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.

1. https://www.spglobal.com/platts/en/market-insights/latest-news/coal/012021-europe-overtakes-china-in-ev-sales-growth-in-2020

   2.    https://www.nsenergybusiness.com/news/countries-net-zero-emissions/ 
   3.    https://www.mining-journal.com/covid-19/news/1386958/mexico-mining-to-resume 

4. https://www.natlawreview.com/article/mexico-s-covid-19-traffic-light-monitoring-system-news-december-22-2020-to-january-3

5. https://ogletree.com/app/uploads/blog-assets/COVID-19-Mexico-Traffic-Light-Monitoring-System.jpg

6. https://www.aa.com.tr/en/americas/mexico-approves-astrazeneca-oxford-coronavirus-vaccine/2098464

   7.    https://www.reuters.com/article/us-health-coronavirus-mexico-russia-idUSKBN2A21XN 

8. https://www.reuters.com/article/health-coronavirus-mexico-cansino/update-2-mexico-approves-chinas-cansino-and-sinovac-covid-19-vaccines-idUSL1N2KG0NO

9. https://publications.industry.gov.au/publications/resourcesandenergyquarterlydecember2019/documents/Resources-and-Energy-Quarterly-December-2019.pdf

10. https://publications.industry.gov.au/publications/resourcesandenergyquarterlydecember2020/documents/Resources-and-Energy-Quarterly-Dec-2020.pdf

11. https://www.argusmedia.com/en/news/2130939-lithium-output-cuts-raise-prospect-of-supply-deficit

https://publications.industry.gov.au/publications/resourcesandenergyquarterlydecember2020/documents/Resources-and-Energy-Quarterly-Dec-2020.pdf

12. https://www.metalbulletin.com/Article/3914427/GLOBAL-LITHIUM-WRAP-Lunar-New-Year-production-logistics-halts-slow-Asian-market-activity.html

13. https://seekingalpha.com/article/4396089-lithium-miners-news-for-month-of-december-2020

14. https://seekingalpha.com/article/4391441-lithium-miners-news-for-month-of-november-2020

15. https://seekingalpha.com/article/4396089-lithium-miners-news-for-month-of-december-2020

16. https://www.reuters.com/article/galaxy-rsrcs-output/australias-galaxy-resources-to-slash-output-at-flagship-lithium-mine-in-2020-idUSL4N29S077

17. https://uk.reuters.com/article/us-albemarle-results/albemarle-to-delay-construction-plans-for-125000-tons-of-lithium-processing-idUKKCN1UY1QS

18. https://www.afr.com/companies/mining/tianqi-puts-brakes-on-landmark-wa-lithium-plant-expansion-20190910-p52ppp

19. https://www.afr.com/companies/mining/minres-reaps-us1-3-billion-for-stake-in-mothballed-lithium-mine-20191101-p536h2

20. https://www.nemaskalithium.com/en/investors/press-releases/2019/53f0e3be-0d29-475e-b37f-7090e58ede31/

21. https://www.orocobre.com/wp/?mdocs-file=7527

https://www.orocobre.com/wp/?mdocs-file=7700

22. https://publications.industry.gov.au/publications/resourcesandenergyquarterlydecember2020/documents/Resources-and-Energy-Quarterly-Dec-2020.pdf

23. https://investingnews.com/daily/resource-investing/battery-metals-investing/lithium-investing/lithium-outlook/

24. http://www.ev-volumes.com/

25. "What's next for Lithium? - Commodity and Equities View" Citi commodity research paper 26 June 2020.

26. https://www.woodmac.com/press-releases/key-battery-metals-need-more-investment-to-meet-climate-targets/

27. https://www.reuters.com/article/us-albemarle-lithium/albemarle-says-lithium-prices-must-rise-for-supply-to-match-ev-demand-idUSKBN29H2DG?rpc=401&

28. https://www.sharecafe.com.au/2021/01/15/lithium-and-the-clean-energy-revolution/

29. https://joebiden.com/clean-energy/

30. https://www.focus2move.com/usa-vehicles-sales/

31. https://www.theguardian.com/environment/2021/jan/19/global-sales-of-electric-cars-accelerate-fast-in-2020-despite-covid-pandemic

32. https://www.spglobal.com/platts/en/market-insights/latest-news/electric-power/111920-us-ev-market-sales-to-rise-to-69-million-units-by-2025-frost-amp-sullivan#::text=London-, US%20EV%20market%20sales%20to%20rise%20to, units%20by%202025%3A%20Frost%20%26%20Sullivan&text=London%20%E2%80%94%20The%20US%20electric%20vehicles,19.

33. https://www.ft.com/content/b13f316f-ed85-4c5f-b1cf-61b45814b4ee

34. "What's next for Lithium? - Commodity and Equities View" Citi commodity research paper 26 June 2020.

35. Canaccord Genuity Analyst note, 10 February 2021: Lithium | 2021 Supercharge

36. https://finance.yahoo.com/quote/LIT/

37. https://wcsecure.weblink.com.au/pdf/GXY/02313309.pdf?source=content_type%3Areact%7Cfirst_level_url%3Aarticle%7Csection%3Amain_content%7Cbutton%3Abody_link

38. https://www.lithiumamericas.com/news/lithium-americas-announces-closing-of-us100m-atm-offering?source=content_type%3Areact%7Cfirst_level_url%3Aarticle%7Csection%3Amain_content%7Cbutton%3Abody_link

39. https://www.lithiumamericas.com/_resources/news/nr_20210122.pdf

40. https://www.neolithium.ca/news-detail.php?id_news=67

41. https://www.mining.com/codelco-to-search-for-lithium-at-chiles-second-largest-salt-flat/

42. https://www.mining.com/tianqi-lithium-sells-49-of-australian-unit-to-igo-in-1-4bn-deal/

43. https://europe.autonews.com/automakers/frances-new-13000-ev-incentive-most-generous-europe

44. https://www.reuters.com/article/uk-germany-autos-subsidy/germany-to-extend-electric-car-subsidies-to-2025-sources-idUKKBN27W2FT

45. https://www.bbc.co.uk/news/science-environment-54981425

46. https://www.gov.uk/government/news/pm-a-new-deal-for-britain

47. https://www.autocar.co.uk/car-news/industry/start-britishvolt-open-uk%E2%80%99s-first-gigafactory-south-wales

48. https://europe.autonews.com/environmentemissions/china-cut-subsidies-electrified-vehicles

49. https://articles.cruxinvestor.com/biden-battery-metals

50. https://www.pv-magazine.com/2019/07/11/true-grid-parity-about-more-than-electricity-price/

51. https://energymonitor.ai/technology/energy-storage/reducing-battery-cost-is-essential-for-a-clean-energy-future

52. https://www.advancedbatteriesresearch.com/articles/22400/worlds-largest-battery-storage-facility-for-red-sea-project

53. https://www.reuters.com/article/eu-battery/eu-says-it-could-be-self-sufficient-in-electric-vehicle-batteries-by-2025-idUKKBN2841Z3?edition-redirect=uk

54. https://www.proactiveinvestors.co.uk/companies/news/930061/piedmont-lithium-soars-90-on-signing-tesla-spodumene-agreement-930061.html

55. https://fortune.com/2020/09/28/tesla-mine-lithium-batteries-cheaper-cars/#::text=Musk%20told%20investors%20last%20week, way%E2%80%9D%20of%20extracting%20the%20metal.&text=BNEF%20projects%20about%205%25%20of, %2C%20mostly%20clay%2C%20by%202030.

56. https://roskill.com/market-report/lithium/

57. https://www.samsungsdi.com/column/technology/detail/55272.html?listType=gallery#::text=Electrolyte%20is%20the%20component%20which, move%20back%20and%20forth%20easily.

58. https://batteryuniversity.com/learn/article/types_of_lithium_ion

59. https://publications.industry.gov.au/publications/resourcesandenergyquarterlydecember2020/documents/Resources-and-Energy-Quarterly-Dec-2020.pdf

60. https://www.designnews.com/electronics-test/three-ways-lithium-dendrites-grow/78500767259733

61. https://www.forbes.com/sites/mikescott/2020/12/18/ever-cheaper-batteries-bring-cost-of-electric-cars-closer-to-gas-guzzlers/?sh=24a5f33773c1

62. https://www.greentechmedia.com/articles/read/us-storage-companies-quietly-grow-bets-on-solid-state-batteries#::text=Companies%20including%20Ionic%20Materials%2C%20QuantumScape, electric%20vehicles%20and%20battery%20systems.

63. https://www.forbes.com/sites/petercohan/2021/01/05/three-reasons-to-steer-clear-of-quantumscape-stock/?sh=f779e7810456

64. https://www.whichcar.com.au/car-news/samsung-solid-state-battery-breakthrough

65. https://cleantechnica.com/2020/12/11/solid-state-batteries-theyre-everywhere-theyre-everywhere/#::text=Solid%20Power%20solid%20state%20cells, partners%2C%20including%20Ford%20and%20BMW.

66. https://www.carmagazine.co.uk/electric/solid-state-battery-ev/

67. https://electrek.co/2020/02/26/tesla-secret-roadrunner-project-battery-production-massive-scale/

68. https://www.bloomberg.com/news/articles/2020-12-16/electric-cars-are-about-to-be-as-cheap-as-gas-powered-models?source=content_type%3Areact%7Cfirst_level_url%3Aarticle%7Csection%3Amain_content%7Cbutton%3Abody_link&sref=SAPiUD9B

69. https://www.bloomberg.com/news/articles/2020-06-07/a-million-mile-battery-from-china-could-power-your-electric-car

70. https://www.tesla.com/en_GB/support/vehicle-warranty

71. https://www.reuters.com/article/us-autos-tesla-batteries-exclusive/exclusive-teslas-secret-batteries-aim-to-rework-the-math-for-electric-cars-and-the-grid-idUSKBN22Q1WC

72. https://oilprice.com/Metals/Commodities/The-World-Is-In-Desperate-Need-Of-More-Lithium.html

73. https://roskill.com/market-report/lithium/

74. "What's next for Lithium? - Commodity and Equities View" Citi commodity research paper 26 June 2020.

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