Bacanora Lithium : Interim Report and Financial Statements for the six months ended 30 June 2021

Bacanora Lithium Plc

Interim Report and Financial Statements

Six month period ended 30 June 2021

Company Directory

Board of Directors	Mark Hohnen (Chairman)
	Peter Secker (CEO)
	Eileen Carr
	Jamie Strauss
	Andres Antonius
	Junichi Tomono
	Wang Xiaoshen
	Graeme Purdy
Chief Financial Officer	Janet Blas
Company Secretary	Cherif Rifaat
Registered Office	4 More London
	Riverside
	London
	SE1 2AU
Website	www.bacanoralithium.com
Lead Broker	Citigroup Global Markets
	33 Canada Square
	London, UK
	E14 5LB
Joint Broker	Canaccord Genuity
	88 Wood Street
	London
	EC2V 7QR
Nominated Advisers	Cairn Financial Advisers LLP
	Cheyne House
	Crown Court
	62-63 Cheapside
	London
	EC2V 6AX
Lawyers	Gowling WLG (UK) LLP
	4 More London
	Riverside
	London
	SE1 2AU
Auditors	BDO LLP
	55 Baker St
	London
	W1U 7EU
Registered Number	11189628

Contents
Business Review.........................................................................................................................	4
Governance............................................................................................................................	18
Independent review report to Bacanora Lithium Plc ...........................................................................	20
Interim Consolidated Statement of Financial Position..........................................................................	22
Interim Consolidated Statement of Comprehensive Income ...................................................................	23
Interim Consolidated Statement of Changes in Equity..........................................................................	24
Interim Consolidated Statement of Cash Flows..................................................................................	25
Notes to the Interim Consolidated Financial Statements ......................................................................	26

Business Review

Highlights - for the six months ended 30 June 2021 and subsequent events

Corporate financing for Bacanora Lithium Plc's ("Bacanora" or the "Company") 50% share of the funding requirements of the Sonora Lithium Project ("Sonora Project" or "Project"), Mexico

• On 8 February 2021, Bacanora completed a successful placing and retail offer which raised gross proceeds of £48.1 million (US$66.3 million) through the issue of a total of 106,995,885 new ordinary shares at a price of 45 pence per placing share.
• In addition to the placing and retail offer, Ganfeng Lithium Co., Ltd. ("Ganfeng"), Bacanora's cornerstone investor and offtake partner, exercised its pre-emption right at the placing price and increased its holding in the Company on 26 May 2021. Ganfeng subscribed for a total of 53,333,333 new ordinary shares at the placing price of 45 pence per share, representing gross proceeds of £24.0 million (US$33.9 million). On completion of Ganfeng's investment, Bacanora has 384,144,901 shares in issue and Ganfeng has an ownership stake of 28.88% at the reporting date.
• 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 £21.9 million (US$30.4 million). On completion of the transaction, a revised 50:50 Joint Venture Agreement ("JVA") came into force, whereby each party is responsible for their portion of the Project capex.
• After review of the provisions of the revised JVA, the Company has assessed that Bacanora now has joint control over SLL and its subsidiaries (the "Sonora Lithium Group"). Therefore, in the Group financial statements, the Group no longer consolidates the Sonora Lithium Group and instead recognises its investment in the Sonora Lithium Group.
• Due to the passage of time from the initial US$150 million debt facility agreement in July 2018 with RK Mine Finance ("RK"), Bacanora and RK signed a non-binding indicative term sheet to amend certain terms during the period. The Company and RK were in discussions for a number of months with a view to agreeing updated legally binding terms and documentation. However, due to extension fee considerations and the limited availability period for an extension post the expiry date of 18 June 2021, the Company and RK have agreed that the remaining undrawn facility, amounting to US$125 million, will no longer be available for draw down. The Company will continue to engage with RK as well as seek alternative terms with other debt providers in light of the current favourable debt market conditions. The first tranche of the RK debt facility, US$25 million, was drawn down in July 2018 and Bacanora will maintain this first tranche in accordance with the existing terms of the debt facility.
• Bacanora and its subsidiaries (the "Group") has a strong consolidated cash balance of US$130.7 million as at 30 June 2021. Together with the cash in Sonora Lithium Group of US$29.9 million, the total aggregated cash balance amounted to US$160.6 million as at 30 June 2021.

Recommended cash offer by Ganfeng for the Bacanora's share capital

• On 6 May 2021, Bacanora and Ganfeng announced that they had entered into an agreement regarding the terms of a possible cash offer by Ganfeng for the entire issued and to be issued share capital of Bacanora that Ganfeng does not already own.
• On 25 August 2021, the Bacanora Independent Directors and the Ganfeng Board reached an agreement on the terms of a recommended conditional cash offer to be made by Ganfeng for the entire issued and to be issued ordinary share capital of Bacanora not already owned by Ganfeng (the "Offer"). The Bacanora Board also intend to make a conditional distribution in specie, comprising the shares in Zinnwald Lithium Plc (AIM:ZNWD) ("Zinnwald") currently owned by Bacanora, to all Bacanora Shareholders (including Ganfeng) on the record date, being the date the Offer becomes or is declared unconditional. The distribution is subject to various conditions. Subject to the conditions being met, Bacanora Shareholders will be entitled to receive for each Bacanora Share 67.5 pence in cash from Ganfeng pursuant to the Offer and 0.23589 Zinnwald Shares to be distributed by Bacanora.

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Sonora Project - focused on finalising engineering processes and early site works

• 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 work with its suppliers and, along with the Company, is maintaining its previously advised project delivery schedule with first lithium production in H2 2023. The project delivery schedule includes the first equipment deliveries from China arriving in Mexico in Q2 2022.
• Rescue and removal of surface vegetation and topsoil in the area required for the construction of the lithium processing plant have been completed. Plant site location survey, geotechnical, and hydrogeological works have also been completed.
• As a result of COVID-19 related travel restrictions, site works for bulk earthworks, civil engineering, and pouring foundations have been rescheduled to Q4 2021.

Zinnwald Lithium Project, Germany ("Zinnwald Project") - acquisition of the remaining 50% of Deutsche Lithium

• In June 2021, Zinnwald, Bacanora's associate company, acquired the remaining 50% of Deutsche Lithium GmbH ("DL") that it did not already own for a total consideration of €8.8 million consisting of a cash payment of €1.5 million and the issue of approximately 50 million new shares in Zinnwald (the "DL Acquisition").
• DL is developing the Zinnwald Project in Germany. The DL Acquisition gives Zinnwald full ownership and operational control of the Zinnwald Project and is in line with its corporate objective to become a key supplier to the European lithium market. On completion of the acquisition, Bacanora's shareholding in Zinnwald decreased to 35.5% from an initial holding of 44.3%. Bacanora maintains its right to appoint one director to the board of Zinnwald.

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