TIDMBCN
RNS Number : 9961X
Bacanora Minerals Ltd
28 February 2017
28 February 2017
Bacanora Minerals Ltd.
("Bacanora" or the "Company")
Interim Results for the six months ended 31 December 2016
Bacanora, the London and Canadian listed (AIM: BCN and TSX-V:
BCN) lithium company which is developing the Sonora Lithium Project
in northern Mexico, is pleased to provide its unaudited condensed
consolidated interim results for the 6 month period ended 31
December 2016. These results were prepared in line with
International Financial Reporting Standards, and, unless otherwise
specified, amounts are expressed in Canadian dollars ('CAD$').
Highlights
Operational
-- Continued progress made with ongoing feasibility study ('FS')
at the Company's Sonora lithium project ('Sonora') in Mexico -
expected to be completed in late summer 2017
-- FS is focused on an operation at Sonora capable of initially
delivering 17,500 tonnes per year of battery-grade lithium
carbonate (Li(2) CO(3) ) for the first two years of operations,
followed by 35,000 tonnes Li(2) CO(3) pa thereafter
-- Successfully completed a 4,000 metre infill drilling
programme to upgrade a portion of the current Mineral Resource from
the Indicated to Measured category, in conjunction with
geotechnical and hydrological drilling for the FS
o Sonora currently has a large Indicated Resource currently
comprised of 259 Mt averaging 3,200 ppm Li for 4.5 Mt of lithium
carbonate equivalent ('LCE')
o Resource model currently being updated by SRK Exploration
Ltd
-- Ongoing refinement and optimisation of the lithium carbonate
flow sheet developed at the Pilot Plant operations in Hermosillo in
line with strategic focus on the larger lithium carbonate supply
chain in Asia, rather than the smaller lithium hydroxide market
-- The Pilot Plant continues to produce battery grade lithium
carbonate samples which are being sent to potential off-takers and
customers in Asia
o Discussions with potential off-take partners including site
visits are ongoing
-- The Company is fully financed through to the completion of the FS
Post Period
-- Acquired 50% interest in, and joint operatorship of, the
Zinnwald Lithium Project ('Zinnwald') in southern Saxony, Germany
from SolarWorld AG ('SolarWorld'), the largest solar panel producer
in Europe
-- Acquisition is in line with management's vision to become a
global lithium operator focused on projects with significant value
accretion potential and defined markets at both the product and
geographic levels
-- Zinnwald, which reportedly produced lithium carbonate in the
1950s, provides Bacanora with a potential entry point into the
thriving market for lithium in Germany and Europe, which is being
driven by the automotive, renewable energy storage and chemicals
industries
-- Bacanora will earn 50% of the project in return for a cash
consideration of EUR5 million and the completion of a Feasibility
Study which is anticipated to cost approximately EUR5 million and
to take approximately 18-24 months to complete.
o The Company has an option to acquire the outstanding 50% held
by SolarWorld within a 24 month period for EUR30 million
Corporate
-- Appointment of Mark Hohnen, Non-Executive Director of the Company, as Chairman of the Board
o James Leahy, interim Non-Executive Chairman, resumed his role
as Non-Executive Director of the Company
-- Appointment of Ray Hodgkinson, who has substantial public
company and natural resource experience, as a Canadian based
Non-Executive Director of the Company - Mr Hodgkinson previously
served on the Board between 2006 and 2013, prior to Bacanora's AIM
listing
-- Subsequent to December 31, 2016, the Company issued 200,000
common shares as a result of 200,000 stock options exercised at a
price of $0.30 each, for total proceeds of $60,000
Peter Secker, CEO of Bacanora, said, "Bacanora's strategy is to
continue to build an international lithium company with a portfolio
of projects producing high value lithium products for the electric
vehicle and energy storage sectors. The full feasibility study at
Sonora is well advanced and on course to be completed in the second
half of the year. An infill drilling programme has been completed,
the results of which will be included in an updated resource model.
Our pilot plant has been running continuously since May 2016
producing battery grade lithium carbonate samples which provides
the basis for our ongoing discussions with potential offtake
partners. We are pleased with the progress being made and our
target remains for production at Sonora to commence in early
2019.
"As we advance Sonora towards production, it is our intention to
develop a pipeline of additional lithium projects with a strategic
geographical focus. The recent acquisition of 50% of the Zinnwald
lithium project in Germany is the next step down this path.
Zinnwald provides Bacanora with a potential entry into the
important European lithium market which we expect to complement the
Company's existing exposure to the large Asian market that Sonora
provides. We will continue to provide further updates on our
progress, as we look to confirm Sonora's status as the next world
class lithium deposit and commence a feasibility study at
Zinnwald."
Chairman's Statement
The period saw the commencement of the FS at the Sonora Lithium
Project in Mexico and since then significant progress has been made
towards its completion. This process has been advanced in tandem
with our discussions with potential off-take partners, which are
progressing positively. This is my first statement as Chairman of
Bacanora and I am pleased to be working with a project that has
distinguished itself favourably in terms of grade, scale, and costs
in comparison to its peers. With this in mind, we look forward to
reiterating the attractive economics of this project via the FS and
finalising our offtake discussions for the sale of lithium
carbonate to the Asian market.
In terms of corporate strategy, Bacanora is focused on building
an international, world class lithium company with assets
positioned to benefit from the demand for lithium carbonate in
multiple global markets. During the period, we advanced discussions
regarding the Zinnwald Project in Germany and this culminated in
the recent acquisition of a 50% interest of this prospective
project in return for a cash consideration of EUR5 million and the
completion of a feasibility study (which is anticipated to cost
approximately EUR5 million). Zinnwald provides us with an ideal
entry point to penetrate the European market for the product, which
is used in the energy storage and electric vehicle industry.
Zinnwald, which reportedly produced lithium carbonate in the 1950s,
is located in a granite hosted Sn/W/Li belt that has been mined
historically for tin, tungsten and lithium over the past 300
years.
Although bringing Sonora into production in 2019 remains the
Company's main focus, Zinnwald fits neatly with our timetable given
that the FS in Germany is expected to take 18-24 months, so
allowing the study to be completed almost concurrently with the
commencement of the new planned operation start-up in Mexico. In
addition, the Company also has an option to acquire the outstanding
50% held by SolarWorld within a 24 month period for EUR30 million.
The Company's focus on the German market is based on the rate of
growth of the electric vehicle market in Europe and the significant
impact it will have on lithium demand over the next decade. For
example, in late 2016 the Daimler/Mercedes Group announced that
"their automotive group will invest up to $11 billion into at least
10 new electric vehicles plants by 2025".(1) In addition, the VW
Group announced their "commitment to launching more than 30 million
electric cars by 2025, and achieving annual sales of the
zero-emission cars of between two and three million by the same
date-equivalent to some 20 to 25 percent of the total unit sales
expected at that time".(2) The above translates into a potential
step up in demand for lithium batteries to power all these
vehicles, and Bacanora intends to play its part by becoming a major
regional supplier of lithium carbonate.
Regarding the ongoing FS at Sonora, this is focused on
commissioning an operation capable of delivering 17,500 tonnes per
year of battery-grade Li(2) CO(3) for the first two years,
following which it anticipates expanding its operations to 35,000
tonnes Li(2) CO(3) per year. At the beginning of the period, the
Company announced that it had appointed world class consultants
with significant experience of lithium projects to oversee various
elements of the FS. These include:
-- Ausenco Engineers to conduct the process engineering
-- SRK Consulting Ltd to undertake a Mineral Resource Estimate
-- International Mining Consultants to deliver the Mineral Reserve Estimate and mine planning
The FS activities have progressed well. We completed a 4,000
metre drill programme for our resource upgrade and mine planning
work and the preliminary reserve model and mine plan, which are
being prepared by International Mining Consultants, have progressed
to schedule. SRK has now received the drilling data from the July
2016 infill drilling programme and will prepare an updated MRE for
the FS. This updated MRE is currently scheduled for calendar Q1,
2017. We have also finalised the initial process flow sheet and are
in negotiations with international vendors for larger equipment and
machinery. Given the recent instruction to deliver a strategy to
optimise Sonora's operating costs and energy requirements due to
the continued strengthening in reagent input costs, during the
period we announced that the results of the FS will not be
published until the summer 2017, as the Company believes it will
take longer than originally anticipated to ensure that the optimum
energy supply for the kiln is selected. Rising costs are relevant
to all Bacanora's peers, but importantly, these are being
experienced in tandem
with a rise in lithium carbonate pricing. The Company has been
working with the SignumBox Group in Santiago to develop long-term
lithium pricing scenarios and supply-demand models. The FS is
budgeted to cost approximately $7 million and we are fully funded
for this.
In terms of our offtake discussions, the expanded Pilot Plant
has been operating since May 2016, producing battery grade samples
of lithium carbonate for delivery to potential off-takers in Asia
and Europe. We are delighted to have hosted several site visits
with various interested international lithium trading companies and
mining companies during the period. Negotiations in respect to
offtake agreements with these potential partners are ongoing and
will continue in tandem with the preparation of the FS.
The continuous running of the Pilot Plant has also benefitted
the Company in other ways, allowing us to develop and optimise the
flow sheet for lithium recoveries and reagent consumption. Some of
the specific achievements over the last twelve months are:
-- Ore-to-product metallurgical test work on bulk samples taken
from trenches on the clay units from the planned mining areas
within the 100% owned La Ventana concession is in progress
-- Upgrading of concentrate and pre-concentrate front-end
processes to optimise lithium recovery
-- Hydrometallurgical recoveries have been improved by the
addition of gas-fired stationary calcining units for continuous
roasting of the lithium concentrate
-- Optimisation of gypsum consumption and evaporation and crystallisation parameters
-- Increased capacity in the Pregnant Liquor Solution circuits
to allow continuous leaching operations
-- Installation of additional resin columns in the lithium
carbonate recovery circuit for the refining of the product to
battery-grade lithium carbonate
In addition to the significant flow sheet development and
optimisation being undertaken at the Pilot Plant, all of the flow
sheet development is being audited by independent consultants
supervised by Ausenco, as part of the ongoing FS process.
The continuous running of the Pilot Plant also means that we
have been training employees, of which there are approximately 20
now employed. Training and quality control processes are in full
swing to negate risk associated with execution of commissioning and
operational phases after construction of the Stage 1, 17,500 tpa
plant and to ensure accelerated commissioning schedules in terms of
operations and quality control. This is expected to de-risk
operations significantly. Over the next 18 months the Company will
continue a recruitment campaign of engineers and operators in order
to maintain the plant in continuous operation and to gain expertise
in those processes that require supervision and monitoring for
optimisation and quality control.
Corporate
During the period, we made some changes to the Board. I took the
position of Chairman meaning that James Leahy, interim
Non-Executive Chairman, resumed his role as Non-Executive Director
of the Company. The appointment of Ray Hodgkinson as a Canadian
based Non-Executive Director of the Company, replacing Shane
Shircliff, was also announced. He has substantial public company
and natural resource experience and is very familiar with Bacanora,
having been on its board between 2006 and 2013, prior to its AIM
listing.
On 23 November 2016, the Company announced that the financing
condition in the conditional lithium hydroxide supply agreement,
previously announced on 28 August 2015, had not been met under the
terms of the agreement. The Company advised that it had extensive
discussions with the customer as to the feasibility of securing
project specific financing pursuant to the terms and conditions of
the agreement, that those discussions have now concluded, and
therefore we are discontinuing further efforts to secure project
specific financing pursuant to the agreement. This development was
in line with Bacanora's strategy to focus on the production of
lithium carbonate to service the rapidly growing Asian and European
markets for electric vehicles and energy storage.
Financial
The Company is fully financed with approximately $24 million in
the bank and is therefore fully funded through to the completion of
the Feasibility Study.
In order to meet the Company's planned growth and development
activities, the Company budgets to spend an aggregate of
approximately $17 million over the next 12 months, with
approximately $7 million on the Feasibility Study and related
expenditures, and approximately $2 million on Pilot Plant related
capital expenditures.
Outlook
Bacanora's activities during the period have been aligned with
our commitment to delivering high quality and competitive lithium
production projects which are ideally positioned to service growing
demand for lithium carbonate globally. Our decision to dig deeper
into the implications of the rise in reagent prices despite the
delays this would ensue is testament to this. Our recent
acquisition in Germany means that we are now an international
lithium development company and we will continue to build on this
proposition through further appropriate acquisitions which
demonstrate the potential for excellence. News will be forthcoming
in respect to the commencement of our FS at Zinnwald and in respect
to Sonora, we will publish an updated resource, provide an update
on our offtake discussions, and of course, publish the FS.
I would like to thank our shareholders, management, employees
and advisors for their support during the period and look forward
to providing updates in the near term.
Mark Hohnen
27 February 2017
Condensed Consolidated Statements of Financial Position
Unaudited
Expressed in Canadian Dollars
As at December 31,
2016 June 30, 2016
--------------------------------------------- ------------- --------------
Assets
Current
Cash $ 23,797,353 $ 28,730,168
Other receivables (Note 4a) 454,892 265,342
Deferred costs 147,631 102,607
Total current assets 24,399,876 29,098,117
--------------------------------------------- ------------- --------------
Non-current assets
Property and equipment (Note 6) 1,966,207 2,364,371
Exploration and evaluation assets (Note
7) 23,902,448 17,816,713
--------------------------------------------- ------------- --------------
Total non-current assets 25,868,655 20,181,084
--------------------------------------------- ------------- --------------
Total assets 50,268,531 49,279,201
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable and accrued liabilities 643,626 1,041,117
Warrant liability (Note 8(b)) - 897,323
Total current liabilities 643,626 1,938,440
--------------------------------------------- ------------- --------------
Non-current liabilities
Deferred tax liability 135,000 135,000
Total non-current liabilities 135,000 135,000
--------------------------------------------- ------------- --------------
Total liabilities 778,626 2,073,440
Shareholders' Equity
Share capital (Note 8) 61,433,516 57,058,924
Contributed surplus (Note 8(e)) 4,910,372 3,528,990
Foreign currency translation reserve 1,526,065 574,478
Deficit (17,177,857) (13,150,873)
--------------------------------------------- ------------- --------------
Attributed to Shareholders of Bacanora
Minerals Ltd. 50,692,096 48,011,519
Non-controlling interest (1,202,191) (805,758)
--------------------------------------------- ------------- --------------
Total shareholders' equity 49,489,905 47,205,761
--------------------------------------------- ------------- --------------
Total Liabilities and Shareholders'
Equity $ 50,268,531 $ 49,279,201
--------------------------------------------- ------------- --------------
Condensed Consolidated Statements of Comprehensive Loss
Unaudited
Expressed in Canadian Dollars
Three months ended Six months ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
2016 2015 2016 2015
Revenue
Interest income $ 23,238 $ 20,519 $ 62,238 $ 44,629
Expenses
General and administrative
(Note 9) 1,222,280 909,254 2,505,369 1,432,617
Depreciation (Note 6) 3,136 27,369 42,831 61,379
Stock-based compensation (Note
8(f)) 596,639 1,375,332 1,381,382 1,375,332
1,822,055 2,311,955 3,929,582 2,869,328
Loss before other items (1,798,817) (2,291,436) (3,867,344) (2,824,699)
Foreign exchange loss (457,612) (175,356) (1,304,192) (1,131,733)
Warrant liability valuation - - 348,964 -
Loss (2,256,429) (2,466,792) (4,822,572) (3,956,432)
Foreign currency translation
adjustment 1,463,914 (369,798) 950,587 580,492
Total comprehensive loss (792,515) $ (2,836,590) (3,871,985) $(3,375,940)
Loss attributable to shareholders
of Bacanora Minerals Ltd. (1,822,078) (2,391,865) (4,026,984) (3,768,138)
Loss attributable to non-controlling
interest (434,071) (74,927) (795,588) (188,294)
(2,256,149) $ (2,466,792) (4,822,571) (3,956,432)
Total comprehensive loss attributable
to shareholders of Bacanora
Minerals Ltd. (358,164) (2,761,663) (3,076,397) (3,187,646)
Total comprehensive loss attributable
to non-controlling interest (434,071) (74,927) (795,588) (188,294)
(792,235) (2,836,590) (3,871,985) (3,375,940)
Net loss per share (basic
and diluted) $ (0.02) $ (0.03) $ (0.05) $ (0.04)
Condensed Consolidated Statements of Changes in Shareholders'
Equity
Unaudited
Expressed in Canadian Dollars
Share Capital
-------------- --------------------------
Accumulated
other
Number of Contributed comprehensive Non-controlling
Shares Amount Surplus income Deficit interest Total
-------------- ------------ ------------ ------------ -------------- -------------- ---------------- ------------
Balance, June
30, 2015 84,947,409 $24,827,911 $657,254 $1,695,333 $(2,855,397) $(680,281) $23,644,820
Brokered
placements 11,476,944 17,461,167 - - - - 17,461,167
Shares issued
on exercise
of options 850,000 302,840 (86,840) - - - 216,000
Stock-based
compensation
expense - - 1,375,332 - - - 1,375,332
Foreign
currency
translation
adjustment - - - 576,514 - - 576,515
Loss for the
period - - - - (3,712,049) (244,383) (3,956,432)
-------------- ------------ ------------ ------------ -------------- -------------- ---------------- ------------
Balance,
December 31,
2015 97,274,353 $42,591,918 $1,945,746 $2,271,847 $(6,567,446) (924,664) $39,317,401
Brokered
placements 9,750,000 14,228,359 - - - - 14,228,359
Shares issued
on exercise
of options 850,000 845,820 (360,819) - - - 485,001
Share issue
costs - (915,790) - - - - (915,790)
Stock-based
compensation
expense - - 1,944,063 - - - 1,944,063
Foreign
currency
translation
adjustment - - - (1,697,369) - - (1,697,369)
Loss for the
period - - - - (6,583,427) 118,906 (6,702,333)
Balance, June
30, 2016 107,874,353 $57,058,924 $3,528,990 $574,478 $(13,150,873) $(805,758) $47,205,761
Shares issued
on exercise
of warrants 2,925,000 4,486,570 - - - - 4,486,570
Share issue
costs - (111,978) - - - - (111,978)
Stock-based
compensation
expense - - 1,381,382 - - - 1,381,382
Foreign
currency
translation
adjustment - - - 950,587 - - 950,587
Loss for the
period - - - - (4,026,984) (396,433) (4,423,417)
-------------- ------------ ------------ ------------ -------------- -------------- ---------------- ------------
Balance,
December 31,
2016 110,799,353 $61,433,516 $4,910,372 $1,526,065 $(17,177,857) $(1,202,191) $49,489,905
-------------- ------------ ------------ ------------ -------------- -------------- ---------------- ------------
See accompanying notes to the condensed consolidated financial
statements.
Condensed Consolidated Statements of Cash Flows
Unaudited
Expressed in Canadian Dollars
Three months ended
September 30, Six months ended
Dec. 31, Dec. 31,
Dec. 31, Dec. 31,
2016 2015 2016 2015
-------------------------------------- -------------- -------------- -------------- --------------
Cash provided by (used in)
Operating activities
Net loss $ (2,256,148) $ (2,466,792) $ (4,822,571) $ (3,956,432)
Depreciation 3,136 27,369 42,831 61,379
Warrant liability revaluation - (369,798) (348,964) -
Unrealized foreign exchange
adjustment - 1,375,332 - 580,492
Share based compensation 596,639 (1,433,889) 1,381,382 1,375,332
(1,656,373) (805,609) (3,747,322) (1,939,229)
Changes in non-cash working
capital
Other receivables (135,192) (189,550)
Prepaid (29,661) (45,026)
Accounts payable and accrued
liabilities (610,707) (725,123)
-------------------------------------- -------------- -------------- -------------- --------------
(2,431,934) (4,707,021) (2,475,578)
-------------------------------------- -------------- -------------- -------------- --------------
Financing activities
Issue of shares, net of expenses - 17,461,167 - 17,461,167
Related party (payments)/advances - (139,366) - 32,873
Options exercise proceeds - 156,000 - 216,000
Warrant exercise proceeds,
net of expenses 3,693,563 - 3,739,315 -
3,693,563 17,477,801 3,739,315 17,710,040
-------------------------------------- -------------- -------------- -------------- --------------
Investing activities
Additions to mineral properties
(Note 7) (1,767,083) (738,187) (3,749,398) (2,112,329)
Additions to property and
equipment (Note 6) (531,044) 95,980 (215,711) 116,843
(2,298,125) (642,207) (3,965,109) (1,995,486)
-------------------------------------- -------------- -------------- -------------- --------------
Increase in cash position (1,036,496) 14,596,096 (4,932,815) 13,238,976
Cash, beginning of the period 24,833,849 8,633,917 28,730,168 9,991,037
-------------------------------------- -------------- -------------- -------------- --------------
Cash, end of the period $ 23,797,353 $ 23,230,013 $ 23,797,353 $ 23,230,013
-------------------------------------- -------------- -------------- -------------- --------------
1. CORPORATE INFORMATION
Bacanora Minerals Ltd. (the "Company" or "Bacanora") was
incorporated under the Business Corporations Act of Alberta on
September 29, 2008. The Company is dual listed on the TSX Venture
Exchange as a Tier 2 issuer and on the AIM Market of the London
Stock Exchange, with its common shares trading under the symbol,
"BCN" on both exchanges. The address of the Company is 2204 6
Avenue N.W. Calgary, AB T2N 0W9.
The Company is an exploration stage mining company engaged in
the identification, acquisition, exploration and development of
mineral properties located in Mexico. The Company has not yet
determined whether its mineral properties contain economically
recoverable reserves. The recoverability of amounts capitalized is
dependent upon the discovery of economically recoverable reserves,
securing and maintaining title in the properties and obtaining the
necessary financing to complete the exploration and development of
these projects and upon attainment of future profitable production.
The amounts capitalized as mineral properties represent costs
incurred to date, and do not necessarily represent present or
future values.
2. BASIS OF PREPARATION
a) Statement of compliance
These condensed consolidated interim financial statements have
been prepared in accordance with International Financial Reporting
Standards ("IFRS") as issued by the International Accounting
Standards Board ("IASB") applicable to the preparation of interim
financial statements, including IAS 34, Interim Financial
Reporting. The condensed consolidated interim financial statements
should be read in conjunction with the annual consolidated
financial statements for the year ended June 30, 2016, which have
been prepared in accordance with IFRS as issued by the IASB.
The Company uses the same accounting policies and methods of
computation as in the audited annual consolidated financial
statements for the year ended June 30, 2016.
These condensed consolidated interim financial statements were
authorized for issue by the Board of Directors on February 27,
2017. The Board of Directors has the power and authority to amend
these financial statements after they have been issued.
b) Basis of measurement
These condensed consolidated interim 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
Canadian dollars. The functional currency of the Company is the
British pound sterling ("GBP") and US dollar for its subsidiaries.
The Company's functional currency previously was the Canadian
dollar up until June 30, 2016.
c) New standards and interpretations not yet adopted
A number of new IFRS standards, and amendments to standards and
interpretations, are not yet effective for the period ended
December 31, 2016, and have not been applied in preparing these
condensed consolidated interim financial statements. None of these
standards are expected to have a significant effect on the
condensed consolidated interim financial statements of the
Company.
3. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
The preparation of the Company's condensed consolidated interim
financial statements in accordance with IFRS requires management to
make certain judgments, estimates, and assumptions about
recognition and measurement of assets, liabilities, income and
expenses. The actual results are likely to differ from these
estimates. Information about the significant judgments, estimates,
and assumptions that have the most significant effect on the
recognition and measurement of assets, liabilities, income and
expenses are discussed below.
a) Exploration and evaluation assets
The Company is in the process of exploring its mineral
properties and has not yet determined whether the properties
contain economically recoverable mineral reserves. The
recoverability of carrying values for mineral properties is
dependent upon the discovery of economically recoverable mineral
reserves, the ability of the Company to obtain the financing
necessary to complete exploration and development, and the success
of future operations.
The application of the Company's accounting policy for
exploration and evaluation assets requires judgment in determining
whether it is likely that costs incurred will be recovered through
successful exploration and development or sale of the asset under
review when assessing impairment. Furthermore, the assessment as to
whether economically recoverable reserves exist is itself an
estimation process. Estimates and assumptions made may change if
new information becomes available. If, after expenditures are
capitalized, information becomes available suggesting that the
recovery of expenditures is unlikely, the amount capitalized is
written off in the statement of comprehensive loss in the period
when the new information becomes available. The carrying value of
these assets is detailed in Note 7.
b) Title to mineral property interests
Although the Company has taken steps to verify the title to the
exploration and evaluation assets in which it has an interest, in
accordance with industry practices for the current stage of
exploration of such properties, these procedures do not guarantee
the Company's title. Title may be subject to unregistered prior
agreements or transfers and title may be affected by undetected
defects.
c) Rehabilitation provision
Rehabilitation or similar liabilities are estimated based on the
Company's interpretation of current regulatory requirements,
constructive obligations and are measured at fair value. Fair value
is determined based on the net present value of estimated future
cash expenditures for the settlement of decommissioning,
restoration or similar liabilities that may occur upon
decommissioning of the mine. Such estimates are subject to change
based on changes in laws and regulations.
d) Functional currency
The Company transacts in multiple currencies. The assessment of
the functional currency of each entity within the consolidated
group involves the use of judgment in determining the primary
economic environment each entity operates in. The Company first
considers the currency that mainly influences sales prices for
goods and services, and the currency that mainly influences labour,
material and other costs of providing goods or services. In
determining functional currency the Company also considers the
currency from which funds from financing activities are generated,
and the currency in which receipts from operating activities are
usually retained. When there is a change in functional currency,
the Company exercises judgment in determining the date of
change.
e) Share-based payments
The Company utilizes the Black-Scholes Option Pricing Model to
estimate the fair value of stock options granted to directors,
officers and employees. The use of the Black-Scholes Option Pricing
Model requires management to make various estimates and assumptions
that impact the value assigned to the stock options, including the
forecast future volatility of the stock price, the risk-free
interest rate, dividend yield and the expected life of the stock
options. Any changes in these assumptions could have a material
impact on the share-based payment calculation value.
The same estimates are required for transactions with
non-employees where the fair value of the goods or services
received cannot be reliably determined and for the warrant
derivative liability.
f) Income taxes
Income tax expense is recognised in each interim period based on
the best estimate of the weighted average annual income tax rate
expected for the full financial year. Amounts accrued for income
tax expense in one interim period may have to be adjusted in a
subsequent interim period of that financial year if the estimate of
the annual income tax rate changes.
4. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
This note presents information about the Company's exposure to
credit, liquidity and market risks arising from its use of
financial instruments and the Company's objectives, policies and
processes for measuring and managing such risks.
a) Credit risk
Credit risk arises from the potential that a counter party will
fail to perform its obligations. The Company's credit risk relates
solely to Input Tax Credits ("ITC") receivables in Canada and Value
Added Tax ("VAT") receivables in Mexico. Any changes in
management's estimate of the recoverability of the amount due will
be recognized in the period of determination and any adjustment may
be significant. The carrying amount of other receivables represent
the maximum credit exposure.
All of the other receivables represent amounts due from the
Canadian and Mexican governments and accordingly the Company
believes them to have minimal credit risk. The Company considers
all of its other receivables fully collectible, and therefore has
not provided an allowance against this balance nor reclassified the
balance as a non-current asset.
The Company's cash is held in major Canadian, UK and Mexican
banks, and as such the Company is exposed to the risks of those
financial institutions. The Board of Directors monitors the
exposure to credit risk on an ongoing basis and does not consider
such risk significant at this time. The Company considers all of
its accounts receivables fully collectible.
b) Liquidity risk
Liquidity risk is the risk that the Company will not be able to
meet its financial obligations as they become due. The Company's
approach to managing liquidity risk is to ensure, as far as
possible, that it will have sufficient liquidity to meet its
liabilities when due, under both normal and stressed conditions,
without incurring unacceptable losses. Liquidity risk arises
primarily from accounts payable and accrued liabilities and
commitments, all with maturities of one year or less.
c) Market risk
Market risk is the risk that changes in market prices, such as
foreign exchange rates, commodity prices, and interest rates will
affect the value of the Company's financial instruments. The
objective of market risk management is to manage and control market
risk exposures within acceptable limits, while maximizing long-term
returns.
The Company conducts exploration projects in Mexico. As a
result, a portion of the Company's expenditures, accounts
receivables, accounts payables and accrued liabilities are
denominated in US dollars and Mexican pesos and are therefore
subject to fluctuation in exchange rates. As at June 30, 2016, a 5%
change in the exchange rate between GBP and US dollar would have an
approximate $2,353,000 (2015 - $545,000) change to the Company's
total comprehensive loss.
d) Fair values
The carrying value approximates the fair value of the financial
instruments due to the short term nature of the instruments.
5. CAPITAL MANAGEMENT
The Company's objectives in managing capital are to safeguard
its ability to operate as a going concern while pursuing
exploration and development and opportunities for growth through
identifying and evaluating potential acquisitions or businesses.
The Company defines capital as the Company's shareholders' equity
excluding contributed surplus, of $45,781,724 at December 31, 2016
(June 30, 2016 - $44,482,529). The Company sets the amount of
capital in proportion to risk and corporate growth objectives. The
Company manages its capital structure and makes adjustments to it
in light of changes in economic conditions and the risk
characteristics of the underlying assets. The Company is not
subject to any externally imposed capital requirements.
6. PROPERTY AND EQUIPMENT
Office
Building furniture Computer Transportation
Cost and equipment and equipment equipment equipment Total
----------------- --------------- ---------------- ----------- --------------- ------------
Balance, June
30, 2015 $ 2,932,054 $ 3,147 $ 11,464 $ 146,396 $ 3,093,061
Additions 108,777 - 17,840 59,776 186,393
Foreign exchange (267,264) - (18,765) (17,909) (303,938)
----------------- --------------- ---------------- ----------- --------------- ------------
Balance, June
30, 2016 $ 2,773,567 $ 3,147 $ 10,539 $ 188,263 $ 2,975,516
Additions 215,711 - - - 215,711
Foreign exchange (571,044) - - - (571,044)
----------------- --------------- ---------------- ----------- --------------- ------------
Balance, Dec.
31, 2016 $ 2,418,234 $ 3,147 $ 10,539 $ 188,263 $ 2,620,183
----------------- --------------- ---------------- ----------- --------------- ------------
Office
Accumulated Building furniture Computer Transportation
depreciation and equipment and equipment equipment equipment Total
----------------- --------------- ---------------- ----------- --------------- ------------
Balance, June
30, 2015 $ 412,036 $ 3,147 $ 7,843 $ 99,232 $ 522,258
Additions 80,591 - 2,696 5,600 88,887
----------------- --------------- ---------------- ----------- --------------- ------------
Balance, June
30, 2016 $ 492,627 $ 3,147 $ 10,539 $ 104,832 $ 611,145
Additions 42,831 - - - $ 42,831
Balance, Dec.
31, 2016 $ 535,458 $ 3,147 $ 10,539 $ 104,832 $ 653,976
----------------- --------------- ---------------- ----------- --------------- ------------
Office
Carrying Building furniture Computer Transportation
amounts and equipment and equipment equipment equipment Total
----------------- --------------- ---------------- ----------- --------------- ---------------
At June 30,
2016 $ 2,280,940 $ - $ - $ 83,431 $ 2,364,371
At Dec. 31,
2016 $ 1,882,776 $ - $ - $ 83,431 $ 1,966,207
----------------- --------------- ---------------- ----------- --------------- ---------------
7. EXPLORATION AND EVALUATION ASSETS
The Company's mining claims consist of mining concessions
located in the State of Sonora, Mexico. The specific descriptions
of such properties are as follows:
a) Magdalena Borate property
Originally referred to as San Francisco and El Represo projects,
Magdalena Borate project consists of eight concessions, with a
total area of 7,105 hectares. The concessions are 100% owned by
MSB. The Magdalena property is subject to a 3% gross overriding
royalty payable to Minera Santa Margarita S.A. de C.V., a
subsidiary of Rio Tinto PLC, and a 3% gross overriding royalty
payable to the estate of the late Chairman of the Company on sales
of borate produced from this property.
b) Sonora Lithium property
The Sonora Lithium Project consists of ten contiguous mineral
concessions. The Company through its wholly-owned Mexican
subsidiary, MSB, has a 100% interest in two of these concessions:
La Ventana and La Ventana 1, covering 1,820 hectares. Of the
remaining concessions, five are owned 100% by Mexilit, El Sauz, El
Sauz 1, El Sauz 2, Fleur and Fleur 1 covering 6,334 hectares.
Mexilit is owned 70% by Bacanora and 30% by Rare Earth Minerals PLC
("REM").
The remaining three concessions, Buenavista, Megalit and San
Gabriel, cover 89,235 hectares, and are subject to a separate
agreement between the Company and REM. Under the agreement, Megalit
is owned 70% by Bacanora and 30% by REM. As at December 31, 2016,
Buenavista and San Gabriel concessions were transferred from MSB to
Megalit, while the Megalit concession was in the process of being
transferred to Minera Megalit S.A. de C.V..
The Sonora Lithium property is subject to a 3% gross overriding
royalty on production from certain concessions within the Sonora
Lithium property payable to the estate of the late Chairman of the
Company.
The balance of investment in mining claims as of September 30,
2016 and June 30, 2016 corresponds to concession payments to the
federal government, and costs of exploration, and consists of the
following:
Magdalena La Ventana Mexilit Megalit
Borate Lithium Lithium Lithium Total
------------------- ------------ ------------- ------------ ----------- -------------
Balance, June 30,
2015 $ 7,246,158 $ 1,931,837 $ 2,091,527 $ 637,905 $ 11,907,427
Additions 1,015,692 4,505,946 1,078,990 125,575 6,726,203
Foreign exchange (537,109) (60,295) (186,935) (32,578) (816,917)
Balance, June 30,
2016 $ 7,724,741 $ 6,377,488 $ 2,983,582 $ 730,902 $ 17,816,713
Additions 10,061 3,713,930 14,302 11,105 3,749,398
Foreign exchange 794,530 1,135,426 319,874 86,507 2,336,337
Balance, Dec. 31,
2016 $ 8,529,332 $ 11,226,844 $ 3,317,758 $ 828,514 $ 23,902,448
------------------- ------------ ------------- ------------ ----------- -------------
8. SHARE CAPITAL
a) Authorized
The authorized share capital of the Company consists of an
unlimited number of voting common shares without nominal or par
value.
b) Common Shares Issued
Shares Amount
---------------------------------------- ------------ -------------
Balance, June 30, 2015 84,947,409 $ 24,827,911
Shares issued on exercise of options 850,000 355,410
Shares issued in private placement for
cash(1) 11,476,944 17,871,564
Shares issued on exercise of options 850,000 691,470
Shares issued in private placement for
cash(2) 9,750,000 14,228,359
Share issue costs - (915,790)
---------------------------------------- ------------ -------------
Balance, June 30, 2016 107,874,353 $ 57,058,924
Shares issued on exercise of warrants 2,925,000 4,486,570
Share issue costs - (111,978)
---------------------------------------- ------------ -------------
Balance, December 31, 2016 110,799,353 $ 61,433,516
---------------------------------------- ------------ -------------
(1) On November 13, 2015, the Company completed a private
financing of 11,476,944 common shares at a price of $1.56 (GBP0.77)
per share for aggregate gross proceeds of $17,871,564
(GBP8,837,247). The Company paid commission of $354,280 and other
share issue expenses of $56,117. As part of the financing,
1,973,407 common shares were acquired by REM, a company that is a
significant shareholder and has a position in the Company's Board
of Directors.
(2) On May 20, 2016, the Company completed a private financing
that raised approximately $14,681,700 (GBP7,702,500) via the
placing of 9,750,000 units (the "Placing Units") at a price of
approximately $1.48 (GBP0.79) per Placing Unit (the "Placing"). The
Company paid commission of $440,500 and other share issue expenses
of $64,893. Each Placing Unit is comprised of one new common share
of the Company (a "Placing Share") and 0.3 of one common share
purchase warrant, with each whole warrant (a "Placing Warrant")
being exercisable into one common share at a price of approximately
$1.48 (GBP0.79) at any time subsequent to July 25, 2016, but on or
before September 30, 2016. Accordingly, an aggregate of 9,750,000
Placing Shares and 2,925,000 Placing Warrants were issued under
this Placing.
The Placing Warrants are denominated in a currency different
than the functional currency and are recorded as warrant liability
of $453,299, which was measured using the Black-Scholes option
pricing model with the following assumptions: risk-free interest
rate: 0.39%; expected volatility: 38%; expected life: 4 months;
fair value per warrant: $0.15. The fair value of the warrant
liability was re-measured as at June 30, 2016 to be $897,323 using
the Black-Scholes option pricing model with the following
assumptions: risk-free interest rate: 0.25%; expected volatility:
44%; expected life: 3 months; fair value per warrant: $0.31.
c) Stock options
The following tables summarize the activities and status of the
Company's stock option plan as at and during the period ended
December 31, 2016.
Number Weighted Number
outstanding average remaining exercisable
at Dec. Exercise contractual at Dec.
Grant date 31, 2016 price life (Years) Expiry date 31, 2016
------------------ ------------- --------- ------------------- ------------- -------------
September 28, Sept. 28,
2012 50,000 0.25 1.1 2017 50,000
September 11, Sept. 11,
2013 725,000 0.30 1.8 2018 725,000
December 2, 2015 1,200,000 1.58 4.0 Dec. 2, 2020 1,200,000
Jan. 22,
January 22, 2016 1,000,000 1.56(1) 1.2 2018 1,000,000
April 27, 2016 2,000,000 1.94(2) 2.5 May 27, 2019 -
4,975,000 2,975,000
------------------ ------------- --------- ------------------- ------------- -------------
(1) Exercise price of GBP0.77 per share
(2) Exercise price of GBP0.96 per share
d) Warrants
The following tables summarize the activities and status of the
Company's warrants as at and during the period ended December 31,
2016.
Weighted
Remaining Average
Number contractual Exercise
of warrants life (Years) Expiry date price
------------------------ ------------- -------------- --------------- ----------
Balance, June 30, 2015 833,333 2.8 March 26, 2018 $ 0.45
September 30,
Issued 2,925,000 0.3 2016 $ 1.51
------------------------ ------------- -------------- --------------- ----------
Balance, June 30, 2016 3,758,333 - - $ 1.27
Exercised (2,925,000) - - 1.35
------------------------ ------------- -------------- --------------- ----------
Balance, December 31,
2016 833,333 1.4 $ 0.45
------------------------ ------------- -------------- --------------- ----------
Number Weighted average
outstanding remaining
at Dec. Exercise contractual Financing
Grant date 31, 2016 price life (Years) Expiry date warrants
------------------- ------------- --------- ----------------- ------------ ----------
March 26,
March 26, 2013 833,333 $ 0.45 2.8 2018 833,333
December 31, 2016 833,333 - - - 833,333
------------------- ------------- --------- ----------------- ------------ ----------
e) Contributed surplus
The following table presents changes in the Company's
contributed surplus.
December 31,
2016 June 30, 2016
---------------------------------- ------------- --------------
Balance, beginning of the period $ 3,528,990 $ 657,254
Exercise of stock options - (405,879)
Stock-based compensation expense 1,381,382 3,277,615
Balance, end of the period $ 4,910,372 $ 3,528,990
---------------------------------- ------------- --------------
f) Stock-based compensation expense
During the period ended December 31, 2016, the Company
recognized $1,381,382 (2015 - $Nil) of stock-based compensation
expense for options granted under the Company's stock option plan.
The fair value of stock options granted during the period ended
December 31, 2016 was estimated on the dates of grant using the
Black-Scholes option pricing model with the following weighted
average assumptions, risk-free interest rate of 0.73%, expected
volatility of 138%, and expected life of 3 years. The fair value of
each stock option was $1.21. Expected volatility is based on
historical volatility of the Company's stock prices and comparable
peers.
g) Per share amounts
Basic loss per share is calculated using the weighted average
number of shares of 110,799,353 for the three month period ended
December 31, 2016 and 109,336,853 for the six month period ended
December 31, 2016 (2015 - 91,347,336 and 88,247,373 respectively).
Options and warrants were excluded from the dilution calculation as
they were anti-dilutive.
9. GENERAL AND ADMINISTRATIVE EXPENSES
Three months ended Six months ended
--------------------------- ------------------------ --------------------------
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
2016 2015 2016 2015
Management fees (Note
14) $ 209,047 $ 357,161 $ 773,363 $ 587,732
Legal and accounting
fees 591,244 172,460 1,001,401 290,144
Investor relations 208,689 149,937 283,630 226,668
Office expenses 56,881 151,461 181,701 188,195
Travel and other expenses 156,419 78,235 265,274 139,878
--------------------------- ------------ ---------- ------------ ------------
Total $ 1,222,280 $ 909,254 $ 2,505,369 $ 1,432,617
--------------------------- ------------ ---------- ------------ ------------
10. SEGMENTED INFORMATION
The Company currently operates in one operating segment, the
exploration and development of mineral properties in Mexico. The
Company has an office in Calgary, and London but it does not
generate any revenues or hold any non-current assets at these
locations. Management of the Company makes decisions about
allocating resources based on the one operating segment. Summary of
the identifiable assets by the operating segment is as follows:
Exploration and Evaluation
Activities Consolidated
---------------------------- ----------------------------- ----------------------------
June 30, Dec. 31, June 30,
Dec. 31, 2016 2016 2016 2016
---------------------------- -------------- ------------- ------------- -------------
Property and equipment $ 1,966,207 $ 2,364,371 $ 1,966,207 $ 2,364,371
Exploration and evaluation
assets $ 23,902,448 $ 17,816,713 $ 23,902,448 $ 17,816,713
---------------------------- -------------- ------------- ------------- -------------
11. RELATED PARTY TRANSACTIONS
a. Related party expenses
The Company's related parties include directors and officers and
companies which have directors in common. Transactions made with
related parties are made in the normal course of business and are
measured at the exchange amount, which is the amount of
consideration established and agreed to by the related parties.
During the three and six months ended December 31, 2016,
directors and management fees in the amount of $368,014 and
$715,636 respectively (2015 - $331,242 and 597,655 respectively)
were paid to directors and officers of the Company. All of these
costs were recorded as general and administrative. Of the total
amount incurred as directors and management fees, $126,877 (June
30, 2016 - $38,075) remains in accounts payables and accrued
liabilities on December 31, 2016.
During the three and six months ended December 31, 2016, the
Company paid $Nil (2015 - $35,297 and $53,559 respectively) to a
daughter of the late Chairman of the Company. These services were
incurred in the normal course of operations for office
administrative services. As of December 31, 2016, $Nil (June 30,
2016 - $Nil) remains in accounts payables and accrued
liabilities.
During the three and six months ended December 31, 2016, the
Company paid $270,823 and $528,477 respectively (2015 - $260,533
and $496,074 respectively) to Grupo Ornelas Vidal S.A. de C.V., a
consulting firm of which Martin Vidal, director of the Company and
president of MSB, is a partner. These services were incurred in the
normal course of operations for geological exploration and pilot
plant operation. As of December 31, 2016, $104,957 (June 30, 2016 -
$77,416) remains in accounts payable and accrued liabilities.
b. Key management personnel compensation
Key management of the Company are directors and officers of the
Company and their remuneration includes the following:
Three months ended Six months ended
--------------------------------- ---------------------- ------------------------
Dec. 31, Dec. 31,
Dec. 31, Dec. 31,
2016 2015 2016 2015
Directors' fees:
Colin Orr-Ewing $ - $ 34,245 $ 10,056 $ 49,245
James Leahy 12,400 5,000 25,263 10,000
Shane Shircliff 2,916 4,375 6,462 8,750
Derek Batorowski - 4,375 - 8,750
Kiran Morzaria 4,375 4,294 8,749 8,044
Jamie Straus 2,916 - 2,916
Ray Hodgkinson 1,250 - -1,250
--------------------------------- ---------- ---------- ------------ ----------
Total directors' fees: $ 23,857 $ 59,289 $ 54,696 $ 84,789
--------------------------------- ---------- ---------- ------------ ----------
Management and consulting
fees:
Peter Secker $ 104,536 $ 127,583 $ 211,653 255,967
Martin Vidal 75,164 63,495 133,853 125,677
Derek Batorowski 84,017 56,875 147,142 97,222
Mark Hohnen 84,606 34,000 172,458 34,000
Total management and consulting
fees $ 348,323 $ 281,953 $ 665,106 $ 512,866
--------------------------------- ---------- ---------- ------------ ----------
Employee's salary:
--------------------------------- ---------- ---------- ------------ ----------
Cordelia Orr-Ewing $ - $ 35,297 $ - $ 53,559
--------------------------------- ---------- ---------- ------------ ----------
Total employee's salary $ - $ 35,297 $ - $ 53,559
--------------------------------- ---------- ---------- ------------ ----------
Total director's, management's,
consultant's and employee's
salaries and fees $ 372,180 $ 404,539 $ 719,802 $ 704,773
--------------------------------- ---------- ---------- ------------ ----------
Operational consulting
fees:
Groupo Ornelas Vidal S.A.
de C.V. $ 270,823 $ 260,533 $ 528,477 $ 496,074
--------------------------------- ---------- ---------- ------------ ----------
Stock-based compensation $ 638,837 $ 577,658 $ 1,244,113 $ 577,658
--------------------------------- ---------- ---------- ------------ ----------
12. COMMITMENTS AND CONTINGENCIES
The Company has commitments for lease payments for field offices
with no specific expiry dates. The total annual financial
commitments resulting from these agreements is $10,735.
Additionally, the Company has commitments for lease payments for
its UK office in the amount of $49,000 per year until July,
2018.
The properties in Mexico are subject to spending requirements in
order to maintain title of the concessions. The capital spending
requirement for 2017 is $333,180. The properties are also subject
to semi-annual payments to the Mexican government for concession
taxes.
13. SUBSEQUENT EVENTS
Subsequent to December 31, 2016, the Company issued 200,000
common shares as a result of 200,000 stock options exercised at a
price of $0.30 each, for total proceeds of $60,000.
On February 21, 2017, the Company announced the acquisition of a
50% interest in, and joint operational control of, the Zinnwald
Lithium Project ("Zinnwald") in southern Saxony, Germany from
SolarWorld AG ("SolarWorld"). The Company will earn 50% of the
project in return for a cash consideration of EUR5 million and the
completion of a Feasibility Study on Zinnwald, anticipated to cost
approximately EUR5 million and to take approximately 18-24 months
to complete. The Company also has an option to acquire outstanding
50% held by SolarWorld within a 24 month period for EUR30
million.
Sources
1 See
https://ca.finance.yahoo.com/news/daimler-says-sticking-diesel-vehicles-u-144809109--finance.html.
2 See
http://www.motorauthority.com/news/1104514_vw-commits-to-30-electric-cars-by-2025-in-new-strategy.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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