Zinnwald Lithium : Final Results

RNS Number : 4188Q Zinnwald Lithium PLC 26 February 2021

Zinnwald Lithium plc / EPIC: ZNWD.L / Market: AIM / Sector: Mining

26 February 2021

Zinnwald Lithium plc ("Zinnwald Lithium" or the "Company")

Final Results

Zinnwald Lithium plc, the German focused lithium development company, is pleased to announce its final audited results for the year ended 31 December 2020.

The Company's Annual Report and Financial Statements for the year ended 31 December 2020 will be posted to shareholders today and will be available on its websitewww.zinnwaldlithium.com.

OVERVIEW

Advancing new strategy focused on becoming an important supplier to Europe's fast-growing lithium sector

• · Completed acquisition of a 50% interest in Deutsche Lithium, which is developing the high value Zinnwald Lithium Project in Germany, from Bacanora Lithium Plc via an RTO in October 2020

• · Welcomed Bacanora Lithium Plc as a new major shareholder with a 44% stake

• · Restructured board to reflect the ongoing requirements of the Project including appointment of Bacanora CEO, Peter Secker, who has a deep understanding of the Project, as a Non-Executive Director

• · Spun out the Loch Tay Gold Project to existing shareholders and changed name from Erris Resources Plc to Zinnwald Lithium Plc

• · Placed Irish and Swedish assets under care and maintenance while seeking either a partner or purchaser for the assets

Late-stage Zinnwald Lithium Project represents a compelling opportunity for investors to gain exposure to the European lithium market

• · Attractive economics: c. €428 million pre-tax NPV (discounted at 8%); 27.4% Internal Rate of Return; €58.5 million average life of mine annual EBITDA (September 2020 Feasibility Study)

• · Located in the heart of Europe's chemical and automotive industries

• · One of Europe's more advanced battery-grade lithium projects

• · Key work streams planned and underway to advance the Project to production

• · Disciplined approach to expenditure and well-funded for 2021 with a €4.8 million cash position at today's date

Strong market dynamics given increased investment in clean electricity, which extends to the automotive industry

• · Lithium-ion battery most likely to lead the transition

• · Europe has set a target of becoming carbon neutral by 2050

• · European Commission prioritised the securing of critical metals in September 2020

CHAIRMAN'S STATEMENT

Despite the unprecedented challenges posed by the ongoing Covid-19 pandemic, 2020 has been a year of significant activity for Zinnwald Lithium Plc (the 'Company'). The assessment of the COVID-19 situation will need continued attention and will evolve over time. Undoubtedly, this will have some implications for the operations of the Group in the future, for example through restricting travel movements internationally and domestically and therefore delaying exploration activities. Due to the nature of present activities, the impact has been minimal. A core part of our articulated strategy has always been the identification and acquisition of a suitable asset meeting our criteria of being sufficiently advanced and located in a suitable, low-risk jurisdiction. We fulfilled this objective through the acquisition of a 50% interest in Deutsche Lithium, which is developing the Zinnwald Lithium Project in Germany. This transaction has transformed the Company and has resulted in a revised strategy focused on becoming an important supplier to Europe's fast-growing lithium sector.

The transaction was completed at the end of October 2020 and was achieved through a Reverse Takeover ('RTO') of Bacanora Lithium Plc's interest in Deutsche Lithium. Simultaneously, the Loch Tay Gold Project was spun out to existing shareholders and the Company's name was changed from Erris Resources Plc to Zinnwald Lithium Plc, reflecting the new focus. We also welcomed Bacanora Lithium Plc as a new major shareholder with a 44% stake.

Central to the Company, as it is now constituted, is the development of the Zinnwald Lithium Project (the 'Project') in south eastern Germany. With attractive economics, this late-stage lithium project located in the heart of Europe's chemical and automotive industries is one of Europe's more advanced battery-grade lithium projects. It therefore represents a compelling opportunity for investors to gain exposure to the European lithium market, which is growing rapidly thanks to long term structural drivers.

You will no doubt already have a clear understanding of the rapid change in emphasis underway within the energy sector, as countries and governments worldwide have taken on the challenge to switch from a reliance on fossil fuels to sustainable energy systems as part of the drive to combat climate change. Underpinning this shift to a decarbonised future is the delivery of clean electricity, which extends to the automotive industry as individuals try to reduce their own carbon footprints; this has resulted in the rapid rise in number of electric vehicles ('EVs') and research in/implementation of new battery technologies.

There are numerous smart technologies being developed in the automotive space. However, the lithium-ion battery is currently the most suitable energy storage device and therefore the most likely to lead the transition given it fulfils many criteria that meet consumer demands, such as high power and high-energy density, long life, low cost and excellent safety, with minimal negative environmental impact.

Europe has embarked on the same energy transition as the rest of the world and has set a target of becoming carbon neutral by 2050. However, a shortage of elements needed to make these batteries and other renewable energy equipment could threaten this target. As a result, in September 2020, the European Commission announced that it was prioritising the securing of critical metals through exploration, investment, and improved recycling. Its report stated:

"For electric vehicle batteries and energy storage, the EU would need up to 18 times more lithium and five times more cobalt in 2030, and almost 60 times more lithium and 15 times more cobalt in 2050, compared to the current supply to the whole EU economy. If not addressed, this increase in demand may lead to supply issues."

Accordingly, having spent many months searching for the right project, we were delighted to be given the opportunity to play a role in the EV revolution through developing the Zinnwald Lithium Project. This project ticked many boxes for us:

• · Compelling market: lithium is an important component of battery chemistry and demand for batteries is anticipated to grow due to factors including a transition to EVs.

• · Flexible strategy: opportunity to produce several high-value, battery-grade lithium products including LiF, Li2CO3 and LiOH*H2O.

• · Strategic location: situated in Germany, which is host to both a major automotive industry and several major chemical producers.

• · World class attributes: a September 2020 Feasibility Study on the Project estimated a pre-tax, NPV of approximately €428 million (discounted at 8%); an Internal Rate of Return of 27.4%; and an average life of mine annual EBITDA of €58.5 million.

• · Robust mine plan: a 30-year Feasibility Study mine plan equating to the extraction of less than 50% of the currently identified resource and mining licence in place.

• · Available expertise: technical expertise in Germany at the project level consisting of world-leading scientists, engineers and geologists.

Our aim now is to advance the Project to production. Accordingly, key work streams have been planned for 2021 to position Zinnwald Lithium to make the transition from developer to producer. These include engaging with potential off-take partners; advancing discussions with potential financing partners; performing the necessary testwork to assess the commercial viability of producing a broader range of lithium compounds; undertaking front-end engineering design work; finalising the selection of the optimal chemical processing site location and completing the final steps in the permitting process for the construction and operation of the mine. We have already made steps towards achieving several of these targets.

With regard to the other assets that remain within the Zinnwald Lithium Plc group of companies (the "Group"), in Ireland, the Company maintains five prospecting licences ('PLs') over the 100%-owned Abbeytown Project, including the historic Abbeytown mine, in County Sligo and renewed those PLs in August 2019 for a further six years to August 2025. The Abbeytown Project is an attractive asset but given the revised focus of the Group on the Zinnwald Lithium Project and also challenging market conditions in the zinc sector at the time, no work was carried out on the project during 2020. While we continue to regard Abbeytown as a sound, viable project, the focus in the near term is to seek either a partner or purchaser for the asset.

In Sweden, the Company maintains the Brännberg gold project, which consists of three core exploration permits in the Skellefte Mining District. Gold mineralisation has been confirmed by drilling which returned positive results. Mineralisation is open at depth and extends from surface with best results including 17.2m @ 1.93g/t Au and 0.26% Cu from 160.90m-178.10m in drill hole BB004. These Swedish assets are available for acquisition or joint venture.

Board and Corporate

As part of the Acquisition of Zinnwald, the Board was restructured to reflect the ongoing requirements of the Project. Jeremy Taylor-Firth stepped down as a Director and the Board would like to thank him for all his assistance over recent years, as well as his fundraising expertise during the original IPO and, after he stepped down, as part of the Zinnwald related fundraise. Peter Secker was appointed a Director as a representative for our new largest shareholder, Bacanora Lithium and brings with him invaluable experience and expertise in the lithium sector as we continue to develop the Zinnwald Project towards construction. Jeremy Martin returned to his previous role of Non-Executive Chairman as Anton du Plessis retuned to the role of Executive Director and CEO.

Financial Overview

The Company maintains a disciplined approach to expenditure and, as such, is well funded for 2021 with a €4.8 million cash position at today's date.

Outlook

Thanks to low capital costs, attractive economics and access to strategic markets, Zinnwald has the potential to become a key European lithium project. With Bacanora Lithium becoming a major shareholder following the RTO, the addition of its CEO, Peter Secker, who has a deep understanding of the Project, to the Board as a Non-Executive Director, and with a healthy balance sheet having raised over £3 million from new and existing investors, the Company is well placed to realise this potential.

In closing, I would like to thank our shareholders for their support and wish you all a very happy, sustainable and prosperous 2021.

Jeremy Martin

Non-Executive Chairman 25 February 2021

STRATEGIC REPORT

Extracts from the Company's Strategic Report are set out below.

Company Overview - the Zinnwald Lithium Project

The Company now has a 50 per cent. interest in, and joint operational control of, Deutsche Lithium, the principal asset of which is the Zinnwald Lithium Project covering 256.5 ha and with a 30-year mining licence to 31 December 2047. The Project is located in southeast Germany, some 35 km from Dresden and adjacent to the border of the Czech Republic.

The Zinnwald Lithium Project is located in a granite hosted Sn/W/Li belt that has been mined historically for tin, tungsten, and lithium at different times over the past 300 years. With an abundant supply of fluorspar/hydrofluoric acid available in the immediate vicinity, Deutsche Lithium has chosen to focus on LiF (Lithium Fluoride) which is used in the lithium-ion battery supply chain. LiF is a high value downstream lithium product and one of the two key components in the manufacturing process of LiPF6, which is the most important conducting salt in lithium electrolytes and serves as the "shuttle" in the lithium battery electrolyte which "ships" the lithium ion between the cathode and the anode. Approximately 95 per cent. of all lithium battery electrolytes use LiPF6, and the percentage used in each cathode is increasing in some of the newer battery types. The strategic location of the Project allows access to the German automotive and downstream chemical industries.

While the NI 43-101 Feasibility Study for the Project is based solely on the production of LiF, Deutsche Lithium has established the possibility of also producing battery-grade lithium carbonate directly from the lithium mica concentrate with only minimal modifications to the chemical plant circuits. Deutsche Lithium is also undertaking testwork to determine if the same applies to possible lithium hydroxide production.

I n May 2019, Deutsche Lithium first announced the results of the NI 43-101 Feasibility Study for the Project, which confirmed the positive economics and favourable operating costs for the production of 5,112 tpa (~7,285 tpa LCE) of battery grade lithium fluoride (LiF). With a long-life project of 30 years, the Feasibility Study estimated a pre-tax project NPV of €428 million (8 per cent. discount rate); an IRR of 27.4 per cent.; and favourable LOM operating costs resulting in a 46 per cent. EBITDA operating profit margin. The NPV is not a valuation for the purposes of Rule 29 of the Takeover Code and should not be relied upon as such.

The 30-year Feasibility Study mine plan equates to the extraction of less than 50 per cent. of the currently identified resource.

• · Measured plus Indicated Mineral Resource estimate containing 35.51 Mt at a grade of 3,519 ppm containing 124,974 t Li at cut-off grade of 2,500 ppm Li

• · Represents approximately 665,000 tonnes of lithium carbonate equivalent ('LCE'), comprising approximately 357,500 tonnes of LCE in Measured Resources and approximately 307,500 tonnes of LCE in Indicated Resources

• · Estimated Inferred Mineral Resources of 4.87 Mt at a grade of 3,549 ppm containing 17,266 t Li metal (approximately 92,000 tonnes LCE)

In addition to the mining licence in relation to the Project, Deutsche Lithium holds two other exploration licences; the Falkenhain licence (covering 295.7 ha and with a five-year term to 31 December 2022); and the Altenberg licence (covering 4,225.3 ha and with an approximately five-year term to 15 February 2024 ). These exploration licences for lithium deposits may have the potential to significantly increase Zinnwald's resource base and Project life.

The mining operation for the Project is planned as an underground mine development using a single decline ramp for access to the mine and for ore transportation from the mine to the surface. The mine technology will be a commonly used load-haul-dump room and pillar technology with subsequent backfill using self- hardening material. The processing operation will be based on a conventional processing flow sheet using established sulphate route processing technology. The proposed integrated plant is designed to process approximately 570,000 tonnes of ore per year (assuming a 30-year mine plan, which equates to approximately 50 per cent. of the total resource identified to date). However, in order to make the Project more viable and to reduce the payback time for the investment, the average mined tonnage of the first five years of production is 522,000 tonnes at a grade of 3,400 ppm Li. The Project has a capital cost estimate of approximately €160 million which includes mining, processing plant, infrastructure, tailings management and general administration costs and government grants as well as the requisite contingencies.

At the present time a risk assessment has been undertaken to identify risks that would inhibit the development of the mine. Any technical risks due to historic mine workings and water drainage pathways should be avoided by detailed technical planning. Further, public acceptance of the planned mine seems to be sufficient and risks are being evaluated.

It is anticipated that in addition to returns generated by the sale of LiF, the Project also has the potential to produce up to 32,000 tpa of potassium sulphate ('SOP', 'K2SO4') for sale to the European fertiliser industry. Further, it is expected that a significant portion of the mined tailings may be sold for use as an aggregate filler to local building companies.

The other 50% owner of Deutsche Lithium is SolarWorld AG, a company which has been in administration since 1 August 2017 . The Company has a deed of adherence to the Deutsche Lithium JV Agreement with SolarWorld AG which forms the basis on which the parties work together in relation to the Project. The experience of Bacanora Lithium Plc in its dealings with the administrator of SolarWorld AG is that operational matters in relation to Deutsche Lithium and the Zinnwald Lithium Project have been unaffected by the status of SolarWorld AG being in administration.

The Deutsche Lithium JV Agreement sets out the rights and obligations of Deutsche Lithium's shareholders. It restricts shareholders in relation to (i) establishing a competing business whilst they remain a shareholder of Deutsche Lithium and 12 months thereafter; (ii) transferring their shares; and/or (iii) granting encumbrances over their shares. The shareholders also agree to abide by deadlockprovisions in the instances of any disputes as to how Deutsche Lithium is operated and managed. Each shareholder has the right to appoint an appointee to the management board and advisory board of Deutsche Lithium.

Under the terms of the second supplement agreement to the Deutsche Lithium JV Agreement, the Company is obliged to provide further additional funding to Deutsche Lithium to February 2022. At the end of 2020, the amount outstanding under that commitment was €770,000. In addition, the Company has undertaken to provide further funding of €650,000 to Deutsche Lithium in conjunction with the preparation of a lithium hydroxide (LiOH) NI 43-101 compliant technical report and additional detailed capital expenditure design work.

Each shareholder in the Deutsche Lithium joint venture has pre-emption rights and rights of first refusal in relation to any proposed transfer or disposal of the other shareholder's share in Deutsche Lithium. As a result, SolarWorld AG cannot transfer its share in Deutsche Lithium without first offering these to the Company (and vice versa). In the event that the Company subsequently acquires the remaining shares in Deutsche Lithium from SolarWorld AG, then the Deutsche Lithium JV Agreement will terminate.

Company Strategy

The Zinnwald Lithium Project now forms the core of the Company and is the primary focus of the Board and its strategy. The Company, working with the management team at Deutsche Lithium, will seek to advance the Zinnwald Lithium Project in a number of areas, including:

• · Identification of and negotiation with off-take partners that could include battery manufacturers, chemical producers or commodity traders;

• · Identification of and negotiation with potential financing partners that could include banks, national and trans-national development organisations;

• · Expansion of the scope of the NI 43-101 Feasibility Study to assess the commercial viability of producing a broader range of lithium compounds, specifically lithium carbonate and lithium hydroxide;

• · Front end engineering design work;

• · Finalisation of the selection of the optimal chemical processing site location; and

• · Completion of the final steps in the permitting process for the construction and operation of the mine.

Part of this strategy with regard to the Zinnwald Lithium Project will be to gain operational control of Deutsche Lithium. The Company's board and management team is engaging with the administrator of SolarWorld AG to advance these discussions.

The Board has put the Abbeytown Project on care and maintenance due to the current challenging zinc and lead market conditions. Planned spending on the Abbeytown Project by the Group in 2021 is expected to total €30,000, all of which will be focussed on maintaining the core licence PL 3735. The Group will also be looking for partners to advance or acquire this project. The Company will also only spend the minimum required to maintain its licences at the Brännberg Gold Project, whilst it looks for funding partners or an acquiror.

Operational review & outlook Germany

During 2020, Deutsche Lithium has continued to progress the project on both a corporate and operational level.

On a corporate level, in February 2020, Bacanora Lithium Plc and the administrator for SolarWorld AG (the "Administrator") agreed to a second amendment to the Deutsche Lithium JV Agreement that removed the right of the Administrator to buy back Bacanora Lithium Plc's stake for €1 in return for Bacanora Lithium Plc committing to fund Deutsche Lithium for a further two years in the amount of €1.35 million on a non-dilutionary basis. Deutsche Lithium continues to have discussions with potential funding partners in relation to future construction funding needs.

On an operational level, Deutsche Lithium has been working on advancing the permitting status of the Zinnwald Lithium Project. Deutsche Lithium obtained its mining licence for Zinnwald in 2017, which is valid until 2047, but comes with the standard requirements to apply for further permits for environmental and construction aspects of the Project. Deutsche Lithium is currently undertaking detailed environmental and community studies to continue to develop the overall Zinnwald sustainability framework. Environmental monitoring programmes are ongoing as well as the permitting process for Zinnwald's mining and mineral processing plant. Deutsche Lithium has also continued to evaluate the potential of the exploration licences held over the adjacent areas in Falkenhain and Altenberg.

In relation to the technical aspects already identified in the Feasibility Study, Deutsche Lithium has continued to refine and develop its operational plan. Deutsche Lithium is currently undertaking testwork to evaluate the addition of lithium hydroxide to its suite of potential end-products, which will require further optimisation of the processing plant flow sheet design. Deutsche Lithium has been working with engineering groups to finalise the capital costs for the processing plant. It is optimising the scope for the supply contracts for critical long-term contracts of both a capital and operating cost nature. Deutsche Lithium has undertaken further testwork for the usage of both the mining tailings and also the potential chemical co-products. Deutsche Lithium is also developing the required logistics framework to develop the Project as a whole.

GROUP STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2020

31 December 2020

31 December 2019