------------------ ------------- ------------ ------------
Interest income 114,079 108,403 10,710
Total expenses (includes
foreign exchange loss/gain) 10,535,032 2,849,567 2,665,669
Comprehensive loss (11,541,808) (1,315,929) (2,411,234)
Comprehensive loss
per share - basic
and diluted (0.11) (0.03) (0.04)
Funds used in operations (6,476,706) (1,666,525) (1,128,057)
Total assets 49,279,201 24,728,583 13,458,386
Total liabilities 2,073,440 1,083,763 1,014,229
Exploration and evaluation
expenditures 6,726,203 1,941,318 3,213,451
General and administrative
expenses 4,226,962 2,753,173 1,068,668
------------------------------ ------------- ------------ ------------
During the year ended June 30, 2016, the Company's general and
administrative expenses increased by $1,473,789. Higher G&A
expenses were due to the increase in management and directors' fees
(refer to the Related Party Transaction section below) as well as
higher legal and consulting fees associated with the Company's
re-domiciled process.
General and administrative expenses for the years ended June 30,
2016 and 2015 were as follows:
Twelve months ended
Jun 30, Jun 30,
2016 2015
--------------------------- ------------ ------------
Management fees $ 1,861,713 $ 705,084
Legal and accounting fees 1,248,410 1,041,619
Investor relations 434,753 427,862
Office expenses 317,977 177,495
Travel and insurance 364,109 401,113
--------------------------- ------------ ------------
Total $ 4,226,962 $ 2,753,173
--------------------------- ------------ ------------
Summary of quarterly results
Three months ended March 31, 2017 compared to three months ended
March 31, 2016.
During the third quarter of fiscal 2017, the Company realized a
comprehensive loss of $1,822,465 (2016 - $2,522,100), operating
activities used $348,633 (2016 - $1,507,031), incurred $2,430,040
(2016 - $1,507,200) on exploration expenditures, as well as
$914,684 (2016 - $1,068,083) on general and administrative
expenses.
Three months ended
Mar. 31, Mar. 31,
$ 2017 2016
------------------------------ ---------- ----------
Comprehensive loss 1,822,465 2,522,100
Comprehensive loss per basic
and diluted share (0.01) (0.02)
Funds used in operations 348,633 1,507,031
E&E expenditures 2,430,040 1,507,200
G&A expenses 914,684 1,068,083
------------------------------ ---------- ----------
The lower comprehensive loss during the third quarter is due
mainly to the higher foreign exchange gain due to the weakening of
the US dollar against the Mexican peso and Canadian dollar. The
following table itemizes the individual G&A expense
categories:
Three months ended
Mar. 31, Mar. 31,
2017 2016
--------------------------- ---------- ------------
Management fees $ 344,443 $ 435,982
Legal and accounting fees 53,463 410,002
Investor relations 226,172 95,463
Office expenses 15,837 38,181
Travel and insurance 274,769 88,455
--------------------------- ---------- ------------
Total $ 914,684 $ 1,068,083
--------------------------- ---------- ------------
During the third quarter, the Company experienced increased
travel activities by the Company's executive team, which were
offset by lower legal fees.
Nine months ended March 31, 2017 compared to nine months ended
March 31, 2016.
During the nine month period ended March 31, 2017, the Company
realized a comprehensive loss of $5,694,450 (2016 - $5,898,041),
used $4,728,023 (2016 - $3,940,371) in operations, incurred
$6,179,438 (2016 - $3,674,000) on exploration activities as well as
$3,420,053 (2016 - $2,500,700) on general and administrative
expenses.
Nine months ended
Mar. 31, Mar. 31,
$ 2017 2016
------------------------------ ---------- ----------
Comprehensive loss 5,694,450 5,898,041
Comprehensive loss per basic
and diluted share (0.05) (0.06)
Funds used in operations 4,728,023 3,940,371
E&E expenditures 6,179,438 3,674,000
G&A expenses 3,420,053 2,500,700
------------------------------ ---------- ----------
Nine months ended
Mar. 31, Mar. 31,
$ 2017 2016
--------------------------- ------------ ------------
Management fees $ 1,117,806 $ 1,161,623
Legal and accounting fees 1,054,864 650,777
Investor relations 509,802 322,130
Office expenses 197,538 177,008
Miscellaneous 540,043 189,162
--------------------------- ------------ ------------
Total $ 3,420,053 $ 2,500,700
--------------------------- ------------ ------------
Higher G&A expenses incurred during the nine month period
were due to the Company's expanded executive team, addition of new
consultants, increased corporate administrative costs associated
with the new office in London, as well as the re-domicile
associated legal costs.
The following is a summary of the eight most recently completed
quarters:
Three Three months Three Three
months ended Dec. months months
ended 31, 2016 ended ended
Mar. 31, Sep.30, Jun. 30,
2017 2016
$ 2016
------------------ --------------- ------------- ------------ ---------------
Comprehensive
loss (1,822,465) (792,515) (3,079,749) (5,832,062)
Comprehensive
loss per basic
and diluted
share (0.01) (0.02) (0.03) (0.05)
Funds used in
operations (348,633) (2,431,934) (1,784,045) (2,494,096)
E&E expenditures 2,430,040 2,298,125 1,982,315 3,106,674
G&A expenses 914,684 1,222,280 1,283,089 1,726,262
------------------ --------------- ------------- ------------ ---------------
Three months Three months Three Three months
ended Mar.31, ended Dec. months ended Jun.
31, 2015 ended 30, 2015
Sept.30,
2015
$ 2016
------------------ --------------- ------------- ------------ ---------------
Comprehensive
loss (2,522,100) (2,761,663) (425,983) (128,448)
Comprehensive
loss per basic
and diluted
share (0.02) (0.03) (0.01) (0.01)
Funds used in
operations (1,507,031) (2,239,498) (236,081) (1,507,160)
E&E expenditures 1,507,200 738,187 1,374,142 500,453
G&A expenses 1,068,083 909,254 523,363 1,151,472
------------------ --------------- ------------- ------------ -------------
LIQUIDITY AND CAPITAL MANAGEMENT
Working Capital
The Company is not in commercial production on any of its
resource properties and accordingly, it does not generate cash from
operations. The Company finances its activities by raising capital
through equity issuances. As at March 31, 2017, the Company had a
working capital surplus of $11,709,912 (June 30, 2016 -
$27,159,677). The current working capital is dedicated towards the
completion of exploration programs, obligations and operations
under the Company's principal supply agreement, feasibility studies
on the lithium and borate projects along with continued work at the
pilot plant. In order to meet the Company's planned growth and
development activities, the Company budgets to spend an aggregate
of approximately $17 million during fiscal 2017, with approximately
$7 million on the Feasibility Study and related expenditures,
approximately $2 million on pilot plant related capital
expenditures and approximately $8 million on general and
administrative corporate expenditures.
Capital structure
The Company's objectives in managing capital are to safeguard
its ability to operate as a going concern while pursuing
exploration and development of its assets. The Company defines
capital as the Company's shareholders equity excluding contributed
surplus, of $44,723,575 at March 31, 2017 (June 30, 2015 -
$44,482,529), The Company sets the amount of capital in proportion
to risk and corporate growth objectives. The Company manages its
capital structure and makes adjustments to it in light of changes
in economic conditions and the risk characteristics of the
underlying assets. The Company is not subject to any externally
imposed capital requirements.
Equity instruments
On August 14, 2015, 200,000 stock options were exercised at a
price of $0.30 each for gross proceeds of $101,780.
On November 13, 2015, the Company completed a private financing
of 11,476,944 common shares at a price of approximately $1.56
(GBP0.77) per share for aggregate gross proceeds of approximately
$17,871,000 (GBP8,837,247). The Company paid commission of $354,280
and other share issue expenses of $56,117.
In December 2015 an aggregate of 650,000 stock options were
exercised, each at a price of $0.24 per share. In addition, an
aggregate of 1,250,000 options to acquire common shares at a price
of $1.58 were granted to certain directors, officers, consultants
and employees in December 2015.
On December 2, 2015 and January 22, 2016, the Company granted
1,000,000 and 2,000,000 common share options respectively to Mark
Hohnen, each such option being exercisable into one common share at
a price of $1.58 and $1.59 respectively per share, each option
grant expiring on January 22, 2018 and May 27, 2019
respectively.
On April 28, 2016, an aggregate of 850,000 of stock options were
exercised at a price of $0.50 each for gross proceeds of
$425,000.
On May 20, 2016, the Company completed a private financing of
9,750,000 placing shares and 2,925,000 placing warrants at a price
of approximately $1.48 (GBP0.79) per placing share for aggregate
gross proceeds of approximately $14.7 million (GBP7,702,500). The
Company paid commission of $440,450 (GBP231,075) and other share
issue expenses of $64,940.
On September 30, and October 10, 2016, 2,925,000 warrants at a
price of approximately $1.35 (GBP0.79) were exercised into
2,925,000 new common shares, for total proceeds of approximately
$3,892,400 (GBP2,310,750).
On February 1, 2017, the Company issued 200,000 common shares as
a result of 200,000 stock options exercised at a price of $0.30
each, for total proceeds of $60,000.
On May 2, 2017, the Company issued 12,333,261 new common shares
at a price of GBP0.825 (approximately $1.37) per share to raise
approximately GBP10,175,000 (approximately $16,896,000).
On May 24, 2017, the Company issued 8,573,925 new common shares
at a price of GBP0.86 (approximately $1.51) per share to raise
approximately GBP7,373,000 (approximately $12,946,000).
The following tables summarize the outstanding securities issued
by the Company as at March 31, 2017, and as of the date of this
MD&A.
March 31,
May 30, 2016 2017
-------------------------- ------------- ------------
Common shares 131,906,539 110,999,353
Stock options 8,187,400 7,687,400
Warrants 833,333 833,333
-------------------------- ------------- ------------
Total equity instruments
outstanding 140,927,272 119,520,086
-------------------------- ------------- ------------
The following table summarizes the outstanding options as at
March 31, 2017.
Weighted
Number average Number
outstanding remaining exercisable
at Mar. Exercise contractual Expiry at Mar.
Grant date 31, 2017 price life (Years) date 31, 2017
--------------- ------------- --------- -------------- ---------- -------------
September Sept.
28, 2012 50,000 0.25 0.8 28, 2017 50,000
September Sept.
11, 2013 525,000 0.30 1.5 11, 2018 525,000
December 2, Dec. 2,
2015 1,200,000 1.58 3.7 2020 1,200,000
January 22, Jan. 22,
2016 1,000,000 1.56(1) 0.9 2018 1,000,000
April 27, May 27,
2016 2,000,000 1.94(2) 2.2 2019 -
March
March 1, 2017 400,000 1.39(3) 4.9 1, 2022 400,000
March
March 1, 2017 2,512,400 1.39(3) 2.9 1, 2020 829,092
--------------- ------------- --------- -------------- ---------- -------------
7,687,400 4,004,092
--------------- ------------- --------- -------------- ---------- -------------
(1) Exercise price of GBP0.77 per share.
(2) Exercise price of GBP 0.96 per share.
SEGMENTED INFORMATION
The Company is pursuing the exploration and development of
mineral properties in Mexico and Germany. The Company has an office
in Calgary, and London but it does not generate any revenues or
hold any non-current assets at these locations. Summary of the
identifiable assets are as follows:
Exploration and
Evaluation Activities Consolidated
------------------------ ---------------------------- ----------------------------
Mar. 31, June 30, Mar. 31, June 30,
2017 2016 2017 2016
------------------------ ------------- ------------- ------------- -------------
Property and equipment
- Mexico $ 2,057,258 $ 2,364,371 $ 2,057,258 $ 2,364,371
Exploration and
evaluation assets
- Mexico $ 25,030,947 $ 17,816,713 $ 25,030,947 $ 17,816,713
Investment in
jointly controlled
entity - Germany $ 9,858,582 $ - $ 9,858,582 $ -
------------------------ ------------- ------------- ------------- -------------
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
This note presents information about the Company's exposure to
credit, liquidity and market risks arising from its use of
financial instruments and the Company's objectives, policies and
processes for measuring and managing such risks.
a) Credit risk
Credit risk is the risk of financial loss if a counterparty
fails to meet its contractual obligations. The Company's credit
risk relates primarily to Input Tax Credits ("ITC") receivables in
Canada and Value Added Tax ("VAT") receivables in Mexico. The
Company works to continue to collect the refunds on regular and
complete basis. Any changes in management's estimate of the
recoverability of the amount due will be recognized in the period
of determination and any adjustment may be significant. The
carrying amount of accounts and related party receivables
represents the maximum credit exposure.
All of the other receivables represent amounts due from the
Canadian and Mexican governments and accordingly the Company
believes them to have minimal credit risk. The Company considers
all of its other receivables fully collectible, and therefore has
not provided an allowance against this balance nor reclassified the
balance as a non-current asset.
The Company's cash is held in major Canadian, Mexican and UK
banks, and as such the Company is exposed to the risks of those
financial institutions.
The Board of Directors monitors the exposure to credit risk on
an ongoing basis and does not consider such risk significant at
this time.
b) Liquidity risk
Liquidity risk is the risk that the Company will not be able to
meet its financial obligations as they become due. The Company's
approach to managing liquidity risk is to ensure, as far as
possible, that it will have sufficient liquidity to meet its
obligations when due, under both normal and stressed conditions,
without incurring unacceptable losses.
c) Market risk
Market risk is the risk that changes in market prices, such as
foreign exchange rates, commodity prices, and interest rates will
affect the value of the Company's financial instruments. The
objective of market risk management is to manage and control market
risk exposures within acceptable limits, while maximizing long-term
returns.
The Company conducts exploration projects in Mexico. As a
result, a portion of the Company's expenditures, accounts
receivables, and accounts payables and accrued liabilities are
denominated in US dollars and Mexican pesos and are therefore
subject to fluctuation in exchange rates.
d) Fair values
The carrying value approximates the fair value of the financial
instruments due to the short term nature of the instruments.
RELATED PARTY TRANSACTIONS
a. Related party expenses
The Company's related parties include directors and officers and
companies which have directors in common. Transactions made with
related parties are made in the normal course of business and are
measured at the exchange amount, which is the amount of
consideration established and agreed to by the related parties.
During the three and nine months ended March 31, 2017, directors
and management fees in the amount of $347,989 and $1,013,096
respectively (2016 - $344,252 and 857,117 respectively) were paid
to directors and officers of the Company. All of these costs were
recorded as general and administrative. Of the total amount
incurred as directors and management fees, $68,069 (June 30, 2016 -
38,075) remains in accounts payables and accrued liabilities on
March 31, 2017.
During the three and nine months ended March 31, 2017, the
Company paid $Nil (2015 - $Nil and $53,559 respectively) to a
daughter of the late Chairman of the Company. These services were
incurred in the normal course of operations for office
administrative services. As of March 31, 2017, $Nil (June 30, 2016
- $Nil) remains in accounts payables and accrued liabilities.
During the three and nine months ended March 31, 2017, the
Company paid $84,879 and $613,357 respectively (2016 - $260,533 and
$756,607 respectively) to Grupo Ornelas Vidal S.A. de C.V., a
consulting firm of which Martin Vidal, director of the Company and
president of MSB, is a partner. These services were incurred in the
normal course of geological exploration. As of March 31, 2017,
$30,211 (June 30, 2016 - $77,416) remains in accounts payable and
accrued liabilities.
b. Key management personnel compensation
Key management of the Company are directors and officers of the
Company and their remuneration includes the following:
Three months
ended Nine months ended
----------------------------- ---------------------- --------------------------
Mar. 31, Mar. 31,
Mar. 31, Mar. 31,
2017 2016 2017 2016
Directors' fees:
Colin Orr-Ewing $ - $ 14,732 $ 10,056 $ 63,977
James Leahy 12,000 5,000 37,263 15,000
Shane Shircliff - 4,375 6,462 13,125
Derek Batorowski - 4,375 - 13,125
Kiran Morzaria 1,223 4,375 9,972 12,419
Jamie Strauss 13,558 - 18,673 -
Ray Hodgkinson 13,558 - 18,095 -
----------------------------- ---------- ---------- ------------ ------------
Total directors'
fees: $ 40,339 $ 32,857 $ 100,521 $ 117,646
----------------------------- ---------- ---------- ------------ ------------
Management and consulting
fees:
Mark Hohnen $ 81,679 $ 99,416 $ 254,137 $ 133,416
Peter Secker 98,932 122,040 310,585 378,007
Martin Vidal 84,879 62,171 218,733 187,847
Derek Batorowski 82,499 60,625 229,641 157,847
Total management
and consulting fees $ 347,989 $ 344,252 $ 1,013,096 $ 857,117
----------------------------- ---------- ---------- ------------ ------------
Employee's salary:
----------------------------- ---------- ---------- ------------ ------------
Cordelia Orr-Ewing $ - $ $ - $ 53,559
----------------------------- ---------- ---------- ------------ ------------
Total employee's
salary $ - $ $ - $ 53,559
----------------------------- ---------- ---------- ------------ ------------
Total director's,
management's, consultant's
and employee's salaries
and fees $ 388,328 $ 377,109 $ 1,113,617 $ 1,028,322
----------------------------- ---------- ---------- ------------ ------------
Operational consulting
fees:
Grupo Ornelas Vidal
S.A. de C.V. $ 84,879 $ 260,533 $ 613,357 $ 756,607
----------------------------- ---------- ---------- ------------ ------------
Stock-based compensation $ 806,177 $ 777,536 $ 2,050,290 $ 2,152,869
----------------------------- ---------- ---------- ------------ ------------
The Company's directors currently hold the following common
share options:
Date of grant Exercise price Number of options
------------------ ---------------- --------------- ------------------
September
11, 2013 $0.30 200,000
December 2,
2015 $1.58 175,000
Martin Vidal March 1, 2017 $1.39 125,000
------------------ ---------------- --------------- ------------------
September
11, 2013 $0.30 200,000
December 2,
2015 $1.58 175,000
Derek Batorowski March 1, 2017 $1.39 125,000
------------------ ---------------- --------------- ------------------
December 2,
2015 $1.58 1,000,000
January 22,
2016 $1.94 2,000,000
March 31,
Mark Hohnen 2017 $1.39 249,900
------------------ ---------------- --------------- ------------------
March 31,
Jamie Strauss 2017 $1.39 750,000
------------------ ---------------- --------------- ------------------
Andres Antonius May 15, 2017 $1.44 500,000
------------------ ---------------- --------------- ------------------
March 31,
Ray Hodgkinson 2017 $1.39 200,000
------------------ ---------------- --------------- ------------------
COMMITMENTS AND CONTINGENCIES
The Company has commitments for lease payments for field offices
with no specific expiry dates. The total annual financial
commitment resulting from these agreements is $10,735.
The properties in Mexico are subject to spending requirements in
order to maintain title of the concessions. The capital spending
requirement for 2017 is $333,180. The properties are also subject
to semi-annual payments to the Mexican government for concession
taxes.
As per the terms of the SolarWorld purchase agreement, the
Company undertook to pay up to EUR5.0 million toward the costs of
completing of a Feasibility Study, which is anticipated to take
approximately 18 to 24 months.
SUBSEQUENT EVENTS
On May 2(nd) , 2017, the Company announced the issuance of
12,333,261 new common shares to Hanwa Co., LTD, a leading
Japan-based global trading company and one of the larger traders of
battery chemicals in the Asian region. The common shares represent
10.0% of the issued and outstanding share capital of the Company
and are being issued at a price of GBP0.83 (approximately $1.37)
per share to raise approximately GBP10,175,000 (approximately
$16,896,000) for Bacanora pursuant to the Company's offtake
agreement with Hanwa for battery grade lithium carbonate at its
Sonora lithium project in Mexico.
On May 24(th) , 2017, the Company announced the issuance of
8,573,925 new shares at price of GBP0.86 (approximately $1.51) to
Capital Research and Management Company, US based investment
company that manages in excess of $1.45 trillion, for total gross
proceeds of approximately GBP7.4 million (approximately $13
million).
RISKS AND UNCERTAINTIES
The mineral exploration industry is subject to numerous risks
and uncertainties that can affect the Company's ability to explore
and develop its mineral deposits and to ultimately generate cash
flows from operations. In addition to the risks described in Note 5
of the audited consolidated financial statements for the year ended
June 30, 2016, these risks and uncertainties include, but are not
limited to the following:
-- Resource estimates
The Company's reported mineral resources are only estimates at
this stage. Mineral resource estimates are uncertain and may not be
representative. There are numerous uncertainties inherent in
estimating mineral resources, including factors beyond the control
of the Company. The estimation of mineral resources is a subjective
process and the accuracy of any such estimate is a function of the
quality of available data and of engineering and geological
interpretation and judgement. Results of drilling, metallurgical
testing, production, and exploration activities subsequent to the
date of any estimate may justify revision (up or down) of such
estimates. The Company and the directors cannot give any assurance
that the estimated mineral resources will be recovered if the
Company proceeds to production or that they will be recovered at
the volume, grade and rates estimated.
-- Successful development of the Company's lithium and borate
assets, and start of mining operations
Development of mineral properties involves a high degree of risk
and few properties that are explored are ultimately developed into
producing mines. The commercial viability of a mineral deposit is
dependent upon a number of factors which are beyond the Company's
control, including but not limited to the following:
-- a reduction in the market price of lithium and or borates;
-- delays in obtaining or an inability to obtain, or conditions
imposed by, regulatory approvals;
-- non-performance by third party contractors;
-- inability to attract sufficient numbers of qualified workers;
-- change in environmental compliance requirements;
-- unfavourable weather conditions;
-- contractor or operator errors;
-- lack of availability of infrastructure capacity;
-- increases in extraction costs including plant, material, energy and labour costs;
-- lack of availability of mining equipment and other exploration services;
-- catastrophic events such as fires, storms or explosions;
-- the breakdown or failure of equipment or processes;
-- construction, procurement and/or performance of the
processing plant and ancillary operations falling below expected
levels of output or efficiency;
-- violation of permit requirements;
-- the lack of progress with respect to the development of appropriate extraction technologies;
-- the political stability of Mexico; and
-- taxes and imposed royalties.
There are numerous activities that need to be completed in order
to successfully commence production at the Sonora Lithium,
Magdalena Borate, and the Zinnwald projects including, without
limitation: completing a feasibility study, acquiring of land and
access rights, optimizing the mine plan, recruiting and training
personnel, negotiating contracts for transportation and for the
sale of products, updating, renewing and obtaining, as required,
all necessary permits, including, without limitation, environmental
permits; and handling any other infrastructure issues. There is no
certainty that the Company will be able to recruit and train
personnel, have available funds to finance construction and
development activities, avoid potential increases in costs,
negotiate transportation or product sales agreements on terms that
would be acceptable to the Company, or that the Company will be
able to update, renew and obtain all necessary permits to start or
to continue to operate the projects. Most of these activities
require significant lead times, and the Company will be required to
manage and advance these activities concurrently in order to begin
production. A failure or delay in the completion of any one of
these activities may delay production, possibly indefinitely, and
would have a material adverse effect on the Company's business,
prospects, financial position, results of operations and cash
flows.
As such, there can be no assurance that Bacanora will be able to
commence the development of the Sonora Lithium Project and/or
Magdalena Borate project at all, or in accordance with any
timelines or budgets that may be established due to the factors
described above.
-- Financing risk
Additional funding will be required in order to complete the
proposed future exploration and development plans on the projects.
There is no assurance that any such funds will be available.
Failure to obtain additional financing, on a timely basis, could
cause the Company to reduce or delay its proposed operations. The
majority of sources of funds currently available to the Company for
its projects are in large portion derived from the issuance of
equity. While the Company has been successful in the past in
obtaining equity financing, there is no assurance that it will be
able to obtain adequate financing in the future or that such
financing will be on terms advantageous to the Company.
-- Dependence on key personnel
The success of the Company, in common with other businesses of a
similar size, will be highly dependent on the expertise and
experience of its directors and senior management. The loss of any
key personnel could harm the business or cause delay in the plans
of the Company while management time is directed at finding
suitable replacements. The future success of the Company is in part
dependent upon its ability to identify, attract, motivate and
retain staff with the requisite expertise and experience. Although
the Company has entered into consulting arrangements with its key
personnel to secure their services, the agreements are not subject
to any minimum notice periods and the Company cannot guarantee the
retention of such key personnel. Should key personnel leave, the
Company's business, prospects, financial condition or results of
operations may be materially adversely affected.
-- History of losses and no immediate foreseeable earnings
The Company has a history of losses and there can be no
assurance that it will be profitable. The Company expects to
continue to incur losses until such time as it develops and
commences profitable mining operations on its projects. The
development of the properties will require the commitment of
substantial financial resources. The amount and timing of
expenditures will depend on a number of factors, some of which are
beyond the Company's control, including the progress of ongoing
exploration, studies and development, the results of consultant
analysis and recommendations, the rate at which operating losses
are incurred and the execution of any joint venture agreements with
any strategic partners. There can be no assurance that the Company
will achieve profitability.
-- Government Legislation and regulatory risk
The mining industry in each of Mexico and Germany is subject to
extensive controls and regulations imposed by various levels of
government. All current legislation is a matter of public record,
but the Company is unable to predict what additional legislation or
amendments may be enacted. Amendments to current laws, regulations
and permits governing operations and activities of mining
companies, including tax and environmental laws and regulations
which are evolving in Mexico and Germany, or more stringent
implementation thereof, could have a material adverse impact on the
Company.
-- The concessions may be impacted by undetected defects,
litigation, revocation, non-renewal or alteration by regulatory
authorities
While the Company has diligently investigated its title to, and
rights and interests in, the concessions granted to the Company
and, to the best of its knowledge, such title, rights and interests
are in good standing, this should not be construed as a guarantee
of the same. The concessions may be subject to undetected defects.
If a defect does exist, it is possible that the Company may lose
all or part of its interest in one or more of the concessions to
which the defect relates and its exploration, appraisal and
development programmes and prospects may accordingly be adversely
affected.
While the directors have no reason to believe that the existence
and extent of any of the concessions are in doubt, title to mineral
properties is subject to potential litigation by third parties
claiming an interest in them. The failure to comply with all
applicable laws and regulations, including failure to pay taxes,
meet minimum expenditure requirements or carry out and report
assessment work may invalidate title to or rights under all or
portions of the concessions.
All of the concessions in which the Company has or may earn an
interest will be subject to applications for renewal or grant (as
the case may be). The renewal or grant of the terms of each
concession is usually at the discretion of the relevant local
government authority. If a concession is not renewed or granted,
the Company may suffer significant damage through loss of the
opportunity to develop and discover any mineral resources on that
concession area.
Contractual agreements to which the Company is, or may in the
future become party to, may become subject to payment and other
obligations. In particular, for certain concessions, the Company is
required to expend the funds necessary to meet the minimum work
commitments attaching to such concessions. Failure to meet these
work commitments will render the concession liable to be revoked.
Further, if any contractual obligations are not complied with when
due, in addition to any other remedies which may be available to
other parties, this could result in dilution or forfeiture of
interests held by the Company.
-- Expropriation of private assets by Mexican authorities
As regulated by the Mexican Law of Expropriation, the Mexican
government has the right to expropriate privately owned land when
deemed necessary in certain limited circumstances, for example if
needed for the purposes of defence, conservation or development. In
the event of an expropriation, the government will compensate the
landowner at market value for the land expropriated. Therefore, it
remains a risk that the Mexican authorities could expropriate the
Company's mining concessions although compensation would be payable
in such event.
-- Applications
Title has not yet been granted by Mexican Federal Mining
Ministry in respect to the Megalit concession in the Sonora Lithium
Project. Application has been made for this area which has been
"Approved for Title" by the Mexican Federal Mining Ministry. While
the directors believe that there is minimal risk of title not being
granted in respect of this application, there is no guarantee that
title will be granted in respect of this concession.
-- Maintenance of the Company's concessions
The Company's concessions in Mexico are subject to spending
requirements in order to maintain the title of the concessions. The
concessions are also subject to semi-annual payments to the Mexican
government for concession taxes. Should the Company not, or not be
able, to pay the spending requirements there is a material risk
that the Company's ownership of its concessions may be revoked.
-- Share Capital of Mexican Subsidiaries
If the shareholders' equity of any of the Company's subsidiaries
incorporated in Mexico decrease to an amount less than one third of
their share capital, according to Mexican laws, this may be a cause
for dissolving that subsidiary at the request of any interested
third party. None of the Company's subsidiaries equity is currently
at less than one thirds of its share capital.
-- Exploration uncertainty
The Company is in the process of exploring its Magdalena Borates
and Zinnwald projects and has not yet determined whether the
properties contain economically recoverable mineral reserves. The
recoverability of carrying values for mineral properties is
dependent upon the discovery of economically recoverable mineral
reserves, the ability of the Company to obtain the financing
necessary to complete exploration and development, and the success
of future operations.
The application of the Company's accounting policy for
exploration and evaluation assets requires judgment in determining
whether it is likely that costs incurred will be recovered through
successful exploration and development or sale of the asset under
review when assessing impairment. Furthermore, the assessment as to
whether economically recoverable reserves exist is itself an
estimation process. Estimates and assumptions made may change if
new information becomes available and may therefore impact the
Company's financial estimations and reported results.
-- Negative conclusions from further economic assessments
The Company's cash resources will be used, inter alia, for
general working capital purposes and in particular, to fund the
continuation of the work programme to develop its the Sonora
Lithium Project, and preparation of a pre-feasibility study on the
Magdalena Borate Project, and to establish the economic potential
of its Zinnwald project. Until such time as any further economic
assessments are concluded, uncertainty will exist as to the
economic viability of the Company's lithium and borate projects. In
the event that any further economic assessments have negative
conclusions, shareholders may lose some or all of their
investment.
-- Internal controls
The Company has established a system of internal controls for
financial reporting. Effective internal controls are necessary for
the Company to provide reliable financial reports and to help
prevent fraud. Although the Company has procedures in place in
order to help ensure the reliability of its financial reports,
including those imposed on it under Canadian securities laws, the
Company cannot be certain that such measures will ensure that the
Company will maintain adequate control over financial processes and
reporting. Failure to implement required controls, or difficulties
encountered in their implementation, could harm the Company's
results of operations or cause it to fail to meet its reporting
obligations. If the Company or its independent auditor discovers a
material weakness, the disclosure of that fact, even if quickly
remedied, could reduce the market's confidence in the Company's
financial statements and adversely affect the market price of the
common shares.
-- Environmental compliance
All phases of the Company's operations in Mexico and Germany are
subject to environmental regulation in that jurisdiction.
Environmental legislation is evolving in a manner that will require
stricter standards and enforcement, increased fines and penalties
for non-compliance, more stringent environmental assessments of
proposed projects and a heightened degree of responsibility for
companies and their officers, directors and employees. Compliance
with environmental laws requires on-going expenditure and
considerable capital commitments from the Company. Non-compliance
may subject the Company to significant penalties, including the
suspension or revocation of its rights in respect of its
concessions or assets. There is no assurance that existing or
future environmental regulation will not materially adversely
affect the Company's business, financial condition and results of
operations.
-- Environmental approvals
Environmental approvals and permits are currently, and may also
in future be, required in connection with the Company's operations.
Failure to comply with applicable environmental laws, regulations
and permitting requirements may result in enforcement actions
thereunder, including orders issued by regulatory or judicial
authorities against the Company, causing operations to cease or be
curtailed, and may include corrective measures requiring capital
expenditures, installation of additional equipment, or remedial
actions. Parties engaged in mining operations, including the
Company, may be required to compensate those suffering loss or
damage by reason of the mining activities and may have civil,
administrative or criminal fines or penalties imposed for
violations of applicable environmental laws or regulations.
-- Further licences and permits required
The Company's concessions for its lithium and borate projects
will need to obtain further licences and permits prior to
commencing commercial operations. The Company will also be required
to obtain further environmental and technical permits for the
construction and development of its commercial operations. There is
a risk that these further permits, concessions and licences may not
be granted which would have a significant material adverse effect
on the Company.
In addition, the granting of such approvals and consents may be
withheld for lengthy periods, or granted subject to satisfaction of
certain conditions which the Company cannot or may consider
impractical or uneconomic to meet. As a result of any such delays
or inability to exploit such discoveries, the Company may incur
additional costs or losses.
-- Unknown environmental hazard
Environmental hazards may also exist on the properties in which
the Company holds interests, that are unknown to the Company at
present and that have been caused by previous or existing
concession holders or operators.
-- Exploration, development and operating risks
It is impossible to ensure that the development programmes
planned by the Company will result in a profitable commercial
operation. Whether the Company's lithium and borate projects will
be commercially viable depends on a number of factors, some of
which are: (i) the particular attributes of the material excavated
from the Company's concessions; (ii) the performance of the
full-scale commercial production operations; (iii) the end prices
that can be achieved by the Company for products offered to
customers, which may be volatile; and (iv) government regulations,
including regulations relating to prices, taxes, royalties, land
use, importing and exporting of minerals and environmental
protection. While the directors of the Company believe that the
results of the small scale mineral extraction processes that have
been achieved at the Pilot Plant are encouraging, the performance,
yields, operating costs and capital costs of the full scale mineral
production plant may differ materially from expectations, and the
economic returns from processing the extracted ore into
commercially saleable lithium or borate may be lower than
anticipated. The exact effect of these factors cannot be accurately
predicted, but the combination of these factors may result in the
Company not receiving an adequate return on invested capital.
-- Reliance on third parties
The Company will be reliant on third party service providers and
suppliers to provide equipment, infrastructure and raw materials
required for the Company's business and operations and there can be
no assurance that such parties will be able to provide such
services in the time scale and at the cost anticipated by the
Company.
-- Operations
The Company's lithium and borate projects involves a number of
risks and hazards, including industrial accidents, labour disputes,
unusual or unexpected geological conditions, equipment failure,
changes in the regulatory environment, environmental hazards and
weather and other natural phenomena such as earthquakes and floods.
The Company may experience a plant shutdown or periods of reduced
production as a result of any of the above factors. Such
occurrences could result in material damage to, or the destruction
of, production facilities, human exposure to pollution, personal
injury or death, environmental and natural resource damage,
monetary losses and possible legal liability, any of which could
materially adversely affect the Company's results of
operations.
-- Commodity prices
The profitability of the Company's operations will be dependent
upon the market price of the products able to be sold by the
Company. Mineral prices fluctuate widely and are affected by
numerous factors beyond the control of the Company. General
economic factors as well as the world supply of mineral
commodities, the stability of exchange rates and political
developments can all cause significant fluctuations in prices. The
price of mineral commodities has fluctuated widely in recent years
and future price declines could cause commercial production to be
impracticable, thereby having a material adverse effect on the
Company's business, financial condition and results of operations.
The Company has entered into an Off-take Agreement for up to 100%
of Li(2) CO(3) produced at the Sonora Lithium Project, with final
pricing to be at market price, to be finalized prior to
commencement of production. The Company is therefore exposed to the
risk of market fluctuations between the present and the
commencement of production.
Furthermore, reserve estimates and feasibility studies using
different commodity prices than the prevailing market price could
result in material write-downs of the Company's investment in its
assets, increased amortisation, reclamation and closure charges or
even a reassessment of the feasibility of the Company's lithium and
borate projects.
-- Single Purchaser Risk
The Company has entered into an Off-take Agreement with Hanwa
Co., Ltd., a leading Japan-based global trading company, pursuant
to which Hanwa has agreed to purchase 70-100% of lithium carbonate
produced by the Company during Stage 1 production at the Sonora
Lithium Project. Accordingly, the Company is subject to certain
risks associated with having all of its production from the Sonora
Lithium Project being purchased by a single purchaser. Such risks
include, but are not limited to: potential decreased negotiation
power; risks associated with the liquidity and solvency of Hanwa;
any delays from Hanwa in terms of deliverables under the agreement
could have potentially material adverse effects on the Company.
-- Infrastructure
The Company's lithium and borate projects depend to a
significant degree on adequate infrastructure. In the course of
developing its operations the Company may need to construct and
support the construction of infrastructure, which includes
permanent water supplies, power, transport and logistics services
which affect capital and operating costs. Unusual or infrequent
weather phenomena, sabotage, government or other interference in
the maintenance or provision of such infrastructure or any failure
or unavailability in such infrastructure could materially adversely
affect the Company's operations, financial condition and results of
operations.
-- Canadian corporate income taxes
The Company has filed, and will file, all required income tax
returns. However, such returns are subject to reassessment by the
applicable taxation authority. In the event of a successful
reassessment of the Company whether by re-characterisation of
exploration and development expenditures or otherwise, such
reassessment may have an impact on current and future taxes
payable.
-- Tax considerations
Changes in tax laws in the countries that are applicable to the
Company, in particular Mexico, Canada, BVI, UK, or Germany or any
other subordinate legislation or the practice of any relevant
taxation authority could have a material adverse effect on the
Company. An investment in the Company may involve complex tax
considerations which may differ for each investor and each investor
is advised to consult their own tax advisers. Any tax legislation
and its interpretation and the legal and regulatory regimes which
apply in relation to an investment in the Company may change at any
time.
-- Uninsured hazards
The Company may be subject to substantial liability claims due
to the inherently hazardous nature of its business or for acts and
omissions of contractors, sub-contractors or operators. Any
indemnities the Company may receive from such parties may be
limited or may be difficult to enforce if such contractors,
sub-contractors or operators lack adequate resources.
The Company can give no assurance that the proceeds of insurance
applicable to covered risks will be adequate to cover expenses
relating to losses or liabilities. Accordingly, the Company may
suffer material losses from uninsurable or uninsured risks or
insufficient insurance coverage. The
Company is also subject to the risk of unavailability, increased
premiums or deductibles, reduced cover and additional or expanded
exclusions in connection with its insurance policies and those of
operators of assets it does not itself operate.
-- Exposure to economic cycle
Market conditions may affect the value of the Company's share
price regardless of operating performance. The Company could be
affected by unforeseen events outside its control including
economic and political events and trends, inflation and deflation,
terrorist attacks or currency exchange fluctuation. The combined
effect of these factors is difficult to predict and an investment
in the Company could be affected adversely by changes in economic,
political, administrative, taxation or other regulatory factors in
any jurisdiction in which the Company may operate.
-- Health and safety
The Company's activities will be subject to health and safety
standards and regulations. Failure to comply with such requirements
may result in fines and or penalties being assessed against the
Company.
-- Geopolitical climate
The political climate in Mexico is currently stable and
generally held to offer a favourable outlook for foreign
investments. There is no guarantee that it will remain so in the
future. Changes in government, regulatory and legislative regimes
cannot be ruled out.
-- Foreign currency exchange rates
The Company's revenues will be derived in Mexico and Germany and
the Company's operations and profitability may be adversely
affected by movements in foreign currency exchange rates,
particularly by movements in the US Dollar relative to Sterling,
the Canadian Dollar, the Euro and the Mexican Peso, through both
transaction and conversion risks.
-- Supply Agreement
On November 23, 2016, the Company announced that the financing
condition in the conditional lithium hydroxide supply agreement
previously announced on August 28th, 2015 has not been met under
the terms of the agreement. The Company advised that it had
extensive discussions with the customer as to the feasibility of
securing project specific financing pursuant to the terms and
conditions of the agreement, that those discussions have now
concluded, and therefore we are discontinuing further efforts to
secure project specific financing pursuant to the agreement.
-- SolarWorld Insolvency
SolarWorld recently announced its intention to file for
bankruptcy protection in Germany due to ongoing pricing pressures
in its core solar markets. The Company believes that the SolarWorld
insolvency process will have no material impact on the Company's
interest in Deutsche Lithium and the Zinnwald project, nor its
agreement with SolarWorld.
While many of these risks are beyond the Company's control and
it is impossible to ensure that the Company's exploration and
development initiatives will result in commercial operations,
Bacanora strives to minimize the aforementioned risks by:
-- Employing management and technical staff and consultants with
extensive industry and/or area experience;
-- Maintaining an appropriate working capital position to cover
the Company's capital and overhead requirements;
-- Maintaining a low cost structure and a tight cost control system; and
-- Maintaining insurance in accordance with industry standards
to address the risk of liability for property damage, personal
injury, and other hazards.
ADVISORY REGARDING FORWARD LOOKING STATEMENTS
This discussion includes certain statements that may be deemed
"forward-looking statements". All statements in this discussion
other than statements of historical facts, that address future
acquisitions and events or developments that the Company expects
are forward-looking statements. Although the Company believes the
expectations expressed in such forward-looking statements are based
on reasonable assumptions, such statements are not guarantees of
future performance and actual results or developments may differ
materially from those in the forward-looking statements. Factors
that could cause actual results to differ materially from those in
forward-looking statements are summarized herein under the section
entitled "Risks and Uncertainties" and include among other things,
risks relating to the successful development of the Company's
projects and the start of mining operations, market prices,
continued availability of capital and financing, government and
regulatory risks and general economic, market or business
conditions. Investors are cautioned that any such statements are
not guarantees of future performance and that actual results or
developments may differ materially from those projected in the
forward-looking statements. Except as required by applicable
securities laws, the Company does not undertake any obligation to
publicly update or revise any forward looking statements.
[1] LCE = lithium carbonate (Li(2) CO(3) ) equivalent;
determined by multiplying Li value in percent by 5.324 to get an
equivalent Li(2) CO(3) value in per cent. Use of LCE is to provide
data comparable with industry reports and assumes complete
conversion of lithium in clays with no recovery or process
losses.
[2] PERC Code means the Pan European Code for Reporting of
Exploration Results, Mineral Resources and Reserves prepared by the
Pan-European Reserves and Resources Reporting Committee, as
amended.
[3] The foregoing estimates were set forth in a report dated
October 1, 2014, prepared by G.E.O.S. Ingenieurgesellschaft mbH and
Technical University Bergakademie Freiberg on behalf of SolarWorld
Solicium GmbH and entitled, "Zinnwald Lithium Project, Report
According to PERC Standard".
This information is provided by RNS
The company news service from the London Stock Exchange
END
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May 31, 2017 11:15 ET (15:15 GMT)
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