BCN.L Regulatory News (BCN)

Bacanora Minerals Ltd

("Bacanora" or the "Company")

1st Quarter Financial Statements

Bacanora, the London and Canadian listed (AIM: BCN and TSX-V: BCN) lithium and borates company focussed on Mexico, is pleased to announce its unaudited condensed consolidated financial statements for the three month period ended 30 September 2015, together with the accompanying notes.

Highlights

· Commencement by leading international consultancy groups of a NI 43-101 standard Pre-Feasibility Study ("PFS") to design a plant potentially capable of delivering up to 50,000 tonnes per annum of lithium carbonate at Sonora Lithium Project in Mexico - scheduled for completion in the first calendar quarter of 2016

· Completion of 4,000 metre drilling programme at Fleur and El Sauz concessions at Sonora

· Long-term lithium hydroxide supply agreement signed

· Lithium market dynamic remains highly positive - demand is expected to continue to grow rapidly thanks to lithium's key role in highly innovative industries such as smartphones, electric vehicles and energy storage

Post quarter end highlights:

· Updated Mineral Resource Estimate detailing a 337 per cent. increase in the Indicated portion of the MRE to 5.0 million tonnes ("Mt) lithium carbonate equivalent ("LCE") contained in 364 Mt of clay, at a Li grade of 2,600 ppm compared to previous Indicated resource of 1.14 Mt LCE contained in 95 Mt of clay, at a Li grade of 2,200 ppm

o Major positive implications for mine planning and life of mine

o MRE prepared in accordance with National Instrument NI 43-101- Standards of Disclosure for Mineral Projects ("NI 43-101")

· Completion of a private placement financing of approximately CAD$17.8 million (£8.8 million) via the placing of 11,476,944 new common shares at a price of CAD$1.56 (77.0 pence) per share to fund lithium engineering designs, pilot plant upgrade, bankable feasibility study, project work and metallurgical testwork during 2016

· Through the financing, the Company has secured its first major institutional shareholder as well as receiving support from pre-existing shareholders

Colin Orr-Ewing, Chairman of Bacanora, said, "Following the recent Mineral Resource update which included Indicated lithium resources of 5.0 Mt LCE contained in 364 Mt of clay, at a Li grade of 2,600 ppm, Sonora's status as a large high grade deposit is clear. Together with our first rate consultants we are now focused on completing the PFS at Sonora in the first quarter of 2016. Thanks to the successful private placement post quarter end, which saw the addition of a first top tier institutional investor to our shareholder register, we are well placed to maintain the momentum behind the project. Subject to the results of the PFS, we are in a position to immediately commence the next phase of the development of Sonora, including a fully funded bankable feasibility study.

"As a result of the crucial role lithium plays in high growth innovative industries such as energy storage and electric vehicles, demand for lithium is set to increase in the years ahead while new supply struggles to keep pace. We are focused on ensuring Sonora plays a major part in meeting this anticipated demand growth, and in the process generate substantial value for our shareholders."

This statement should be read in conjunction with the full financial statements available on SEDAR at www.sedar.com or the Company's website at www.bacanoraminerals.com.

For further information, please contact:

ABOUT BACANORA:

Bacanora is a Canadian and London listed minerals explorer (TSX-V: BCN and AIM: BCN). The Company explores and develops industrial mineral projects, with a primary focus on lithium and borates. The Company's operations are based in Hermosillo in northern Mexico and it currently has two significant projects under development in the state of Sonora. The two main assets of Bacanora are: 

· The Sonora Lithium Project, which consists of ten mining concession areas covering approximately 100 thousand hectares in the northeast of Sonora State. The Company, through drilling and exploration work to date, has established an Indicated Mineral Resource (in accordance with NI 43-101) of 5.0 Mt LCE contained in 364 Mt of clay at a Li grade of 2,600 ppm and an Inferred Mineral Resource of 3.9 Mt LCE contained in 355 Mt of clay at a Li grade of 2,000 ppm

· The Magdalena Borate Project, covering 16,503 hectares in Sonora state, Mexico, where the Company's main borate zone, El Cajon, has an Indicated Resource (in accordance with NI 43-101) of 1.17 mt of B2O3, at an eight per cent. cut-off grade. The Company has completed a number of measures to determine the geological and commercial potential of the project and is undertaking a pre-feasibility exercise to determine the economic benefit of developing the mine and constructing a processing plant on site in order to become a supplier of boric acid.

Quarterly Report:

During the period we have made further excellent progress in advancing our large scalable Sonora lithium project in Mexico through the development phase towards production.

Sonora Lithium - Operational Update

The Sonora Lithium Project ("Sonora") consists of ten contiguous concessions covering 94,186 hectares, approximately 190 km northeast of the city of Hermosillo in Sonora State, Mexico and 200 km south of the border with Arizona, USA. We have long believed that Sonora has all the key ingredients required to become a significant supplier to the fast growing lithium market: a large high grade and scalable resource, close proximity to infrastructure, and located in a supportive jurisdiction. We are confident that the work currently underway, specifically the PFS will not only serve to define a clear route to bringing Sonora into production, but is envisaged to provide third party confirmation of Sonora's potential.

The demand / supply dynamics for the lithium market are forecast to be highly favourable for the foreseeable future. Thanks to the increasing role of lithium products in industry such as the rapidly growing electric vehicle and rechargeable battery sectors, demand for lithium carbonate is forecast to increase to 280,000 tonnes per annum by 2020 from 186,000 tonnes per annum recorded in 2013. Importantly, with limited new high grade supply coming on stream in the near term, supply will struggle to match this forecast demand growth. Set against this highly favourable market backdrop and with what we believe is a world class deposit at Sonora, we are focused on transforming Bacanora into the next major producer of lithium in the near term.

Third party validation of the scale and grade of the Sonora deposit has been provided by independent consultant SRK following the publication of two Mineral Resource Estimates ("MRE") this year, the last of which was released post quarter end and showed a significant upgrade in both the Indicated category and the total resource number. The Indicated portion now stands at 5.0 Mt of LCE contained in 364 Mt of clay, at a Li grade of 2,600 ppm, a 337 per cent. increase on the previous number of 1.14 Mt LCE contained in 95 Mt of clay, at a Li grade of 2,200 ppm2. Reflecting the upgrade in the Indicated resources, the Inferred portion is now 3.9 Mt LCE contained in 355 Mt of clay at 2,000ppm Li compared to 6.3 Mt LCE contained in 500 Mt of clay at a Li grade of 2,300 ppm.

This latest resource upgrade follows an 18 hole infill drilling programme (approximately 4,000 metres) which was completed during the quarter and forms part of the ongoing PFS. The MRE clearly has positive implications for the project. Not only does it provide a much higher degree of confidence in resource delineation, it also significantly improves mine planning and life of mine, both of which will be based on the upgraded Indicated Resource.

With this in mind, the latest MRE is being fed into the PFS to design a plant capable of delivering up to 50,000 tonnes per annum of lithium carbonate.  This study remains on course to be completed in the first calendar quarter of 2016. Leading international consulting groups have been appointed to work on the PFS which is being prepared in accordance with the requirements of NI 43-101. SGS Canada Inc. ("SGS"), one of the world's leading inspection, verification, testing and certification companies with proven expertise in lithium metallurgy, is undertaking lithium carbonate metallurgical testwork on a number of ore samples recovered from Sonora. The data from this testwork will be used to produce a detailed lithium carbonate flowsheet.

Meanwhile, Ausenco Engineering Canada Inc, ("Ausenco") has been appointed to carry out the flow sheet review, process engineering design, infrastructure optimisation and PFS documentation for a two-stage lithium carbonate processing plant for the production of battery grade lithium carbonate. Ausenco is internationally recognised as a specialist in the study, engineering, procurement, construction management, programme management, commissioning and operation of minerals processing projects. They recently completed an updated Feasibility Study for Talison Lithium's lithium carbonate plant in Australia and will manage Bacanora's PFS out of their office in Hermosillo, Mexico with support from Vancouver, Canada and Perth, Australia.

In tandem with this work, the Company has also started planning for bench scale testing for the recovery of lithium hydroxide at Sonora alongside work on the development of a lithium hydroxide ("LiOH") flowsheet at our existing Hermosillo pilot plant. Preliminary testwork with a number of international specialist groups with LiOH extraction expertise is also underway. The process design streams for both lithium carbonate and lithium hydroxide are being examined to meet new industry requirements from the electric vehicle markets and the Company is actively working with a number of potential off-take customers for its lithium compound production.

Following the post quarter end private placement financing of approximately CAD $17.8 million (£8.8million), Bacanora is fully funded to complete the next phase of Sonora's development. Subject to the findings of the PFS, this will include a Bankable Feasibility Study, as well as an upgrade to our Pilot Plant at Hermosillo as we continue to advance the Sonora Lithium Project towards production.

Two of the concessions that make up Sonora (La Ventana, La Ventana 1) are owned 100 per cent. by Bacanora. The El Sauz, El Sauz 1, El Sauz 2, Fleur and Fleur 1 concessions are owned by Bacanora's subsidiary, Mexilit S.A. de C.V. ("Mexilit") (which is owned 70 per cent. by Bacanora and 30 per cent. by Rare Earth Minerals PLC ("REM")). As at September 30, 2015, the Company had transferred the El Sauz concession to Mexilit and transferred the other concessions subsequently. The San Gabriel, Buenavista, and Megalit concessions are to be owned by Bacanora's subsidiary, Minera Megalit S.A. de C.V. ("Megalit") (which is owned 70 per cent. by Bacanora and 30 per cent. by REM). The Company transferred the San Gabriel and Buenavista concessions subsequent to September 30, 2015 and will transfer the Megalit concession in due course. REM has the option to negotiate an increase to its interest of up to 49.9 per cent. of Megalit under terms and consideration yet to be agreed upon. This option expires on January 12, 2016.

Magdalena Borates - Operational Update

In addition to the Sonora lithium project, the Company is assessing the feasibility of producing up to 25,000 tonnes of boric acid per year from borate minerals from the El Cajon deposit at the Magdalena Borate Project. This is the most advanced of the main borate zones on which the Company has estimated National Instrument 43-101 compliant drill-indicated borate resources of 11 Mt averaging 10.6 per cent. B2O3.

The Magdalena Borate Project consists of seven concessions, covering a total area of 16,503 hectares which are road accessible and located immediately east of the town of Magdalena de Kino. Three main borate zones have been identified: the El Cajon Borate Deposit ("El Cajon"); Bellota and Pozo Nuevo. Other targets include the Represo prospect, which is a new colemanite discovery that was recently made by Bacanora during a drilling campaign in 2014.

El Cajon covers approximately 500 hectares on the southern part of one of the concession blocks. Drilling by Bacanora (48 holes) and a US Borax subsidiary (11 holes) has identified three separate colemanite horizons (units: A, B and C) within the gently south-dipping sediments that underlie the area of El Cajon. The drilling resulted in an indicated borate resource of 11 Mt averaging 10.6 per cent. B2O3 being estimated for El Cajon under CIM resource-reserve criteria, equivalent to a NI 43-101 compliant Indicated Resource of 1.17 Mt of B2O3. The estimate includes indicated resources, using a cut off of 8 per cent. B2O3, for unit A of 7.5 Mt averaging 10.8 per cent. B2O3, 0.8 Mt averaging 9.0per cent. B2O3for unit B and 2.7 Mt averaging 10.5 per cent. B2O3 for unit C. The average thickness for each bed making up the three units ranges from 4.2 to 9.8 metres.

Initial metallurgical test work has indicated that a colemanite concentrate grading 38 - 42 per cent. B2O3 can be produced from an average feed of 10.5 per cent. B2O3 from El Cajon using a combination of scrubbing, de-sliming and flotation. The Company has constructed a pilot plant to conduct detailed metallurgy and improve the borate content of the colemanite concentrate, as well as finalise a full scale production flow sheet and produce concentrates for test marketing. In addition, the Company has added a boric acid line to the pilot plant.

Potential buyers of colemanite concentrates have expressed an interest in purchasing colemanite from Bacanora should it be able to produce concentrates that meet these consumers' specifications. Alternatively, colemanite can be used as a feedstock in the production of boric acid, a more widely used boron compound.

Recent metallurgical and process tests indicate that lower grade borate resources at and near surface are more amenable to processing to produce boric acid. Consequently, a change in the proposed development strategy to focus on the feasibility of boric acid production is being examined.

Drilling results from the 2014 Magdalena drilling programme have been utilised in a preliminary mine plan for unit B, in conjunction with the previous mine plan for unit A. Additional metallurgical testwork programmes are being developed for the production of boric acid from howlite mineralisation.

The following activities are proposed to be undertaken over the next 12 months:

· Bulk sampling results for drilling and metallurgical tests of Unit B results;

· Commencement of a Pre-Feasibility Study report with:

o Detailed full scale boric acid plant design and costing

o Revised mine plan; and

o Environmental baseline studies and mine permitting activities

Outlook

Excellent progress has been made in advancing our Mexican focussed lithium and borate portfolio. We have reached a pivotal stage in Bacanora's journey, as we transform from being an explorer to developer, and ultimately a producer of lithium products and boric acid. We believe our timing fits well with the lithium industry trends in high growth and innovative sectors, such as electric vehicles and energy storage, which we expect to continue to drive demand up strongly in the years ahead, while supply struggles to keep pace. Bacanora is well placed to help meet this anticipated growth in demand. Not only do we have a large high grade and scalable lithium resource in the supportive jurisdiction of Mexico close to infrastructure, we have a fully commissioned state of the art pilot plant and laboratory which are equipped to process and test up to 125 assays per day from samples sourced from the borate and lithium concessions. Having control over processing comes with many benefits, particularly from a time and cost perspective. Thanks to the significant work and investment carried out to date, together with funds in place to complete a bankable feasibility study following the PFS, Bacanora is in a strong position to capitalise on anticipated rising global demand.

See accompanying notes to the consolidated financial statements.

Consolidated Statements of Changes in Shareholders' Equity (Unaudited)

Expressed in Canadian Dollars

See accompanying notes to the consolidated financial statements.

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 dually 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 T2P 3S2.

The Company is a development 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.

The Company has generated accumulated losses of $4,231,671 and the shareholders' equity of two of the Company's subsidiaries incorporated in Mexico have decreased to an amount less than one third of their share capital which, according to Mexican laws, may be a cause for dissolving a company at the request of any interested third party. If the Company is not able to generate income producing transactions through the identification and exploitation of ores, and continue to raise sufficient capital to continue exploration activities, there is a risk that the rights to the mining concessions could be challenged.

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, 2015, 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 annual consolidated financial statements for the year ended June 30, 2015.

These condensed consolidated interim financial statements were authorized for issue by the Board of Directors on November 23, 2015.

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 Canadian dollars. The functional currency of the Company is Canadian dollars and for its subsidiaries is the US dollar.

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 September 30, 2015, 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 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 8.

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) Contingencies

Contingencies will only be resolved when one or more future events occur or fail to occur. The assessment of contingencies inherently involves the exercise of significant judgment and estimates of the outcome of future events.

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.

f) Income taxes

The Company is subject to income tax in several jurisdictions and significant judgment is required in determining the provision for income taxes. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. In the prior year these transactions included the transfer of properties between Mexican subsidiaries. Transactions between the Company's Mexican subsidiaries are required by Mexican tax rules to be recorded on an arms' length basis and the Company made estimates as to the measurement of these transactions. The Company recognizes liabilities and contingencies for anticipated tax audit issues based on the Company's current understanding of the tax law. Despite the Company's belief that its tax return positions are supportable, the Company acknowledges that certain positions may potentially be challenged and may not be fully sustained upon review by tax authorities. The Company believes that its accruals for tax liabilities are adequate for all open audit years based on its assessment of many factors including past experience and interpretation of tax law. This assessment relies on estimates and assumptions and may involve a series of complex judgments about future events. For matters where it is probable that an adjustment will be made, the Company records its best estimate of the tax liability including the related interest and penalties in the current tax provision. Management believes they have adequately provided for the probable outcome of these matters; however, the final outcome may result in a materially different outcome than the amount included in the tax liabilities, and such differences will impact income tax expense in the period in which such determination is made.

In addition, the Company recognizes deferred tax assets relating to tax losses carried forward to the extent there are sufficient taxable temporary differences (deferred tax liabilities) relating to the same taxation authority and the same taxable entity against which the unused tax losses can be utilized.

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. Financial instruments that potentially subject the Company to concentrations of credit risk consist of accounts and related party receivables. 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 accounts and related party receivables represents the maximum credit exposure.

The Company's cash is held in major Canadian and Mexican banks, and as such the Company is exposed to the risks of those financial institutions. Substantially all of the accounts receivables represent amounts due from the Canadian and Mexican governments and accordingly the Company believes them to have minimal credit risk.

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 became 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.

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 $23,343,643 at September 30, 2015 (2014 - $23,706,406), 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 other than those disclosed in Note 1.

6. PROPERTY AND EQUIPMENT

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) Tubutama Borate property

Originally referred to as the Carlos Project, Tubutama Borate project consists of four mining concessions with a total area of 766 hectares. The concessions are located 15 kilometers from the town of Tubutama, and are 100% owned by MIT. During the year, the Company allowed two mining concessions to lapse. The Tubutama property is subject to a 3% gross overriding royalty payable to a director of the Company on sales of borate produced from this property.

For the year ended June 30, 2014 an impairment charge of $1,220,826 was recognized in respect of the Tubutama Borate property. As a result of the Company's decision to let certain of the Tubutama concessions lapse and the Company's focus on the other mining claims an impairment test was performed. The recoverable amount is its value in use and is determined to be $nil as the Company expects no cash inflows to arise related to this property.

b) Magdalena Borate property

Originally referred to as San Francisco and El Represo projects, Magdalena Borate project consists of seven concessions, with a total area of 7,095 hectares. The concessions are located 15 kilometers from the cities of Magdalena and Santa Ana, and 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 a director of the Company on sales of borate produced from this property.

c) 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 1,775 hectares. Of the remaining concessions, one is owned 100% by Mexilit, El Sauz, covering 1,025 hectares. The remaining four concessions consist of El Sauz 1, El Sauz 2, Fleur and Fleur 2 and cover, in total 4,300 hectares were owned by MSB with the requirement to transfer them to Mexilit per the agreement with REM. Subsequent to September 30, 2015, these concessions were transferred to Mexilit. Mexilit is owned 70% by Bacanora and 30% by Rare Earth Minerals PLC ("REM"). In the year ended June 30, 2014, REM made payment of USD$2,250,000 (CAD$2,384,775) to acquire the 30% interest in Mexilit of which USD$500,000 (CAD$500,000) was received in the year ended June 30, 2013 and was recorded as mineral property deposit. Of the total amount received, USD$1,500,000 (CAD$1,500,000) was restricted for expenditures on Mexilit concessions and spent in fiscal 2015. Of the funds received in fiscal 2014, $1,373,750 was held in trust at June 30, 2014. REM's option to earn up to 49.9% of Mexilit expired during the year.

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. As at September 30, 2015, all three claims are held by MSB with the requirement to transfer them to Megalit per the agreement with REM. Subsequent to September 30, 2015, the Buenavista and San Gabriel concession were transferred to Megalit. At June 30, 2014, REM owned 10% of Megalit for a payment of USD$750,000 (CAD$829,350) in the prior year with a payment of USD$750,000 (CAD$829,350), and a payment of USD$1,500,000 (CAD$1,635,187) of which USD$500,000 (CAD$544,400) was received in fiscal 2014 and was presented as mineral property deposit as at June 30, 2014. During the year ended June 30, 2015 REM increased its holdings of Megalit to 30% of the common shares. The funds received were required to be used only for expenditures in the Megalit concession. As at June 30, and September 30, 2015, $170,968 of the funds received was held in trust. REM has the option to earn up to 49.9% of Megalit under terms and consideration yet to be agreed upon.

The change in ownership interest of Mexilit and Megalit in the year did not result of a loss of control and as such have been accounted for as equity transactions.

The Sonora Lithium property is subject to a 3% gross overriding royalty payable to Mr. Colin Orr-Ewing, Chairman of the Company, on sales of mineral products produced from this property.

The balance of investment in mining claims as of September 30, and June 30, 2015 corresponds to concession payments to the federal government, deferred costs of exploration and paid salaries, and consists of the following:

8. REHABILITATION PROVISION

The Company records a liability for the estimated site rehabilitation costs, discounted to net present value. The net present value is determined using the liability-specific risk-free interest rate. The site rehabilitation costs consists of slope stabilization, re-contouring and seeding waste piles, and stabilizing and monitoring tailings disposal sites. The present value of the obligation was estimated at approximately $150,000 (2014 - $27,400).

9. 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

(1) On July 25, 2014, the Company completed a brokered financing of 14,393,940 common shares at a price of £0.33 (CAD$0.605) per share for aggregate gross proceeds of £4,750,000 (CAD$8,610,601). Upon completion of this offering, the Company paid cash commissions to its broker, in the amount of £200,500 (CAD$366,153) and issued 90,909 common shares at a price of £0.33 (CAD$0.605) per share and 390,874 non-transferrable warrants ("Broker Warrants"). In addition, the Company paid its Nominated Advisor, a corporate finance fee in the amount of £80,000 (CAD$146,096) and issued 390,874 Broker Warrants. Each Broker Warrant entitles the holder to purchase one common share at a price of £0.33 (CAD$0.60) until expiry on the date that is five years from the date of issuance, being July 25, 2019. Included in the share issue costs are a total of $1,061,000 relating to the issuance of 781,748 warrants to the Company's brokers, all of which were exercised during the year. In relation to the private placement, the Company issued 90,909 shares to its advisor which were valued at $141,115 and included in share issue costs. The Company also had $295,071 of share issue costs relating to legal matters involved with the Company's private placement.

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 September 30, 2015.

(1) All options outstanding at June 30, 2015 and September 30, 2015 were exercisable.

d) Warrants

The fair value of these broker warrants issued during the period ended June 30, 2015 was determined at the date of grant using the Black-Scholes option pricing model with the assumptions as follows; risk-free interest rate of 1.91%, expected volatility of 109%, expected life of 5 years, which resulted in a fair value per option of $1.36.

The following tables summarize the activities and status of the Company's warrants as at and during the year ended June 30, 2015 and as at and during the period ended September 30, 2105.

e) Contributed surplus

The following table presents changes in the Company's contributed surplus.

f) Stock-based compensation expense

During the period ended September 30, 2015, the Company recognized $Nil (2014 - $55,000) 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 June 30, 2014 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 1.37%, expected volatility of 90%, and expected life of 5 years. The fair value of each stock option was $0.21. 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 85,049,583 for the period ended September 30, 2015 (2014 - 74,632,550). Options and warrants were excluded from the dilution calculation as they were anti-dilutive.

10. GENERAL AND ADMINISTRATIVE EXPENSES

The Company's general and administrative expenses include the following:

11. SEGMENTED INFORMATION

The Company currently operates in one operating segment, the exploration and development of mineral properties in Mexico. Management of the Company makes decisions about allocating resources based on the one operating segment. A geographic summary of the identifiable assets by country is as follows:

12. 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 period ended September 30, 2015, directors and management fees in the amount of $254,937 (2014 - $162,300) were paid to directors and officers of the Company. Of this amount, $Nil (2014 - $55,877) was capitalized to exploration and evaluation assets, and $254,937 (2014 - $106,423) was expensed as general and administrative costs. Of the total amount incurred as directors and management fees, $144,596 (2014 - $62,483) remains in accounts payables and accrued liabilities on September 30, 2015.

During the period ended September 30, 2015, the Company paid $18,263 (2014 - $17,060) to a daughter of the Chairman of the Board of Directors of the Company. These services were incurred in the normal course of operations for office administrative services. As of September 30, 2015, $6,000 (2014 - $Nil) remains in due to this related party.

During the period ended September 30, 2015, the Company paid $235,541 (2014 - $149,915) 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 services, as such the entire amount has been capitalized. As of September 30, 2015, $80,350 (2014 - $28,733) 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:

(1) Mr. Conroy resigned his positions as Director and VP, Special Projects on June 20, 2014. He remained with the Company as a consultant until October 31, 2014

13. COMMITMENTS AND CONTINGENCIES

The Company has commitments for lease payments for field office and camp with no specific expiry dates. The total annual financial commitment resulting from these agreements is $16,500.

The properties in Mexico are subject to spending requirements in order to maintain title of the concessions. The capital spending requirement for 2016 is $105,200. The properties are also subject to semi-annual payments to the Mexican government for concession taxes.

14. SUBSEQUENT EVENTS

On November 16, 2015, the Company announced that it has completed a private placement financing of approximately $17.8 million (£8.8 million) via the placing of 11,476,944 new common shares at a price of $ 1.55 (£0.77) per share.