TIDMBCN
RNS Number : 4079R
Bacanora Lithium PLC
08 March 2021
Bacanora Lithium plc ("Bacanora" or the "Company")
Annual Report and Financial Statements
31 December 2020
Bacanora Lithium Plc (AIM: BCN), a lithium development company,
is pleased to provide its audited annual financial results for the
year ended 31 December 2020. Where applicable, the Company's Annual
Report will be posted to shareholders shortly and will be available
electronically on the Company's website.
Highlights - for the twelve months ended 31 December 2020 and
subsequent events:
Corporate - Completion of Company's 50% share of the funding
requirements of the Sonora Lithium Project ("Sonora Project" or
"Project"), Mexico
-- Bacanora Lithium plc ("Bacanora" or the "Company"), on 8
February 2021, completed a successful placing and retail offer
which raised gross proceeds of approximately US$65.0 million
through the issue of a total of 106,995,885 new ordinary shares at
a price of 45 pence per placing share (GBP48.1 million). Together
with the undrawn RK Mine Finance ("RK") facility and cash on the
Company's balance sheet, the gross proceeds will meet the Company's
50% share of the financing required for the construction of stage 1
of its flagship Sonora Project, located in Mexico.
-- In addition to the placing and retail offer, Ganfeng Lithium
Co., Ltd. ("Ganfeng"), Bacanora's cornerstone investor and offtake
partner, received board approval on 5 February 2021 to exercise its
pre-emptive right at the placing price and to increase its holding
in the Company. Ganfeng will subscribe for a total of 53,333,333
new ordinary shares at the placing price of 45 pence per share,
representing gross proceeds GBP24.0 million. Completion of this
investment from Ganfeng is conditional upon obtaining certain
approvals and consents from authorities in the People's Republic of
China. On completion of their investment, Bacanora will have
384,144,901 shares in issue and Ganfeng will have an ownership
level of 28.88%.
-- Ganfeng completed its option to increase its stake in Sonora
Lithium Ltd ("SLL") from 22.5% to 50% (the "Option") on 26 February
2021. SLL is the operational holding company for the Sonora
Project. Consequently, Ganfeng have subscribed for 73,955,680 new
ordinary shares in SLL at 29.59 pence at a total value of GBP21.9
million. On completion of the transaction, a revised Joint Venture
Agreement ("JVA") came into force, whereby each party is
responsible for their portion of Project capex.
-- These additional investments demonstrate Ganfeng's ongoing
commitment to the Project, which targets production in 2023.
Bacanora will remain as the project operator in Sonora, while
Ganfeng will be responsible for leading certain engineering,
procurement and construction ("EPC") activities including the
battery-grade lithium hydrometallurgical plant.
-- Bacanora and its subsidiaries (the "Group") has a strong cash
balance which was US$39.2 million as at 31 December 2020.
Sonora Project - work focused on finalising engineering
processes allowing construction activities to commence on
completion of the financing package.
-- Whilst COVID-19 has impacted the Company and its partners,
work to complete the front-end engineering design ("FEED") has
continued throughout the period, with GR Engineering Services
("GRES") completing the front-end concentrator and mechanical
engineering and Ganfeng completing its flow sheet design testwork
for the production of battery-grade lithium from the samples
provided by the pilot plant.
-- Ganfeng is continuing to integrate its flow sheet for the
production of battery-grade lithium into the overall large scale
design and remains on schedule to deliver its final engineering
packages to Bacanora in Q2 2021. Ganfeng continues to work with its
equipment suppliers to determine equipment delivery times to align
with a target of first production in 2023.
-- In Q1 2021, the Company commenced initial site activities for
the development of the Sonora Project. Initial works involve the
rescue and removal of surface vegetation and topsoil in the area
required for the construction of the lithium processing plant. The
Sonora construction team also commenced preparatory work to upgrade
the main access road to the site in preparation for providing
access for heavy equipment for commencing bulk site earthworks
later in the year.
Zinnwald Lithium Project, Germany ("Zinnwald") - Bacanora
secured the future of the joint venture and completed the sale of
Deutsche Lithium GmbH ("DL") to Zinnwald Lithium Plc ("ZNWD") which
was formerly known as Erris Resources Plc ("Erris").
-- The Company completed the sale (the "Zinnwald Transaction")
of Bacanora's 50% shareholding of DL, on 29 October 2020, to
AIM-listed Erris Resources Plc, now renamed Zinnwald Lithium Plc.
ZNWD was re-admitted to AIM as the acquisition constituted a
reverse takeover under AIM rules for ZNWD. Bacanora contributed its
50% investment in DL and EUR1.35 million cash. This cash was used
to settle the commitment under the second supplemental joint
venture agreement with SolarWorld AG and to pay for a portion of
the transaction costs. Erris contributed its remaining cash and its
Irish zinc and Swedish gold assets. In exchange, Bacanora received
90,619,170 shares or a 44.3% holding in ZNWD and a 2% net profit
royalty.
Peter Secker, CEO of Bacanora, commented:
"Bacanora is one of London's very few listed pure-play lithium
development companies. It recently fulfilled a long-standing
objective, completing its share of the funding required to commence
construction at our world-class Sonora Lithium Project in Mexico in
2021, bringing the Project and Company closer to achieving the goal
of monetising its lithium resources by 2023. This was accomplished
alongside a strengthening lithium price as a result of attractive
demand side fundamentals driven by the EV market.
The Company's cornerstone investor and offtake partner, Ganfeng,
entered into a new JV agreement at the operational holding company
level of the Sonora Lithium Project in February 2021, increasing
its stake to 50%. At the same time, Bacanora successfully completed
a US$65 million fundraise, which provided the last element of the
Company's 50% share of the financing required to bring Stage 1 into
production. In addition, Ganfeng agreed to exercise its pre-emptive
right to increase its holding in the Company to approximately
28.9%, representing gross proceeds of a further GBP24 million,
subject to the Chinese government approval process. The combined
total of the fundraising proceeds, the undrawn RK facility and cash
on the Company's balance sheet, will more than meet Bacanora's
share of the construction funding and projected working capital
requirements to construct and commission Sonora in 2023.
It is not possible to review the year without acknowledging
COVID-19. This global pandemic has impacted almost all aspects of
the planet and the development of a mineral deposit is no
exception. Weathering this storm and maintaining our strong cash
position has been a testament to the team and our strategic
partners.
Fortunately, Bacanora was able to supply its engineering
partners with the required samples to progress the FEED during a
period of lighter COVID-19 restrictions in the Hermosillo area.
GRES completed its concentrator design work and Ganfeng completed
its flow sheet design from samples provided by the pilot plant for
the hydrometallurgical plant. These results are being integrated
into the final engineering packages which Ganfeng will continue to
deliver to Bacanora in Q2, 2021. Detailed engineering and vendor
equipment pricing is now underway and current development schedules
indicate project construction commencing in H2, 2021.
As the Sonora Project transitions into its development phase and
activity on site increases, the Company's health and safety
practices become more important than ever. Bacanora will continue
to operate and benchmark itself against international reporting
standards, alongside working closely with local communities and
stakeholders. We are grateful for their ongoing support, alongside
the Sonora State government and the Federal government of Mexico,
and by remaining transparent throughout this crucial development
phase we hope this continues. As part of this transparency, we are
pleased to share our first Corporate Governance and Sustainability
Committee Report, which lays out the Company's key Environmental,
Social and Corporate Governance initiatives and deliverables. This
will be followed by a Sustainability report later in 2021. As we
extract a critical mineral for a green energy future, we sincerely
wish to protect the planet, not exacerbate existing problems.
Overall, I am delighted to report that Sonora has made the
transition to the next development phase and I look forward to
updating the market with further progress of works on site as we
strive to capitalise on the fast-growing lithium market and
transforming the Sonora Project into a lithium producer in
2023."
For further information please visit www.bacanoralithium.com or
contact:
Bacanora Lithium plc info@bacanoralithium.com
Peter Secker, CEO
Janet Blas, CFO
Cairn Financial Advisers LLP, Nomad
Sandy Jamieson / Liam Murray +44 (0) 20 7213 0880
Citigroup Global Markets, Joint
Broker
Tom Reid / Patrick Evans / Matthew
Kenney +44 (0) 20 7986 4000
Canaccord Genuity, Joint Broker
James Asensio / Thomas Diehl +44 (0) 20 7523 8000
Tavistock, Financial PR Adviser Bacanora@tavistock.co.uk
Jos Simson / Emily Moss / Oliver +44 (0) 20 7920 3150
Lamb +44 (0) 77 8855 4035
Notes to editors
Bacanora Lithium Plc is an AIM-listed (ticker 'BCN') lithium
development company. The Company 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. On completion of this option
exercise, SLL is now owned 50% by Bacanora and 50% by Ganfeng
Lithium Co., Ltd. SLL also owns 70% of the El Sauz and Fleur
concessions.
Bacanora also owns 44.3% of Zinnwald Lithium Plc (AIM: ZNWD),
which in turn owns a 50% interest in the Zinnwald Lithium Project
and the Falkenhain and Altenberg Licences in southern Saxony,
Germany.
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
This announcement contains inside information for the purposes
of the UK Market Abuse Regulation. The contents of this
announcement have been prepared by and are the sole responsibility
of Bacanora.
Chairman Statement
I am very pleased to be writing this annual shareholder letter
following the recent US$65 million equity fundraise which occurred
post the financial year end. This financing marks a pivotal moment
in Bacanora's history and, along with the Company's conditional
debt facility and existing cash, completes the Company's share of
the funding requirement to finance the construction and operation
of our flagship Sonora Lithium Project, located in Mexico. This
achievement brings a new and exciting chapter for the Company and
provides a clear route to becoming a producer of high value lithium
products in 2023.
Our partner in our world-class Sonora Project, Ganfeng, has
continued to support the Project, not only as a significant
shareholder, but also as a joint venture partner. Ganfeng have
re-iterated their commitment to the Project by increasing their
stake in SLL to 50% and exercising their pre-emptive right to
increase their holding in Bacanora to 28.88%, which is awaiting
necessary approvals from the Chinese government. Ganfeng is the
largest global lithium metals producer in the world and their
support is a testament to the quality of the Project. Importantly,
Ganfeng's contribution to the Sonora Project has not been solely
monetary. Ganfeng will lead the engineering and procurement
activities for the battery grade lithium hydrometallurgical
processing plant. Since becoming a cornerstone investor in October
2019, their expertise in lithium battery componentry and
construction has been critical for the metallurgical testwork.
Throughout this process, Bacanora has continued to supply Ganfeng
with ore samples from Sonora for modelling and optimisation of the
process design ahead of the eventual commercial volumes in
2023.
These events, alongside those accomplished during the period,
were realised against a backdrop of the unprecedented global
pandemic of COVID-19. The pandemic presented many challenges not
least the restrictions on international travel. I would like to
commend our team and our partners in being able to continue the
critical workstreams required to advance the engineering design
work and execute the final financing for the Project. In
particular, I would like to commend our teams and partners in
Mexico and China in implementing the rigorous safety protocols and
social distancing measures, to ensure the health and safety of our
employees and communities.
One of the longer-term impacts of COVID-19 has been to
accelerate green strategies across the globe as evidenced in 2020
with annual global sales of over 3.2 million battery electric
vehicles and plug-in hybrid vehicles (collectively "EV"), a 43%
increase in global sales over 2019(1) . Governments, EV
manufacturers and consumers are also responding swiftly to reduce
greenhouse gas ("GHG") emissions and reach stated carbon neutrality
targets by 2050 or earlier(2) . Accordingly, materials that will
facilitate the green transition, such as lithium, have come under
the spotlight. This energy transition is clearly here to stay, and
our Sonora Project has an exciting and important role to play in
meeting this future demand for low carbon mobility and energy
storage.
As Bacanora moves into construction and closer to operations,
our Environmental, Social and Corporate Governance ("ESG")
principles will benchmark our achievements against the industry's
highest standards. Our Board makes this commitment so that we can
contribute to the low carbon future of the automotive industry and
renewable energy power grid whilst operating in a sustainable
manner. We will continue to embed our sustainability philosophy
across our operations, and I look forward to presenting our first
Sustainability report later this year with updates on ESG
developments with our stakeholders and enacting our ESG policies
and management plans on-site.
I want to express sincere thanks to the Board, our management
team and all our employees for their continued dedication and hard
work during a challenging year. The Sonora government has been
generous in its assistance and I would like to thank them for their
continued support. I would also like to acknowledge our brokers
Citigroup Global Markets Ltd ("Citi"), Canaccord Genuity Ltd
("Canaccord") alongside WH Ireland Ltd for their efforts in our
successful fundraising for the Sonora Project and their unwavering
effort throughout the period. Finally, I would like to thank all
our shareholders for their support. I look forward to providing
updates on our progress as we can commence construction works and
move closer towards being a world class lithium producer in
2023.
Mark Hohnen, Chairman
5 March 2021
Operational Review
1. Corporate review
Financial year 2020 has seen numerous developments on our path
to fulfil the Company's strategic objectives. The Company's primary
focus has been to complete the design and funding packages required
to construct its Sonora Project.
Ganfeng initially invested in the Group in 2019 through its
subscription for 29.99% share in Bacanora Lithium Plc and
acquisition of a 22.5% stake in SLL, the operational holding
company for the Sonora Project. In February 2021, Ganfeng completed
its Option to increase its stake in SLL to 50%. Ganfeng purchased
73,955,680 new ordinary shares in SLL at 29.59p at a total value of
GBP21.9 million. On completion a new JVA came into force, which
replaces the original joint venture agreement entered into on 29
June 2019. Ganfeng now own 50% of the enlarged issued capital of
SLL and will be responsible for funding its 50% pro rata share of
the development cost of the Sonora Project. The funds received from
the exercise of Ganfeng's Option will be applied towards the
development of the Project. The board of SLL comprises two Bacanora
appointed directors and two Ganfeng appointed directors, with the
chairman being one of the Bacanora directors. Bacanora will remain
as the operator of the Project, while Ganfeng will be responsible
for leading certain EPC activities associated with the Project.
In order to fund Bacanora's share of the Project's capital
expenditure, the Company completed a successful placing and retail
offer in February 2021. The placing and retail offer raised gross
proceeds of approximately US$65 million (GBP48.1 million) through
the issue of a total of 106,995,885 new ordinary shares at a price
of 45 pence per placing share. Furthermore, on 5 February 2021
Ganfeng approved a board resolution to exercise its pre-emptive
right and to increase its shareholding in the Company. On
completion, Ganfeng will subscribe for a total of 53,333,333 new
ordinary shares at the placing price of 45 pence per share,
representing gross proceeds of GBP24.0 million. Completion of this
investment from Ganfeng is conditional upon obtaining certain
approvals and consents from authorities in the People's Republic of
China. On conclusion of their investment, the Company will have
384,144,901 shares in issue and Ganfeng will have an ownership
level of 28.88%.
The Company has a US$150 million senior debt facility with RK
which was entered into in July 2018. US$125 million of the debt
facility remains undrawn. Given the passage of time from the
initial agreement and the revised Project timeline, the Company and
RK have signed a non-binding indicative term sheet to amend the
existing facility to extend the maturity from 31 July 2024 to 31
July 2027 and extend the cash interest payment date commencing from
31 October 2020 to 31 October 2023. The completion of this
extension and drawdown of the remaining tranches of the facility is
conditional upon final Board approvals from both RK and the Company
and entering into definitive legal agreements.
The combined total of the aforementioned fundraising proceeds,
the undrawn RK facility, subject to agreeing the amendments
described above, and cash on the Company's balance sheet, which
stood at US$39.2 million on 31 December 2020, will meet the
Company's share of the construction funding and projected working
capital requirements of the Company to construct and commission the
Project by H2 2023.
Group structure of operational entities at 31 December 2020
Bacanora Lithium Plc's ownership stake in SLL reduced from 77.5%
to 50% on completion of the Ganfeng Option in February 2021.
On 29 October 2020, the Company completed the sale of Bacanora's
50% shareholding of DL to AIM-listed company, Erris, which has been
renamed Zinnwald Lithium Plc. ZNWD was readmitted to AIM and the
acquisition constituted a reverse takeover under AIM rules.
Bacanora contributed its 50% investment in DL and EUR1.35 million
cash. This cash was used to settle the commitment under the second
supplemental joint venture agreement with SolarWorld AG and to pay
for a portion of the transaction costs. Erris contributed its
remaining cash and its Irish zinc and Swedish gold assets. In
exchange, Bacanora received 90,619,170 shares in ZNWD and a net
profit royalty. Following admission, ZNWD raised GBP3.75 million
(before expenses) via a placing and now has 204,455,957 ordinary
shares in issue. Bacanora therefore owns 44.3% of the enlarged
ZNWD. The additional funds will accelerate the further development
of the Zinnwald.
Whilst the COVID-19 crisis has challenged the normal running of
the business, it has affirmed that the controls, procedures and
systems in place in our operations were robust. Like all companies,
Bacanora has had to adapt. The Company was able to continue its
usual business processes, relatively unperturbed because of the use
of technology to enable remote working in the UK and Mexico. The
systems that had been put in place prior to COVID-19 were designed
to allow remote working. The Company utilises a company-wide ERP
system, cloud based shared drives as well as conferencing and
co-working software for instance Zoom, PowWowNow and Microsoft
Teams. Given the ongoing presence of the virus, certain staff
continue to work from home.
Due to the unprecedented uncertainty in the midst of the
COVID-19 crisis, the Board and Senior Executive Management agreed a
20% reduction in salary for the three month period from July 2020
to September 2020. Throughout the period, no corporate staff were
furloughed.
a) Operations review
In response to the COVID-19 crisis, the Mexican Ministry of
Health declared a national health emergency and suspended all
non-essential businesses in March 2020. Mining companies were
obliged to halt all production and exploration activities and place
their operations on care and maintenance. On 13 May 2020, the
government of Mexico added mining to its list of essential
businesses and announced plans for a gradual reopening of the
country allowing mining companies to resume operations on 18 May
2020(3) . The government then had a broader relaxation of the
lockdown rules from 1 June 2020 and started using a four tier
traffic light monitoring system, which is updated twice-monthly. It
is used to alert residents to the epidemiological risks and provide
guidance on restrictions on certain activities. At the turn of the
year, the Sonora state was in orange status, but issued a "red
alert,". This is a warning that a state's traffic light status
could change to red if cases of COVID-19 continue to rise(4) . In
the red tier, only businesses essential to economic activity are
permitted to operate and people are only permitted to move outside
their homes during the day. Mining has been deemed an essential
industry, enabling miners to continue operations. Under orange
status, companies which with non-essential activities may operate
with 30% of their personnel and public spaces are permitted to
re-open with reduced capacity(5) . Mexico has approved the
AstraZeneca-Oxford, Pfizer-BioNtech, CanSino Sinovac and Sputnik V
vaccines(6,7,8) and is on the road to vaccinating the population.
During the period, the pilot plant has run on an "as needs" basis
to supply engineering partners with samples around the mandatory
shutdown period.
Like many companies in China, Ganfeng's operations, have been
hampered by the outbreak of COVID-19. Precautions to limit the
spread of the virus has led to travel restrictions, precautionary
working from home and the extension of the 2020 Lunar New Year
holiday break causing shutdowns at their facilities. In late April
2020, Ganfeng was able to reopen its factories and head office
which has allowed the resumption of the technical work on the
Sonora Project.
During the period, the Sonora Project was primarily focused on
progressing the FEED work. Work to finalise the FEED is ongoing
with experienced engineering groups. The plant is split into three
sections. Engineering for the front-end ore concentrator and
mechanical processing is led by GRES. GRES has completed its
concentrator design work and will now integrate this into the
overall project scope. The pyrometallurgical engineering, primarily
for the kiln design, is being engineered by an international
manufacturer of industrial kilns. The kiln optimisation, design and
FEED engineering work is ongoing and will be completed in Q2, 2021.
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. On
completion of the Ganfeng Option in February 2021, a new 50:50 JVA
came into effect with Ganfeng. Consequently, Ganfeng are
responsible for leading certain engineering and procurement
activities for the lithium plant and will work jointly with GRES
for the construction stage of the Project. Once Ganfeng completes
their design work for the hydrometallurgical plant, GRES will
develop an integrated "wrap" engineering package for the entire
process plant. GRES has agreed to integrate a complete engineering,
procurement, construction and/or management "EPC/M" solution for
the plant to incorporate the process guarantees from the respective
engineering firms for the pyrometallurgical and hydrometallurgical
circuits.
A short list of LNG suppliers has been completed and supply
sources, from Hermosillo or Agua Prieta, is now being evaluated
with draft supply contracts being reviewed. Evaluation of co-gen
power suppliers continued in 2020, with proposals from a shortlist
of three providers currently under evaluation.
The Company made a second instalment payment of US$0.1 million
in December 2020 for the Las Perdices plant site. This payment was
in addition to US$0.2 million initial instalment made in July 2018
for the purchase of 1,173 Ha for the new plant site location. The
second instalment enabled the beginning vegetation and topsoil
removal. A remainder of US$0.3 million remains to be paid for the
Las Perdices land for clearance of existing liens. Work to protect
the flora at the plant site area has commenced, the Company is
relocating the flora and is working to ensure that vegetation
formerly located at the plant site is preserved.
Test well construction and pumping tests were completed in the
period. This work enables the hydrological model to be validated
for the selected site so that design of the permanent well can
begin to supply process water for the site.
We continue to work with the community to develop an integrated
sustainability programme, that will encompass the construction and
operational phases of the Project. Unfortunately, COVID-19
continues to have an impact on the timing of community engagement.
However, a framework for community engagement has been developed.
In the process of developing the framework, education has been
identified as a key enabler of employment for the community. Future
community engagement activities will focus on education.
Lithium Market Update 2020
Despite the unprecedented global disruption precipitated by the
COVID-19 pandemic, 2020 saw a revival in market sentiment for
lithium. At the beginning of 2020, global consumption was expected
to be 393,000 tonnes of LCE with production forecast to exceed
479,000 tonnes(9) . At the end of the year, estimates of
consumption was only 305,000 tonnes of LCE and production was
431,000 tonnes for 2020 which represents 22% and 10% reduction in
demand and production versus forecast respectively(10) . However,
this level of consumption represented a 2.3% increase from 298,000
tonnes LCE in 2019, despite the COVID-19 related economic shock.
Demand is expected to grow to 417,000 tonnes and 502,000 tonnes LCE
in 2021 and 2022 respectively, with the production surplus
shrinking significantly as volumes are expected to grow to 585,000
tonnes in 2022(11) . Consequently, lithium stock turnover is
forecast to reduce from 0.4 years to 0.3 years by 2022.
At the beginning of 2020, Fastmarkets reported 99.5% lithium
carbonate battery-grade spot prices CIF China, Japan & Korea of
US$8,000-9,500 per tonne(12) . Across the year, prices weakened
with comparative mid-point prices in December 2020 for lithium
carbonate and lithium hydroxide at US$6,750 and US$9,000 per tonne
respectively(13) . The reduction in lithium pricing was attributed
to an oversupply of lithium products. This was compounded by
dwindling lithium demand caused by rolling regional COVID-19
related lockdowns which restricted manufacturing output and
reductions in consumer confidence, thereby dampening lithium
demand. By November 2020, companies such as Orocobre reported a
bottoming out of prices(14) whilst in December 2020, 99.5% lithium
carbonate China spot prices increase by 6.4%, month on month(15)
.
Production has been constrained by production surpluses due to
weak demand leading to low prices. Reductions in production have
been predominately seen in the Australian spodumene mines. Prior to
the COVID-19 crisis, oversupply was being addressed by reductions
in production and expansion in the wider market. In January 2020,
Galaxy Resources announced that in response to market conditions,
it had reviewed operations at Mount Cattlin, resulting in a
reduction in operations by circa 60%(16) . This continued from the
trend in 2019, with a number of lithium companies either
mothballing operations, reducing output, delaying construction of
new capacity or filling for creditor protection(17,18,19,20) .
COVID-19 related disruption was relatively limited, the brine
producers in Argentina had some interruptions to production in Q2
2020 as a result of government mandated COVID-19 related closures
and short stoppage to respond to a COVID-19 outbreak for Orocobre's
Olaroz(21) . COVID-19 had the biggest impact on active development
or expansion stage of projects, due to logistical constraints
imposed by the pandemic(22) . Ramping up these projects depends
upon incentive pricing being available in market, however the
latent capacity also constrains prices, whilst the market's supply
and demand fundamentals are finely balanced in the short to medium
term(23) . The impact of COVID-19 on the consumer battery market
was significant, however EV demand has increased significantly with
sales of 3.24 million in 2020 which is a 43% increase year on year
(2.26 million sold in 2019) despite an expected 14% drop in sales
for the total automotive market(24) . On 26 June 2020, Citi
released an analyst research paper(25) , which forecast 19%
five-year compound annual growth rate ("CAGR") to 2025 for lithium
and a 25% forecast surge in 2021 as pent up demand rebounds. The
paper forecasts that current levels of depressed lithium prices
will prove unsustainable and expect prices will trend towards
incentive pricing in order to encourage existing producers to ramp
up their capacity and new players to enter the market. This will be
required to avoid potential deficits and to meet expanding demand
from the battery market, which will be driven by the rapidly
expanding EV market. With high cost producers experiencing negative
margins, Citi expect prices to move toward incentive pricing, with
long-term prices estimated at US$9,000 per tonne and US$9,990 per
tonne for battery-grade lithium carbonate and lithium hydroxide,
respectively. In a research paper published by Wood Mackenzie,
nearly 800,000 tonnes of additional LCE would need to come online
in the next five years to meet the needs of the battery sector,
based on its own Accelerated Energy Transition scenario, which sees
global warming limited to 2.5 degrees Celsius(26) . This would
entail the electric vehicle market to require over 1,000,000 tonnes
LCE in 2025. By 2025, demand is expected to outstrip supply by
nearly 228,000 tonnes(27) . At its battery day in September 2020,
Tesla suggested that battery capacity could increase to 3
terawatt-hours by 2030, which is equivalent of 2.4-2.8 million
tonnes of LCE per annum, which is four and half times the present
global production capacity(28) . Mining projects take years to
design, build and commission, so investment in additional
production capacity in the short to medium term will be key to
avoiding major market deficits in the mid to late 2020s.
The election of the Mr. Biden to the US presidency and
Democratic control over the House of Representatives and Senate has
marked a significant shift in environmental policy in the world's
largest economy. The far-reaching shifts in energy policy will have
a knock on effect on the demand side fundamentals and therefore
battery metal investments. Mr. Biden made significant manifesto
promises to decarbonise America(29) . Mr. Biden has re-joined the
Paris Climate agreement and plans to spend up to US$2 trillion
investment in clean energy over 4 years and ensure 100% clean
energy by 2035. This is not entirely out of line with other
estimates of the cost of decarbonizing the US power grid.
Furthermore, specific plans for the automotive industry include
support for car buyers to switch to EVs and a commitment to build
500,000 charging stations. 14.7 million new cars were sold in 2020
in the US, of which just 0.3 million plug-in hybrids and EVs were
sold(30,31) . The US electric vehicles market is expected to reach
6.9 million unit sales by 2025, which will be supported by expanded
EV infrastructure(32) . Energy consultancy Wood Mackenzie says
US$50 billion needs to be invested in lithium over the next 15
years to meet battery demand if the world is to meet the targets of
the Paris climate accord(33) .
Long-term price estimates of US$9,000 per tonne for
battery-grade lithium carbonate from the middle of 2020(34) now
seems conservative given the boost in demand these changes in
policy will entail. In February 2021, Canaccord Genuity published
research suggesting long-term prices could reach US$13,000 and
US$15,000 per tonne for lithium carbonate and hydroxide
respectively(35) . This positive outlook has been mirrored by moves
in the stock market, for instance, lithium miners and lithium and
battery material ETFs saw large increases in value in Q4 2020, as
an example Global X Lithium & Battery Tech ETF (LIT) increased
54.5% from US$40.05 on 30 the end of September 2020 to US$61.89 on
31 December 2020(36) . Consequently, companies took advantage of
the improved market sentiment by raising additional funds, for
instance Galaxy Resources raised AU$161 million equity financing in
November 2020 with proceeds to be applied to Sal de Vida stage 1
and James Bay(37) . Between November 2020 and January 2021, Lithium
Americas announced closing of US$100 million offering to fund
working capital(38) and a further US$400 million offering to
develop its Thaker Pass lithium project(39) . Also, in January
2021, Neo Lithium Corp, raised C$30.1 million in a private deal
placing to fund its 3Q lithium project in Argentina(40) . In
February 2021, Bacanora concluded a US$65 million equity raise and
Ganfeng increased its stake in SLL from 22.5% to 50% for GBP21.9
million. Furthermore, subject to necessary approvals and consents
from authorities in the People's Republic of China, Ganfeng plans
to exercise pre-emptive right in the Company for GBP24.0 million,
taking their holding to 28.88%.
As a result of the attractive long-term fundamentals of the
lithium market and value opportunities in the market, new players
are entering the lithium market via acquisition. For instance, in
November 2020, Chile's state-owned Copper miner, Codelco, announced
they had entered the lithium market and will go ahead with plans to
explore for lithium at the Maricunga salt flat, the country's
second largest in terms of reserves(41) . In December 2020,
Australian diversified miner IGO Limited bought a 49% stake in
Tianqi Lithium Energy Australia, equating to 24.99% in Greenbushes
plus 49% in Tianqi's suspended Kwinana lithium processing plant,
for US$1.4 billion, which enabled Tianqi to reduce debt accumulated
during the acquisition of SQM(42) .
Governments around the world are continuing to respond to the
climate crisis and the economic fall-out from the COVID-19 crisis
by increasing or extending incentives for EVs as part of
eco-friendly stimulus packages. Italy has made additional funds
available for its EV purchase incentives in 2021 and 2022, as well
as a EUR1,500 (US$1,690) car scrappage scheme. In France, the
government announced enhanced EV subsidies and scrappage schemes
where buyers could be eligible to receive EUR12,000 (US$13,150)
towards an EV(43) . In Germany, the government announced subsidies
for EVs until the end of 2025 and a longer term benefit abolition
of vehicle tax for purely electric cars until the end of 2030(44) .
In November 2020, the UK government announced its green agenda
which includes a ban on new cars and vans powered wholly by petrol
and diesel from 2030 and to produce enough offshore wind to power
every home in the UK, quadrupling how much it produces to 40
gigawatts by 2030(45) . In the UK, there are already a raft of
incentives for EVs, including a maximum grant of GBP3,500 and
GBP8,000 for cars and vans respectively, GBP500 for home charging
point
installation, no vehicle excise duty, and company car drivers
choosing a pure electric vehicle will pay no benefit-in-kind tax in
2020/21. As part of the COVID-19 recovery plan, the UK government
announced measures to support the battery market for the UK's first
gigafactories, research and development and EV infrastructure(46) .
EV battery firm Britishvolt and the Welsh government confirmed
plans to open the UK's first gigafactory in 2023(47) . The Chinese
government also extended its subsidies for EVs until 2022, which
were originally planned to end in 2020, although the government
announced subsidies will be reduced by 20% in 2021(48) .
In the US, oil and gas producers will no longer enjoy the
subsidies worth an estimated US$20 billion annually, that were
available under the previous administration(49) . This will make
carbon intensive energy more expensive, changing the relative
economic cost of EV transportation and renewable power versus their
fossil fuel powered alternatives. Grid parity will have been
reached when the cost of renewable electricity generation becomes
equal to or less than the cost of electricity generated using
fossil fuels. At this point widespread development of renewables
becomes economically beneficial without subsidies or governmental
support which will be the catalyst for faster adoption of
renewables and storage for the grid. Full grid parity involves more
than just a bare comparison of final electricity prices produced by
renewables projects because of the intermittent nature of this
energy type and the grid issues that come with the peaks and
troughs of supply. Full grid parity occurs when the cost of
renewables is less expensive than fossil fuel derived energy, after
including the cost of power infrastructure or when the combination
of renewable plus-storage reaches grid parity(50) . In countries
like the US, which lack an integrated national transmission grid,
batteries will be called on to smooth local and regional imbalances
between power supply and demand. Evidence of this process
materialised in August 2020, when LS Power's 250MW/250MWh Gateway
Energy Storage project in San Diego County, California, dethroned
the Hornsdale Power Reserve in Australia as the world's largest
battery. Even larger storage projects are in the pipeline, with
Vistra Energy replacing a natural gas power plant with a 6,000MWh
battery project in California, Neoen has filed plans to build the
Goyder South project, a hybrid wind and solar power plant in South
Australia with a 1,800MWh battery(51) , and a development on the
west coast of Saudi Arabia, which spans, will be powered solely by
wind and solar energy with a battery storage facility with a
1,000MWh capacity(52) .
Currently, Europe has 15 large-scale battery cell factories
under construction, including Northvolt's plants in Sweden and
Germany, CATL's German facility, and SK Innovations second plant in
Hungary. By 2025 planned European facilities will produce enough
cells to be self-sufficient for the European automotive industry
and power at least 6 million electric vehicles(53) . In the US,
Tesla secured its own lithium mining rights in Nevada and have
signed an off-take agreement with Piedmont Lithium for spodumene
concentrate from North Carolina in order to secure local lithium
supplies(54) . Furthermore, Tesla plans to manufacture its own
"tabless" (Tesla is removing the tab that connects the cell to the
item it is powering) batteries in-house, which will further
strengthen the company's supply chain as well as the vehicles'
range and power(55) . This push for localisation provides an
opportunity for Sonora Project and ZNWD to supply the key element,
lithium, to their respective geographic markets.
For the lithium market to expand at 18%+ CAGR to 2030(56) ,
barriers for mass-market uptake of EV's must be overcome.
Presently, these are range anxiety (range, recharging speed,
charging infrastructure) and cost (cost to buy, battery life,
running costs, residual value). 2020 has seen a host of significant
announcements on technological advancements for lithium batteries
that ameliorate these issues. Current lithium-ion batteries utilise
an anode (the negative electrode) made of graphite often with some
silicon added, a cathode (the positive electrode) and a liquid
electrolyte to pass lithium ions between the electrodes. The
cathode plays an important role in determining the characteristics
of the battery as the battery's capacity and voltage are determined
by the cathode material. The potential difference is usually small
for the anode, but the potential difference is relatively high for
the cathode. Therefore, the cathode plays a significant role in the
voltage of the battery. The greater amount of lithium, the bigger
the capacity; and the bigger potential difference between cathode
and anode, and therefore the higher the voltage(57) . In existing
commercial batteries, cathodes are frequently made from lithium
cobalt oxide, lithium manganese oxide, lithium iron phosphate
("LFP"), as well as lithium nickel manganese cobalt oxide ("NMC")
or lithium nickel cobalt aluminium oxide(58) . Developments in the
use of cathodes affect the type of lithium raw material used in its
production and therefore the market dynamics of that material. LFP
and NMC batteries often use lithium carbonate for their production,
whilst high purity, nickel-based lithium batteries tend to use
lithium hydroxide(59) .
NMC cathodes are widely used in automotive industry for EV
batteries. There are, however, significant draw backs in using
cobalt, it is very scarce leading to high cost, with the primary
source being the Democratic Republic of Congo with related
uncertainty inherent in its supply chain and questionable mining
practices. Cobalt is also very dense. At their "Battery day" Tesla
have announced that they plan to use cobalt-free cathodes and use
nickel-rich cathodes instead. It is expected to lower Tesla's cost
per kilowatt hour. Tesla "tabless" cells, which Tesla is calling
the 4680 cells referring to the size of the cells, will make its
batteries six times more powerful and increase range by 16 percent.
In all, Tesla plans to reduce the cost of its battery cells and
packs, in order to build a US$25,000 electric car, servicing the
mass market. This shift away to high purity, nickel batteries may
favour lithium hydroxide producers in future.
Conventional lithium battery life is limited by the growth of
dendrites, which form from the chemical deposition of lithium on
the anode. Dendrites reduce battery capacity over many charge
cycles. Failure of the battery occurs when dendrites grow large
enough to reach the cathode; this causes shorting in the battery
and potentially a fire(60) . The potential for conventional Li-ion
batteries to overheat, means that they require costly and weighty
thermal control systems. Significant investments are being made
into solid-state batteries as they have benefits including higher
energy densities, faster charging rates and a higher degree of
safety compared to conventional lithium-ion batteries because solid
electrolytes control dendrite formation in lithium batteries.
Solid-state lithium batteries utilise a lithium metal anode instead
of graphite and replace liquid electrolyte in favour of a solid
one. BloombergNEF expect that solid-state battery cells could be
manufactured at 40% of the cost of current lithium-ion
batteries(61) . Research into commercialisation of solid-state
batteries continues apace with many well-backed companies vying for
supremacy. Companies such as Ionic Materials are backed by Nissan,
Mitsubishi and Renault, Sion Power are backed by BASF, and Solid
Power have backing from Samsung, Ford, BMW and Hyundai(62) .
QuantumScape is developing solid-state batteries and is backed by
US$300 million worth of investment from Volkswagen and Bill Gates'
Breakthrough Energy Ventures(63) .
Samsung's Advanced Institute of Technology ("SAIT") has revealed
a new solid-state battery, with more than treble the energy density
of similarly sized batteries (Samsung 900Wh/L vs Tesla lithium-ion
272Wh/L) meaning a +1,000km range would be within grasp.
Furthermore, Samsung says that they can be recharged more than
1,000 times (about a million kilometres of total range)(64) . There
is fierce competition to produce commercially available power
packs, although there are difficulties in identifying where all
market players are in their development of solid-state batteries
and assessing the veracity of competing claims. Solid Power
announced that its solid-state cells can be manufactured at
commercial scale using industry standard lithium-ion roll-to-roll
production equipment. Its cells are currently under performance
validation by its automotive partners and expect to begin the
formal automotive qualification process with even larger capacity
solid-state battery cells in early 2022(65) . Car manufacturers
like Toyota expect to manage mass production of solid-state
batteries from the middle of the decade and Volkswagen do not
expect to have solid-state batteries ready for car use until at
least 2025(66) . In the medium term at least, conventional Li-ion
batteries will dominate the market. Battery packs with a cost of
US$100/kWh has been described as the price to enable EVs to reach a
price parity with internal combustion vehicles without
subsidies(67) . According to a survey of nearly 150 buyers and
sellers by BloombergNEF, the average price per kilowatt-hour for a
lithium-ion battery pack, has fallen to US$137 in 2020, down 13%
from US$157 in 2019(68) BloombergNEF analysts said they expect
battery makers to hit US$101/kWh in 2023. For the first time, the
survey found some prices reported for e-bus batteries in China
selling at US$100/kWh. CATL says it is ready to produce a
conventional Li-Ion battery that can power an electric vehicle for
more than 1.24 million miles, over a period of 16 years(69) marking
a major increase over current offerings; Tesla are currently
offering warranties of up to 8 years or 0.15 million miles,
whichever comes first(70) . According to the Chairman of CATL the
battery would cost about 10%
more than current EV batteries. The cost of CATL's cobalt-free
LFP battery packs has fallen below US$80/kWh, with the cost of the
battery cells dropping below US$60/kWh and CATL's low cobalt NMC
battery packs are close to US$100/kWh(71) . With the recovery of
the precious elements in the batteries from recycling and
potentially "second life" usage of batteries in grid/home storage,
it is not difficult to see that tipping point for cost is very
close to being realised. Given the far lower maintenance costs and
energy costs for EVs, combined with similar price points means
lower cost of ownership than vehicles with internal combustion
engines, which will surely prove a watershed for runaway adoption.
In the longer term, LCE consumption is forecast to reach 1,000,000
tonnes by between 2025 and 2027(72,73) , based on growing uptake of
EV's and grid storage for renewable energy. The supply overhang
will narrow as demand grows rapidly, rebalancing of the supply and
demand fundamentals by 2024 based on research by Citi(74) . Lithium
resources are widely available; however, the process of extraction
is key to exploiting an economic resource. With Sonora's estimated
cost of production of around US$4,000 per tonne, the Sonora 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 and COVID-19 given favourable production
costs and the high-quality nature of our product.
Financial Review
The Group made a total comprehensive loss of US$15.6 million for
the year ended 31 December 2020, which includes a US$4.1 million
loss on discontinued assets. Excluding this the Group made an
underlying comprehensive loss from continuing operations of US$11.5
million compared with the loss of US$4.9 million for the six month
period ended 31 December 2019.
On 29 October 2020, the Group completed the sale of its 50%
shareholding in DL to AIM-listed Erris Resources Plc. Bacanora
contributed the 50% investment in DL and EUR1.35 million cash. The
cash was used to settle the commitment under the second
supplemental joint venture agreement with SolarWorld AG and to pay
for transaction costs. Erris contributed its remaining cash and its
Irish zinc and Swedish gold assets. In exchange, Bacanora received
90,619,170 shares (44.3%) in the enlarged Erris and a 2% net profit
royalty. Erris was subsequently renamed as Zinnwald Lithium Plc. As
a result of the transaction, the loss on discontinued operations
includes the Group's 50% share of DL's US$0.2 million loss during
the ten month investment period, which was US$0.1 million and an
impairment charge of US$4.0 million on the derecognition of the
investment in DL.
The sale of the investment will allow ZNWD to drive the project
forward with the JV partner, SolarWorld AG. The new structure will
enable ZNWD to raise the funding required to develop the project.
Following the completion of the sale, the Group has no further
commitments relating to SolarWorld AG, DL or ZNWD. The opening fair
value of the Company's 44.3% was US$7.7 million using the ZNWD's
traded price. During the two months to 31 December 2020, the
Group's share of ZNWD's loss was US$0.1 million.
During the year ended 31 December 2020, the Group incurred
US$4.4 million general and administrative costs (six month period
ended 31 December 2019: US$2.8 million) and share-based payment
expense of US$0.6 million (six month period ended 31 December 2019:
US$0.3 million). The operating loss was US$5.3 million for the
year, this represents a reduction on a pro-rata basis (six months
to December 2019 US$ 3.2 million). Savings were made due to reduced
corporate and operational activities compared to the prior period
as well as careful cost management on legal and professional fees,
travel and office expenses. The Board and Senior Executive
Management also took temporary pay cuts during the period in
response to the COVID-19 crisis.
The Group incurred finance costs of US$6.8 million in relation
to the Company's debt financing for the year ended 31 December 2020
(six month period ended 31 December 2019: US$2.4 million), of which
U$0.7 million was interest paid in cash. The finance cost increased
during the year due to an adjustment to the amortised cost of
borrowings following a change in estimated timing of contractual
cash flows. The finance cost during the year included a loss on
revaluation of financial warrants of US$1.0 million. Finance income
totalled US$0.4 million during the year being interest income on
cash reserves. For the six month period ended 31 December 2019,
total finance income was US$0.9 million, which included interest
income of US$0.2 million and a gain on revaluation of financial
warrants of US$0.7 million.
The net assets of the Group decreased to US$49.9 million at 31
December 2020 from US$65.0 million at 31 December 2019, due
primarily to the US$4.1 million loss on discontinued operations and
underlying comprehensive loss from continuing operations for the
twelve month period of US$11.5 million.
The Group had a cash balance of US$39.2 million at 31 December
2020, which decreased by US$9.7 million from US$48.9 million at 31
December 2019. The reduction in cash was a result of cash
expenditure on operations of US$4.8 million, US$2.0 million on
property, plant and equipment and exploration and evaluation assets
and US$0.7 million on funding of DL and US$1.6 million on the sale
of DL to ZNWD. The Group paid US$0.7 million interest on the RK
debt finance and US$0.1 million for the cost of issuance of shares,
but this is offset by interest income of US$0.4 million on cash
reserves.
Given the unprecedented COVID-19 health and ensuing economic
crises, many companies have seen their balance sheets come under
duress since the turn of the year. Being at a preconstruction phase
of operations, Bacanora has not entered into commitments to develop
the Sonora Project and retains a significant cash balance.
Consequently, the Directors have, at the time of approving the
Financial Statements, a reasonable expectation that the Company has
adequate resources to continue in operational existence for the
foreseeable future.
Financing update:
Despite the impact of the ongoing COVID-19 pandemic on Project
financing, the Company has made significant strides in order to
secure the funding required to develop the Sonora Project.
Bacanora's cornerstone investor and offtake partner, Ganfeng,
completed its Option to increase its stake in SLL from 22.5% to 50%
on 26 February 2021. Ganfeng subscribed for 73,955,680 new ordinary
shares in SLL at 29.59 pence at a total value of GBP21.9 million.
The strategic investment from Ganfeng forms a major part of the
finance package for the construction of an initial 17,500 tonnes
per annum lithium operation for the Sonora Project. As part of the
revised JV agreement, Ganfeng and Bacanora will contribute
proportionally to the construction funding for the Sonora Project
in SLL.
In order to complete Bacanora's 50% share of the Sonora Project
construction funding requirement, Bacanora embarked on an ambitious
fundraising process. On 8 February 2021, Bacanora completed a
successful placing and retail offer which raised gross proceeds of
approximately US$65 million through the issue of a total of
106,995,885 new ordinary shares at a price of 45 pence per placing
share. Furthermore, on 5 February 2020 Ganfeng approved a board
resolution to exercise its pre-emptive right and to increase its
shareholding in the Company to 28.88%. Ganfeng will subscribe for a
total of 53,333,333 new ordinary shares at the placing price of 45
pence per share, representing gross proceeds of GBP24.0 million.
Completion of this investment from Ganfeng is conditional upon
obtaining certain approvals and consents from authorities in the
People's Republic of China.
Bacanora continues to have a conditional US$150 million debt
facility with RK Mine Finance, of which US$125 million remains
undrawn. Given the passage of time from the initial agreement and
the revised Project timeline, the Company and RK have signed a
non-binding indicative term sheet to amend the existing facility to
extend the maturity from 31 July 2024 to 31 July 2027 and extend
the cash interest payment date commencing from 31 October 2020 to
31 October 2023. The completion of this extension and drawdown of
the remaining tranches of the facility is conditional upon final
board approvals from both RK and the Company and entering into
definitive legal agreements.
Careful stewardship of the Company's capital resources have
meant that the Company enjoyed a strong cash position of US$39.2
million at the year end. This contributes to the Company having the
necessary financial package, together with the proceeds from the
placing and retail offer and undrawn RK facility, to cover its 50%
share of the capital costs required for Sonora and will enable the
Company to commence construction of the Project in 2021.
I look forward to updating the market with further announcements
on the financial performance of the Company in future.
On behalf of the Board of Directors,
Janet Blas
Chief Financial Officer
5 March 2021
Consolidated Statement of Financial Position
As at 31 December 2020
In US$ 31 December 31 December
2020 2019
Assets
Current assets
Cash and cash equivalents 39,238,496 48,903,551
Other receivables and prepayments 2,044,988 1,777,421
Total current assets 41,283,484 50,680,972
============================================= ============= =============
Non-current assets
Investments in associates and joint
ventures 7,865,575 9,545,993
Property, plant and equipment 32,217,934 30,443,640
Exploration and evaluation assets 570,732 534,588
Total non-current assets 40,654,241 40,524,221
============================================= ============= =============
Total assets 81,937,725 91,205,193
============================================= ============= =============
Liabilities and shareholders' equity
Current liabilities
Accounts payable and accrued liabilities 1,329,214 1,451,346
Joint venture obligation - 113,697
Total current liabilities 1,329,214 1,565,043
============================================= ============= =============
Non-current liabilities
Borrowings 29,197,920 24,051,610
Financial warrant liability 1,549,576 587,315
Total non-current liabilities 30,747,496 24,638,925
============================================= ============= =============
Total liabilities 32,076,710 26,203,968
============================================= ============= =============
Shareholders' equity
Share capital 30,348,183 30,240,469
Share premium 16,801,168 16,646,060
Merger reserve 53,557,251 53,557,251
Share-based payment reserve 977,738 3,807,562
Foreign currency translation reserve 3,872,567 3,568,358
Retained earnings (68,021,565) (55,464,190)
Equity attributable to equity shareholders
of Bacanora Lithium Plc 37,535,342 52,355,510
============================================= ============= =============
Non-controlling interest 12,325,673 12,645,715
Total shareholders' equity 49,861,015 65,001,225
============================================= ============= =============
Total liabilities and shareholders'
equity 81,937,725 91,205,193
============================================= ============= =============
Consolidated Statement of Comprehensive Income
For the twelve month period ended 31 December 2020
In US$ Year ended Six months
ended
31 December 31 December
2020 2019
------------------------------------------------ ------------- ------------
Expenses
General and administrative (4,425,964) (2,763,202)
Depreciation (189,130) (101,549)
Share-based payment expense (590,665) (290,391)
Foreign exchange loss (66,257) (18,307)
Operating loss (5,272,016) (3,173,449)
================================================= ============= ============
Finance and other income 355,913 928,796
Finance costs (6,829,405) (2,429,443)
Share of loss on investment in associate (102,791) -
Revaluation of derivative asset - (191,066)
Loss before tax from continuing operations (11,848,299) (4,865,162)
================================================= ============= ============
Tax charge (5,114) -
Loss after tax from continuing operations (11,853,413) (4,865,162)
================================================= ============= ============
Loss on discontinued operation (4,068,697) (80,887)
Loss after tax (15,922,110) (4,946,049)
================================================= ============= ============
Other comprehensive loss:
Foreign currency translation adjustment 304,209 -
Total comprehensive loss (15,617,901) (4,946,049)
================================================= ============= ============
Loss after tax attributable to shareholders
of Bacanora Lithium Plc (15,602,068) (4,864,910)
Loss after tax attributable to non-controlling
interests (320,042) (81,139)
Loss after tax (15,922,110) (4,946,049)
================================================= ============= ============
Total comprehensive loss attributable
to shareholders of Bacanora Lithium
Plc (15,297,859) (4,864,910)
Total comprehensive loss attributable
to non-controlling interests (320,042) (81,139)
Total comprehensive loss (15,617,901) (4,946,049)
================================================= ============= ============
Net loss per share (Continuing operations)
(basic and diluted) (0.05) (0.03)
================================================= ============= ============
Net loss per share (Discontinued operations)
(basic and diluted) (0.02) (0.00)
================================================= ============= ============
Consolidated Statement of Changes in Equity
For the twelve month period ended 31 December 2020
Share capital
---------------------------
In US$ Number Value Share Merger Share-based Foreign Retained Total Non-controlling Total
of shares premium reserve payment currency earnings equity interest equity
reserve translation attributable
reserve to Bacanora
Lithium
Plc
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
================== ============= ============ ============ ============ ============ ============ ============= ============= ================ =============
Comprehensive
income for
the period:
Loss for the
period - - - - - - (15,602,068) (15,602,068) (320,042) (15,922,110)
Other
comprehensive
income - - - - - 304,209 - 304,209 - 304,209
Total
comprehensive
loss - - - - - 304,209 (15,602,068) (15,297,859) (320,042) (15,617,901)
------------------ ------------- ------------ ------------ ------------ ------------ ------------ ------------- ------------- ---------------- -------------
Contributions by
and
distributions
to owners:
Issue of share
capital
- RSUs 833,846 107,714 155,108 - (708,097) - 332,301 (112,974) - (112,974)
Lapsed option
charge - - - - (2,712,392) - 2,712,392 - - -
Share-based
payment expense - - - - 590,665 - - 590,665 - 590,665
31 December 2020 223,815,683 30,348,183 16,801,168 53,557,251 977,738 3,872,567 (68,021,565) 37,535,342 12,325,673 49,861,015
================== ============= ============ ============ ============ ============ ============ ============= ============= ================ =============
Consolidated Statement of Cash Flows
For the twelve month period ended 31 December 2020
In US$ Year ended Six months ended
31 December 31 December
2020 2019
------------------------------------------- ------------- -----------------
Cash flows from operating activities
Total loss before tax for the period (15,916,996) (4,946,049)
Adjustments for:
Depreciation of property, plant and
equipment 189,130 101,549
Share-based payment expense 590,665 290,391
Foreign exchange 8,109 58,755
Finance and other income (355,913) (928,796)
Finance costs 6,829,405 2,429,443
Share of loss on investment in associate 102,791 -
Loss on discontinued operation 4,068,697 80,887
Revaluation of derivative asset - 191,066
Changes in working capital items:
Other receivables (241,538) 525,594
Accounts payable and accrued liabilities (122,130) (82,356)
Net cash used in operating activities (4,847,780) (2,279,516)
============================================ ============= =================
Cash flows from investing activities:
Interest received 355,913 214,408
Purchase of property, plant and equipment (1,994,569) (560,950)
Purchase of exploration and evaluation
assets (36,144) (10,641)
Purchase of investment in associate (1,627,642) -
Payments to the joint venture (679,458) (401,972)
Proceeds on sale of subsidiaries - 9,475,190
Net cash (used in)/from investing
activities (3,981,900) 8,716,035
============================================ ============= =================
Cash flows from financing activities
(Share issue costs)/Issues of share
capital,
net of share costs (112,974) 27,736,373
Interest payments (710,585) -
Net cash flows from financing activities (823,559) 27,736,373
============================================ ============= =================
Change in cash and cash equivalents
during the period (9,653,239) 34,172,892
Exchange rate effects (11,816) (33,047)
Cash and cash equivalents, beginning
of the period 48,903,551 14,763,706
Cash and cash equivalents, end of
the period 39,238,496 48,903,551
============================================ ============= =================
Below are the key Notes to the Consolidated Financial
Statements:
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 shares trading under the symbol,
"BCN". The registered address of the Company is 4 More London
Riverside, London, SE1 2AU. The Company was incorporated prior to
the Bacanora Group re-domicile from Canada to the UK in March 2018
where the Company became the new holding company for Bacanora
Minerals Ltd, the original parent company for the Group.
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. The
feasibility study confirmed the positive economics and favourable
operating costs of a 35,000 tpa battery-grade lithium operation.
The feasibility study estimates a pre-tax project net present value
of US$1.253 billion at an 8% discount rate and an internal rate of
return of 26.1%.
Basis of preparation
a) Statement of compliance
These Consolidated Financial Statements have been prepared in
accordance with International Financial Reporting Standards,
International Accounting Standards and Interpretations
(collectively "IFRS") applied in accordance with the provisions of
the Companies Act 2006.
IFRS is subject to amendment and interpretation by the
International Accounting Standards Board ("IASB") and the IFRS
Interpretations Committee
The Consolidated Financial Statements were authorised for issue
by the Board of Directors on 5 March 2021.
b) Basis of measurement
These Consolidated Financial Statements have been prepared on a
historical cost basis, except for certain financial instruments
that have been measured at fair value.
These Consolidated Financial Statements are presented in United
States dollars ("US$"). 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 a significant cash balance of
US$39.2 million as at 31 December 2020 and has not entered into
commitments to develop the Sonora Lithium Project. In addition, on
8 February 2021, the Company completed a fund raise with gross
proceeds of GBP48.1 million (approximately US$65 million).
Furthermore, in February 2021, Sonora Lithium Ltd ("SLL") received
GBP21.9 million (approximately US$30.4 million) on completion of
the Ganfeng Option Exercise). Thus, the going concern basis of
accounting in preparing the Financial Statements continues to be
adopted.
The Company has taken into account the impact of Covid-19 on
going concern for the Company. The main impact of Covid-19 for
Bacanora has been its effect on the timing of test and design work
for FEED. Going concern models reflect the delays as a consequence
of Covid-19.
Investments in associates and jointly controlled entities
The following investments have been included in the Consolidated
Financial Statements using the equity method:
Name Country Shareholding Shareholding Carrying Carrying Classification
of incorporation 31 December 31 December value value
2020 2019 31 December 31 December
2020 2019
------------------ ------------------- ------------- ------------- ------------- ------------- ---------------
Deutsche Lithium
GmbH Germany 0% 50% - 9,545,993 Joint venture
Zinnwald Lithium Investment
Plc UK 44% 0% 7,865,575 - in associate
7,865,575 9,545,993
====================================== ============= ============= ============= ============= ===============
a) Investment in Deutsche Lithium
On 17 February 2017, the Group acquired a 50% interest in a
jointly controlled entity, DL 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 DL as a joint venture was based on DL'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 was accounted for
using the equity method.
The Group acquired its interest in DL for a cash consideration
of EUR5.1 million from SolarWorld and an obligation to contribute
EUR5 million toward the costs of completion of a feasibility study.
Additionally, legal fees of US$0.2 million were paid in connection
to this transaction.
On 29 October 2020, the Group completed the sale of its 50%
shareholding in DL to AIM-listed Erris Resources Plc. Bacanora
contributed the 50% investment in DL and EUR1.35m cash. The cash
was used to settle the commitment under the second supplemental
joint venture agreement with SolarWorld and to pay for transaction
costs. Erris contributed its remaining cash and its Irish zinc and
Swedish gold assets. In exchange, Bacanora received 90,619,170
shares (44.3%) in the enlarged Erris and a net profit royalty.
Erris was subsequently renamed Zinnwald Lithium Plc.
The reconciliation of the carrying amount of net investment in
joint venture is as follows:
In US$ Joint venture investment
30 June 2019 9,347,086
================================= =========================
Joint venture investment loss (80,887)
Additional investment 279,794
31 December 2019 9,545,993
================================= =========================
Additional investment 559,219
Loss on discontinued operation (4,068,697)
Fair value of disposal proceeds (6,036,515)
31 December 2020 -
================================= =========================
b) Joint venture obligation
As part of the investment agreement, Bacanora agreed to fund the
DL joint venture until 17 February 2020. The movement in the
obligation is detailed below:
In US$ Joint venture liability
-------------------------------------- ------------------------
30 June 2019 (237,105)
====================================== ========================
Payments of joint venture obligation 401,972
Agreement obligation (279,794)
Foreign exchange gain 1,230
31 December 2019 (113,697)
====================================== ========================
Payments of joint venture obligation 208,861
Agreement obligation (88,622)
Foreign exchange loss (6,542)
31 December 2020 -
====================================== ========================
c) Investment in Zinnwald Lithium Plc
On 29 October 2020, Bacanora acquired 90,619,170 shares (44.3%)
of Zinnwald Lithium Plc. Zinnwald Lithium Plc is a UK incorporated
company listed on AIM, with a 50% shareholding in the Zinnwald
Lithium Project (through its holding in Deutsche Lithium GmbH) and
100% ownership of the Abbeytown zinc, lead and silver project in
Ireland and Brannberg gold project in Sweden.
The investment in associate has been equity accounted for under
IAS 28 based on the significant influence the Group has over
Zinnwald Lithium Plc. This influence is derived through its
shareholding, seat on the company's board of directors and its
rights to a net royalty. No value has been attributed to the net
royalty rights due to it not meeting the recognition principles of
IFRS 9.
The Group acquired its interest in Zinnwald Lithium Plc in
exchange for its 50% investment in Deutsche Lithium and a cash
consideration, a total consideration valued at US$7.7 million.
In US$
------------------------ -----------
Investment in Deutsche
Lithium 6,036,515
Cash 1,627,642
Total consideration 7,664,157
======================== ===========
The following table summarises the purchase price allocation for
the transaction:
In US$ Purchase price
-------------------- ---------------
Net current assets 2,725,594
Non-current assets 4,938,562
Total 7,664,157
==================== ===============
The premium paid above the fair value of the Group's share of
the identifiable assets, liabilities and contingent liabilities
acquired has been capitalised and included in the carrying amount
of the associate.
The reconciliation of the carrying amount of the investment in
associate is as follows:
In US$ Joint venture
investment
31 December 2019 -
============================== ==============
Initial recognition 7,664,157
Share of loss on investment
in associate (102,791)
Foreign exchange translation
gain 304,209
31 December 2020 7,865,575
============================== ==============
The summarised financial information of Zinnwald Lithium Plc and
reconciliation to the investment carrying amount is set out below.
The summarised information represent amounts shown in ZNWD's
financial statements, as adjusted for differences in accounting
policies and fair value adjustments required related to the
Company's investment in the associate. Amounts have been translated
in accordance with the Company's accounting policy on foreign
currency translation.
In US$ 31 December
2020
--------------------------- ------------
Net current assets 6,100,668
Non-current assets 11,645,728
Net assets (100%) 17,746,396
=========================== ============
Group share of net assets
(44.3%) 7,865,575
=========================== ============
Zinnwald Lithium Plc is listed on the AIM market of the London
Stock Exchange, with its common shares trading under the symbol,
"ZNWD". The closing share price on 31 December 2020 was 11.5 pence
per share resulting in a market fair value of GBP10,421,205
(US$14,191,367 equivalent).
Zinnwald Lithium Plc made a loss after tax and total
comprehensive loss of EUR2,700,472 for the year, of which, the
Company has recognised its share of losses for the period of
ownership.
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 as at 31 December
2020
--------------------- ------------ -------------------
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 pre-tax project
net present value of US$1.253 billion 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$16,918,190, at the
point of transfer, giving significant headroom. As a result, these
costs were transferred to evaluated mining property on 25 January
2018.
As previously reported to shareholders, Bacanora is challenging
the validity of the previously reported 3% royalty over the MSB
concessions within the Sonora Lithium Project, payable to the
Orr-Ewing Estate, and is seeking a judgment of the Court in Alberta
declaring such royalty invalid. The basis of Bacanora Minerals Ltd
claim is that the royalty was originally granted based on a
negligent or fraudulent misrepresentation by Mr. Orr-Ewing that he
held a pre-existing royalty granted prior to the acquisition of the
MSB concessions by Bacanora Minerals Ltd. The Company engaged in
voluntary, independent mediation in early 2019, but was unable to
reach an agreement with the Estate's advisers. The Estate applied
for a Summary Trial of the action in December 2019. In February
2020, the Alberta Court decided to hear only the preliminary issue
of whether the action is limitation barred. The Court's original
schedule was that this hearing was to be in May 2020, but this date
was cancelled as the impact of Covid-19 effectively closed down the
Alberta Court system. The Court has now set a new date of 9 March
2021 for the hearing. The Company has at all times taken a
conservative approach to the treatment of the purported royalty and
included it fully in the financial model for the Feasibility Study
published in 2018, as well as all financial projections to
investors and debt funding partners.
The carrying value of Property, plant and equipment as at 31
December 2020 is set out below:
Cost (US$) Evaluated Land Buildings Plant and Office Transportation Total
mineral machinery furniture
property and equipment
---------------- -------------- ----------- ---------- ----------- --------------- --------------- ------------
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
================ ============== =========== ========== =========== =============== =============== ============
Additions 1,957,320 - - - 6,104 - 1,963,424
31 December
2020 28,097,550 3,035,000 840,472 737,266 441,801 120,734 33,272,823
================ ============== =========== ========== =========== =============== =============== ============
Depreciation
---------------- -------------- ----------- ---------- ----------- --------------- --------------- ------------
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
================ ============== =========== ========== =========== =============== =============== ============
Charge for the
period - - 42,913 74,665 69,092 2,460 189,130
31 December
2020 - - 251,114 453,069 229,972 120,734 1,054,889
================ ============== =========== ========== =========== =============== =============== ============
Net Book Value
---------------- -------------- ----------- ---------- ----------- --------------- --------------- ------------
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
================ ============== =========== ========== =========== =============== =============== ============
31 December
2020 28,097,550 3,035,000 589,358 284,197 211,829 - 32,217,934
================ ============== =========== ========== =========== =============== =============== ============
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 on
The International Stock Exchange:
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 was capitalised every three months
for the first 24 months and thereafter interest is 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 and
Bacanora Battery Metals Limited. 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$15 million measured monthly.
Working capital for the purpose of the debt covenant is defined as
current assets minus current liabilities, excluding assets and
liabilities relating to Zinnwald Lithium Plc, Bacanora Battery
Metals Limited 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$200 million, the completion of certain operational
permits and entering into direct agreement in relation to the
offtake agreements. RK has a right, at its discretion, to waive the
conditions precedent in relation to the second tranche and provide
the second tranche to the Group.
The effective interest rate of the primary and secondary
Eurobonds is 19.37% and 15.37% respectively.
The carrying value of the Group's borrowings at 31 December 2020
is as follows:
In US$ Interest rate Maturity 31 December 2020 31 December
2019
-------------------- ------------------------- ---------- ----------------- ------------
LIBOR with a 1% minimum
Primary Eurobond + 8% 2024 25,394,439 21,607,156
Secondary Eurobond Zero interest bearing 2038 3,803,481 2,444,454
Total non-current borrowings 29,197,920 24,051,610
=============================================== ========== ================= ============
The movement in the Group's borrowings in the year ended 31
December 2020 is as follows:
In US$ Primary Eurobond Secondary Eurobond Total
-------------------------- ----------------- ------------------- ------------
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
========================== ================= =================== ============
Primary Eurobond finance
cost 2,839,013 - 2,839,013
Eurobond unwinding 1,658,804 1,359,027 3,017,831
Interest payments (710,534) - (710,534)
31 December 2020 25,394,439 3,803,481 29,197,920
========================== ================= =================== ============
On 13 January 2021, the Group and RK signed a non-binding
indicative term sheet which included a proposal to extend the
principal payment dates, interest payments scheduled after the
execution of any agreement, the maturity date and early redemption
periods by three years. The first principal payment would be
scheduled on 31 October 2024 and the maturity date would be 31 July
2027. An execution fee would be payable through the issuance of an
additional tranche of US$4.5 million with the original second
tranche, being reduced to US$45.5 million. The condition precedent
to the drawdown of the original second tranche requiring the
Company to raise a minimum of US$200 million of equity will be
replaced with a requirement that phase 1 of the Sonora Lithium
Project is fully funded in the reasonable opinion of RK. The
completion of this extension of the facility is conditional upon
final board approvals from both RK and the Company and entering
into definitive legal agreements.
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$2.9 million and subsequently revalued at each
reporting period, determined using the Black-Scholes pricing model
with the following inputs.
The expected volatility has been determined by calculating the
historical volatility of the Company's share price since listing.
The term used in the model has been adjusted to reflect the period
in which the warrants can be exercised.
31 December 2020 31 December
2019
----------------- ----------------- ------------
Term 2.50 3.50
Share Price
(GBP) 0.64 0.35
Exercise Price
(GBP) 0.99 0.99
Volatility 68.97% 65.06%
Risk Free rate 0.92% 1.92%
Valuation (US$) 1,549,576 587,315
----------------- ----------------- ------------
A 10% increase in volatility equates to an increase in value of
US$321,323 to US$1,870,899. A 10% decrease in volatility equates to
a decrease in value of US$328,265 to US$1,221,311.
A 10% increase in share price equates to an increase in value of
US$304,277 to US$1,853,853. A 10% decrease in share price equates
to a decrease in value of US$285,378 to US$1,264,198.
General and administrative expenses
The Group's general and administrative expenses include the
following:
In US$ Year ended Six months ended
31 December 2020 31 December 2019
------------------------------- ----------------- -----------------
Employee and contractor costs 2,576,842 1,184,934
Legal and accounting fees 893,845 972,060
Investor relations 357,527 147,696
Travel and other expenses 261,914 208,669
Office expenses 177,999 138,844
Audit fees for the Group and
Company 109,239 90,996
Audit fees of subsidiaries
by Group auditor/ associates
of Group auditor 13,656 13,854
Non audit services 34,942 6,149
Total 4,425,964 2,763,202
=============================== ================= =================
Finance income and costs
The Group's finance income and costs are as follows:
In US$ Year ended Six months ended
31 December 2020 31 December 2019
----------------------------------- ----------------- -----------------
Interest and other income 355,913 214,408
Warrant liability revaluation - 714,388
Finance income 355,913 928,796
----------------------------------- ----------------- -----------------
Warrant liability revaluation (972,509) -
Primary Eurobond interest expense (2,839,013) (1,466,824)
Other finance costs(1) (3,017,883) (962,619)
Finance costs (6,829,405) (2,429,443)
----------------------------------- ----------------- -----------------
Net finance (costs)/income (6,473,492) (1,500,647)
=================================== ================= =================
(1) Other finance costs include Eurobond unwinding of
transaction costs, discounts and costs associated with the
re-estimation of future cash flows.
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,
the Group's corporate entities with head office located in London,
UK and the Group's investment in Zinnwald Lithium Plc. At 31
December 2020, the Deutsche Lithium operating segment based in
Germany has been classified as a discontinued operation. 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 2020 (In Mexican Corporate Zinnwald Deutsche Consolidated
US$) entities entities Lithium Plc Lithium (Germany)
Continued Continued Continued Discontinued
operation operation operation operation
---------------------------- ------------ ------------ ------------- ------------------- -------------
Current assets 2,074,318 39,209,166 - - 41,283,484
Investments in associates
and joint ventures - - 7,865,575 - 7,865,575
Property, plant and
equipment 32,217,934 - - - 32,217,934
Exploration and evaluation
assets 570,732 - - - 570,732
Total assets 34,862,984 39,209,166 7,865,575 - 81,937,725
============================ ============ ============ ============= =================== =============
Current liabilities 417,343 911,871 - - 1,329,214
Borrowings - 29,197,920 - - 29,197,920
Warrant liability - 1,549,576 - - 1,549,576
Total liabilities 417,343 31,659,367 - - 32,076,710
============================ ============ ============ ============= =================== =============
Property, plant and
equipment additions 1,963,424 - - 1,963,424
Exploration and evaluation
asset additions 36,144 - - 36,144
For the year ended Mexican Corporate Zinnwald Deutsche Consolidated
31 December 2020 entities entities Lithium Plc Lithium (Germany)
(In US$)
Continued Continued Continued Discontinued
operation operation operation operation
------------------------------ ----------- ------------- ------------- ------------------- -------------
General and administrative
expense (748,387) (3,677,577) - - (4,425,964)
Depreciation (189,130) - - - (189,130)
Share-based payment
expense - (590,665) - - (590,665)
Foreign exchange gain/(loss) (27,315) (38,942) - - (66,257)
Operating loss (964,832) (4,307,184) - - (5,272,016)
============================== =========== ============= ============= =================== =============
Finance income 3,573 352,340 - - 355,913
Finance costs - (6,829,405) - - (6,829,405)
Loss on investment
in associate - - (102,791) - (102,791)
Loss on discontinued
operation - - - (4,068,697) (4,068,697)
Tax charge (5,114) - - - (5,114)
Segment loss after
tax (966,373) (10,784,249) (102,791) (4,068,697) (15,922,110)
============================== =========== ============= ============= =================== =============
31 December 2019 (In US$) Mexican entities Corporate Deutsche Consolidated
entities Lithium (Germany)
---------------------------------- ----------------- ------------ ------------------- -------------
Current assets 1,840,652 48,840,320 - 50,680,972
Property, plant and equipment 30,443,640 - - 30,443,640
Exploration and evaluation
assets 534,588 - - 534,588
Investment in jointly controlled
entity - - 9,545,993 9,545,993
Total assets 32,818,880 48,840,320 9,545,993 91,205,193
================================== ================= ============ =================== =============
Current liabilities 417,864 1,033,482 113,697 1,565,043
Borrowings - 24,051,610 - 24,051,610
Warrant liability - 587,315 - 587,315
Total liabilities 417,864 25,672,407 113,697 26,203,968
================================== ================= ============ =================== =============
Property, plant and equipment
additions 739,076 - - 739,076
Exploration and evaluation
asset additions 10,641 - - 10,641
For the six month ended Mexican entities Corporate Deutsche Consolidated
31 December 2019 (In US$) entities Lithium (Germany)
------------------------------ ----------------- ------------ ------------------- -------------
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) (4,159,101) (271,953) (4,946,049)
============================== ================= ============ =================== =============
Subsequent events
In January 2021, the Group and RK signed a non-binding
indicative term sheet which included a proposal to extend the
principal payment dates, interest payments scheduled after the
execution of any agreement, the maturity date and early redemption
periods by three years. The first principal payment would be
scheduled on 31 October 2024 and the maturity date would be 31 July
2027. An execution fee would be payable through the issuance of an
additional tranche of US$4.5 million with the original second
tranche, being reduced to US$45.5 million. The condition precedent
to the drawdown of the original second tranche requiring the
Company to raise a minimum of US$200 million of equity will be
replaced with a requirement that phase 1 of the Sonora Lithium
Project is fully funded in the reasonable opinion of RK. The
completion of this extension of the facility is conditional upon
final board approvals from both RK and the Company and entering
into definitive legal agreements.
In February 2021, Ganfeng entered into a new joint venture
agreement with the Company in connection with the Ganfeng Option
Exercise. Ganfeng subscribed for 73,955,680 new ordinary shares in
SLL at 29.59p per share for a total value of GBP21,883,485
(approximately US$30.4 million) resulting in Ganfeng owning 50% of
the enlarged issued share capital of SLL.
In February 2021, Ganfeng received board approval to exercise
its pre-emptive rights and subscribe for a total of 53,333,333 new
ordinary shares at the placing price of GBP0.45 per share,
representing gross proceeds of GBP24,000,000. Completion of this
investment from Ganfeng is conditional upon obtaining certain
approvals and consents from authorities in the People's Republic of
China. On completion of their investment, the Company will have
384,144,901 shares in issue and Ganfeng will have an ownership
level of 28.88%.
In February 2021, the Company completed the issuance of
106,995,885 new ordinary shares of GBP0.10 each at a price of
GBP0.45 per share. A total of 101,395,885 new ordinary shares in
the Company have been placed with institutional and professional
investors by Citigroup Global Markets Limited, Canaccord Genuity
Limited, WH Ireland Limited representing gross proceeds of
GBP45,628,148 (approximately US$62 million). Retail and other
investors have subscribed for 5,600,000 new ordinary shares raising
additional gross proceeds of GBP2,520,000 (approximately US$3
million). Following admission, the total number of shares in issue
in the Company has increased to 330,811,568. Eileen Carr, a
Director of the Company, participated in the fundraise for a total
of 80,000 new ordinary shares at GBP0.45 per share.
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