BCN.L Regulatory News (BCN)

Bacanora Minerals Ltd

("Bacanora" or the "Company")

Financial Results for the Year Ended 30 June 2014

Bacanora is pleased to announce its audited annual financial results for the year ended 30 June 2014 and to provide an update for FY 2015. These results were prepared in line with International Financial Reporting Standards, and, unless otherwise specified amounts are expressed in Canadian dollars ("CAD$"). Condensed consolidated financial statements are included further below.

FY 2014 Events

Financial Highlights

· CAD$2.5million held in cash and in trust at year end;

· CAD$3.4million invested in exploration assetsand in the Company's pilot plant (the "Pilot Plant"); and 

· CAD$2.6million accumulated loss for the year, including a CAD$1.2million accounting write down of exploration assets at the Tubutama concessions.

Significant Mining Development Milestones

· Pilot Plant - commissioning of 150 tonne per day plant with circuits for the production of colemanite, boric acid and lithium carbonate.These samples have been used for on-going metallurgy and for discussions with potential off-take partners;

· 99.5% lithium carbonate - independently confirmed production of 99.5% purity lithium carbonate samples from the La Ventana and El Sauz concessions, suitable for use in electrical vehicle batteries; and

· 99% boric acid - independently confirmed production of 99% purity boric acidsamples from the El Cajon concession. This is a higher value end product than the colemanite assumed in the Company's 2013 preliminary economic assessment ("PEA").

On-going Exploration Activities and Mineral Resources

· Sonora Lithium - significant upgrade during the year to size of lithium reserves at La Ventana, El Sauz and Fleur concessions, and upgrade from "inferred" to "indicated". These deposits are estimated to host an indicated lithium resource of 196million tonnes ("mt") averaging 3,130 ppm lithium (1.67% lithium carbonate equivalent ("LCE")) or 3.26mt LCE.

o La Ventana - 37% increase in indicated mineral resources, using a base case cut-off of 2,000 ppm lithium, are 75mt averaging 3,174 ppm lithium (1.3mt of LCE). This is based on results from an additional six drill holes (for a total of 17 holes) and six trenches and a total of 590 samples; and

o El Sauz & Fleur - 35% increase in indicated mineral resources, using a base case cut-off of 2,000 ppm lithium, are 121mt averaging 3,120 ppm lithium (2.0mt of LCE). This is based on results from an additional 31 drill holes (for a total of 41 holes) and a total of 1,559 samples.

· Magdalena Borates - on-going work on the mine plan for Unit A at El Cajon. Initial test work on clays for suitability of use as commercial drilling muds.

Corporate Developments During the Period

· Completion of Rare Earth Minerals plc's ("REM") 30% investment in Bacanora's Mexilit subsidiary, which contains the El Sauz and Fleur lithium concessions; and

· Agreement with REM to acquire 30% of Bacanora's Megalit subsidiary, which contains the San Gabriel, Buenavista and Megalit lithium concessions.

FY 2015 Outlook

Financial Highlights

· CAD$12.5 million in cash and trust at 28 October 2014;

· admission to trading on AIM and successful placing of £4.75 million; and

· CAD$3.5million raised from the exercise of warrants and options, and from REM's completion of its 30% investment in the Megalit subsidiarysince the year end.

Sonora Lithium Pre-Feasibility Studies:

Significant drilling and exploration programme focussed primarily on the La Ventana property, but also on the Megalit and Mexilit concessions. This is part of the move from exploration to a full-scale lithium plant and mining operation. The pre-feasibility programme will include at least 5,000 metres of diamond core drilling and aims to achieve:

o infill drilling to determine detailed open-pit design and upgrade resource estimated from the 'indicated' to 'measured' resource category; 

o integrate drill results, along with a LiDAR topographic survey, into a mine plan for incorporation into pre-feasibility studies which will be used for the development of the deposit;

o step-out drilling to expand the known resources;

o drill testing targets developed through the mapping and prospecting programmeunderway on the Megalit concessions; and

o start of trenching at Buenavista to provide bulk clay samples for metallurgical testing.

Magdalena Borates Pre-Feasibility Studies

Further steps on the pre-feasibility programme at the El Cajon deposit expected to be completed in Q1 2015, including:

o infill diamond drilling and bulk sampling for metallurgical tests of Unit B;

o detailedfull-scale boric acid plant design and costing;

o revised mine plan; and

o initiation of environmental baseline studies and mine permitting.

Commercial Mining Plant Design

Hatch Pty Ltd appointed as engineering consultants to assist in design of a lithium carbonate plant capable of producing up to 50,000 tonnes per annum ("tpa"), and the design of boric acid plant capable of producing up to 25,000 tpa.

Commenting on the results, Colin Orr-Ewing, Chairman of Bacanora, said:

"2014 has been an exciting year in Bacanora's history, with significant progress having been made on the commercialisation of both our lithium and borates operations, as well as our successful listing on AIM. The successful test production of battery grade lithium carbonate and high value boric acid from the Pilot Plant is a demonstration of our commercial attractiveness. Our ongoing exploration efforts have increased our indicated lithium reserves by 37% to 196 mt. We are continuing to build on these successes as we head into 2015, with pre-feasibility studies being undertaken to obtain engineering designs capable of producing up to 50,000 tpa of lithium carbonate and up to 25,000 tpa of boric acid. We look forward to updating shareholders on these initiatives."

The financial statements and the accompanying management's discussion and analysis("MD&A") are available for review at the Company's website www.bacanoraminerals.com, as well as being available on www.sedar.com, and should be read in conjunction with this press release. Copies of the financial statements and accompanying MD&A will be posted to shareholders in due course.

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 covers ten mining concession areas in North East Sonora state. The Company, through drilling work to date, has established a National Instrument 43-101 - Standards of Disclosure for Mineral Projects ("NI 43-101") compliant Indicated Resource of 3.26 mt of lithium carbonate equivalent at a 2,000 ppm cut-off grade; and 

· The Magdalena Borate Project in Sonora state, Mexico, where the Company's main borate zone, El Cajon, has a NI 43-101 compliant Indicated Resource 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.

Condensed Consolidated Financial Statements

Consolidated Statements of Financial Position, expressed in Canadian Dollars

Consolidated Statements of Comprehensive Loss, expressed in Canadian Dollars

Consolidated Statements of Changes in Shareholder's Equity, expressed in Canadian Dollars

Consolidated Statements of Comprehensive Loss, expressed in Canadian Dollars

Notes to the Consolidated Financial Statements

These notes are selective, full notes to the financial statements can be found on the website at www.bacanoraminerals.com or www.sedar.com .

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 listed on the TSX Venture Exchange as a Tier 2 issuer and its common shares trade under the symbol, "BCN". The address of the Company is Suite 1800, 510 - 5th Street SW, 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 $1,750,287 (2013 - $2,968,231) and the shareholders' equity of its 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 financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB").

The audited annual financial statements were authorized for issue by the Board of Directors on October 28, 2014. The Board of Directors has the power and authority to amend these financial statements after they have been issued.

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.

3. SIGNIFICANT ACCOUNTING POLICIES

The preparation of consolidated financial statements in compliance with IFRS requires management to make certain critical accounting estimates. It also requires management to exercise judgment in applying the Company's accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 4.

a) Basis of consolidation

The consolidated financial statements comprise the financial statements of the Company, 70% of its subsidiary, Mexilit S.A. de C.V. ("Mexilit"), 90% of its subsidiary, Minera Megalit S.A de C.V. ("Megalit"), and through its wholly-owned subsidiary, Mineramex Limited, 99.9% of Minera Sonora Borax, S.A. de C.V. ("MSB"), and 60% of Minerales Industriales Tubutama, S.A. de C.V. ("MIT"). Subsidiaries are consolidated from the date of acquisition, being the date on which the Company obtains control, and continue to be consolidated until the date when such control ceases. The financial statements of the subsidiary are prepared for the same reporting period as the parent company, using consistent accounting policies. All intercompany balances and transactions are eliminated in full. Losses within a subsidiary are attributed to the non-controlling interest even if that results in a deficit balance. A change in ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction.

b) Foreign currency

(i) Functional currency: 

These consolidated financial statements are presented in Canadian dollars, which is the Company's presentation currency. Each entity in the group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. The parent company has a Canadian dollar functional currency and its subsidiaries have a US dollar functional currency.

(ii) Transactions and balances: 

Transactions in foreign currencies are initially recorded in the functional currency of the entity at the rate in effect at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency spot rate of exchange in effect at the reporting date.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction. All exchange differences are recorded in net income (loss) for the period.

(iii) Translation to presentation currency: 

The results and balance sheet of the subsidiary are translated to the presentation currency as follows:

Assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;

Share capital is translated using the exchange rate at the date of the transaction; revenue and expenses for each statement of comprehensive income (loss) are translated at average exchange rates; and all resulting exchange differences are recognized in other comprehensive income (loss) in the consolidated statements of comprehensive loss.

The Company treats specific inter-company loan balances, which are not intended to be repaid in the foreseeable future, as part of its net investment in a foreign operation and any resulting exchange difference on these balances is recorded in other comprehensive loss. When a foreign entity is sold, such exchange differences are reclassified to income (loss) in the consolidated statements of comprehensive income (loss) as part of the gain or loss on sale.

c) Cash

Cash is comprised of cash held in trust and other short-term, highly liquid investments with original maturities of three months or less with a Canadian chartered bank and a Mexican bank. These deposits and investments are readily convertible to known amounts of cash and subject to an insignificant risk of change in value.

d) Exploration and evaluation assets

Costs incurred prior to acquiring the right to explore an area of interest are expensed as incurred.

Exploration and evaluation assets are intangible assets. Exploration and evaluation assets represent the costs incurred on the exploration and evaluation of potential mineral resources, and include costs such as exploratory drilling, sample testing, activities in relation to the evaluation of technical feasibility and commercial viability of extracting a mineral resource, and general and administrative costs directly relating to the support of exploration and evaluation activities. The Company assesses exploration and evaluation assets for impairment when facts and circumstances suggest that the carrying amount may exceed its recoverable amount. The recoverable amount is the higher of the assets fair value less costs to sell and value in use. Assets are allocated to cash generating units not larger than operating segments for impairment testing.

Purchased exploration and evaluation assets are recognized as assets at their cost of acquisition or at fair value if purchased as part of a business combination. They are subsequently stated at cost less accumulated impairment. Exploration and evaluation assets are not amortized. Where the Company's exploration commitments for a mineral property are performed under option agreements with a third party, the proceeds of option payments under such agreements are applied to the mineral property to the extent costs are incurred. The excess, if any, is recorded to the statement of loss. Asset swaps are recognized at the carrying amount of the asset being swapped when the fair value of the assets cannot be determined.

Once the work completed to date on an area of interest is sufficient such that the technical feasibility and commercial viability of extracting the mineral resource has been determined, the property is considered to be a mine under development. Exploration and evaluation assets are tested for impairment before the assets are transferred to development property, capitalized expenditure is transferred to mine development assets or capital work in progress.

e) Property and equipment

Property and equipment is carried at cost less accumulated amortization and accumulated impairment losses. The cost of an item of property and equipment consists of the purchase price and any costs directly attributable to bringing the asset to the location and condition necessary for its intended use and an estimate of the costs of dismantling and removing the item and restoring the site on which it is located.

Amortization is provided at rates calculated to expense the cost of property and equipment, less their estimated residual value, using the straight-line method over a five year period.

The assets' residual values, useful lives and methods of depreciation are reviewed at each financial year-end, and adjusted prospectively if appropriate.

f) Rehabilitation provision

The Company recognizes provisions for contractual, constructive or legal obligations, including those associated with the reclamation of mineral interests (exploration and evaluation assets) and plant and equipment, when those obligations result from the acquisition, construction, development or normal operation of the assets. Initially, a provision for the rehabilitation is recognized at its present value in the period in which it is incurred. Upon initial recognition of the liability, the corresponding provision is added to the carrying amount of the related asset and the cost is amortized as an expense over the economic life of the asset. Following the initial recognition of the rehabilitation provision, the carrying amount of the liability is increased for the passage of time and adjusted for changes to the current market-based discount rate, and amount or timing of the underlying cash flows needed to settle the obligation.

g) Provisions

Provisions are recognized when the Company has a present obligation (legal or constructive) that has arisen as a result of a past event and it is probable that a future outflow of resources will be required to settle the obligation, provided that a reliable estimate can be made of the amount of the obligation.

Provisions are measured at management's best estimate of the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risk specific to the obligation. The increase in any provision due to passage of time is recognized as accretion expense.

h) Interest income

Interest income is recorded on an accrual basis using the effective interest method.

i) Financial instruments

Financial assets and financial liabilities are recognized when the Company becomes a party to the contractual provisions of the financial instrument. Financial assets are derecognized when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and all substantial risks and rewards are transferred. A financial liability is derecognized when it is extinguished, discharged, cancelled or expires.

Financial assets and financial liabilities are measured initially at fair value plus transaction costs, except for financial assets and liabilities carried at fair value through profit or loss, which are measured initially at fair value. Financial assets and financial liabilities are subsequently measured as described below.

(i) Financial assets

For the purpose of subsequent measurement, financial assets are classified into the following categories upon initial recognition:

· loans and receivables;

· financial assets at fair value through profit or loss;

· held-to-maturity investments; and

· available-for-sale financial assets

The category determines how the asset is subsequently measured and whether any resulting income or expense is recognized in profit or loss or in other comprehensive income.

All financial assets except for those at fair value through profit or loss are subject to review for impairment at least at each reporting date. Financial assets are considered impaired when there is objective evidence that a financial asset or a group of financial assets has been impaired.

i. Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, and which the Company does not intend to sell immediately or in the near term, are not designated upon initial recognition as available for sale, nor for which the Company may not recover substantially all of its initial investment. After initial recognition these are measured at amortized cost using the effective interest method, less provision for impairment.

Loans and receivables comprise cash, cash held in trust, and accounts and related party receivables.

(ii) Financial liabilities

Financial liabilities are measured subsequently at amortized cost using the effective interest method, except for derivatives, financial liabilities held for trading or designated at fair value through profit or loss, that are carried subsequently at fair value with gains and losses recognized in profit or loss. The effective interest method is a method of calculating the amortized cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period.

The Company's financial liabilities measured at amortized cost include accounts payables and accrued liabilities and due to related parties. The Company currently does not have any financial liabilities classified as held for trading or designated at fair value through profit or loss.

j) Impairment of assets

(i) Financial assets

A financial asset that is not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably. An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset's original effective interest rate. The amount of the impairment loss is recognized in profit or loss. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through profit or loss, unless the impairment relates to an equity investment.

(ii) Non-financial assets

At the end of each reporting period, the Company reviews the carrying amounts of its tangible and intangible assets to determine whether there is an indication that the assets are impaired. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment, if any. Where the asset does not generate largely independent cash

inflows, the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs. A cash-generating unit is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets.

Recoverable amount is the higher of fair value less costs to sell, and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessment of the time value of money and the risks specific to the asset.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognized in profit or loss.

An impairment loss recognized in respect of a cash-generating unit is allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit and then to reduce the carrying amount of the other assets in the cash-generating unit on a pro-rata basis.

With the exception of goodwill, all assets are subsequently reassessed for indications that an impairment loss previously recognized may no longer exist. Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but to an amount that does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (or cash-generating unit) in prior periods. A reversal of an impairment loss is recognized in profit or loss.

k) Income taxes

Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in comprehensive loss.

Current income tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.

Deferred income taxes are calculated based on temporary differences between the carrying amounts of assets and liabilities and their tax bases. However, deferred tax is not recognized on the initial recognition of goodwill, on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss at the time of the transaction, and on temporary differences relating to investments in subsidiaries and jointly controlled entities where the reversal of these temporary differences can be controlled by the Company and it is probable that reversal will not occur in the foreseeable future.

Deferred income tax assets and liabilities are measured, without discounting, at the tax rates that are expected to apply when the assets are recovered and the liabilities settled, based on tax rates that have been enacted or substantively enacted by the reporting date.

A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilized.

Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow the related tax benefit to be utilized.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to set off current tax assets against current tax liabilities, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different taxable entities which intend either to settle current tax liabilities and assets on a net basis, or to realize the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities and assets are expected to be settled or recovered.

l) Earnings (loss) per share

Basic loss per share is calculated by dividing the loss attributable to the common shareholders of the Company by the weighted average number of common shares outstanding during the reporting period. Diluted earnings per share is calculated by adjusting the loss attributable to common shareholders and the weighted average number of common shares outstanding for the effects of all dilutive potential common shares, which comprise share options and warrants granted.

m) Stock-based payments

i) Stock-based payment transactions

The Company grants stock options to acquire common shares to directors, officers and employees ("equity-settled transactions"). The Board of Directors determines the specific grant terms within the limits set by the Company's stock option plan. The Company's stock-based payment plan does not feature any option for a cash settlement.

ii) Equity-settled transactions

The costs of equity-settled transactions are measured by reference to the fair value at the grant date and are recognized, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant persons become fully entitled to the award (the "vesting date"). The cumulative expense recognized for equity-settled transactions at each reporting date until the vesting date reflects the Company's best estimate of the number of equity instruments that will ultimately vest. The profit or loss charge or credit for a period represents the movement in cumulative expense recognized as at the beginning and end of that period and the corresponding amount is represented in share option reserve. No expense is recognized for awards that do not ultimately vest.

Where the terms of an equity-settled award are modified, the minimum expense recognized is the expense as if the terms had not been modified. An additional expense is recognized for any modification which increases the total fair value of the stock-based payment arrangement, or is otherwise beneficial to the employee as measured at the date of modification.

Where equity-settled transactions are awarded to employees, the fair value of the options at the date of grant is charged to profit or loss over the vesting period. Performance vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each reporting date so that, ultimately, the cumulative amount recognized over the vesting period is based on the number of the options that will eventually vest.

Where equity-settled transactions are entered into with non-employees and some or all of the goods or services received by the entity as consideration cannot be specifically identified, they are measured at the fair value of the equity instruments issued. Otherwise, stock-based payments to non-employees are measured at the fair value of the goods or services received.

Upon exercise of stock options, the proceeds received are allocated to share capital along with any value previously recorded in share option reserve relating to those options. The dilutive effect of outstanding options is reflected as additional dilution in the computation of diluted earnings per share.

n) Related party transactions

Parties are considered related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered related if they are subject to common control. Related parties may be individuals or corporate entities. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties.

o) Segment reporting

The Company is in the business of mining in Mexico. Management has organized the Company's reportable segments by geographic area. The Mexican segment is responsible for that country's mining exploration activities while the Canadian segment manages corporate head office activities.

p) Standards, amendments and interpretations not yet effective

At the date of authorization of these financial statements, certain new standards, amendments and interpretations to existing standards have been published but are not yet effective, and have not been adopted early by the Company.

Management anticipates that all of the pronouncements will be adopted in the Company's accounting policy for the first period beginning after the effective date of the pronouncement. Information on new standards, amendments and interpretations that are expected to be relevant to the Company's financial statements are provided below.

i) IFRS 7, Financial Instruments: Disclosures

IFRS 7 requires disclosure of both gross and net information about financial instruments eligible for offset in the balance sheet and financial instruments subject to master netting arrangements. Concurrent with the amendments to IFRS 7, the IASB also amended IAS 32, Financial Instruments: Presentation to clarify existing requirements for offsetting financial instruments in the statement of financial position. The amendments to IAS 32 are effective for periods beginning on or after January 1, 2014.

ii) IFRS 9, Financial Instruments

IFRS 9 reflects the first phase of the IASB's work on the replacement of IAS 39 Financial Instruments, Recognition and Measurement. The standard revises and limits the classification and measurement models available for financial assets and liabilities to amortized cost or fair value. IFRS 9 is effective for annual periods beginning on or after January 1, 2018. The Company is currently assessing the impact of the new standard on its financial statements, but does not anticipate that the adoption of the standard will have a significant impact.

iii) IAS 36, Impairment of Assets

IAS 36 was amended in May 2013. This standard reduces the circumstances in which the recoverable amount of CGUs is required to be disclosed and clarify the disclosures required when

an impairment loss has been recognized or reversed in the period. The amendments to IAS 36 are effective for periods beginning on or after January 1, 2014.

4. 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 management's best estimate. This 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. For the current year these transactions include 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.

5. 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. The Company believes that the amount due from the related party is collectible, however as the amount has not been collected subsequent to year end its recoverability is uncertain as it is dependent on the outcome of future events which are inherently uncertain. 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. As at June 30, 2014, a 5% change in the exchange rate between the Canadian dollar, Mexican peso and US dollar would have an approximate $87,000 (2013 - $7,000) 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.

6. 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 $12,211,554 at June 30, 2014 (2013 - $10,714,725), 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. The Company does not expect to enter into any debt financing at this time. The Board of Directors does not establish a quantitative return on capital criteria for management; but rather promotes year over year exploration and development growth. The Company will be meeting its objective of managing capital through its detailed review and preparation of both short-term and long-term cash flow analysis and monthly review of financial results.

7. PROPERTY AND EQUIPMENT

8. 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 six mining concessions with a total area of 1,661 hectares. The concessions are located 15 kilometers from the town of Tubutama, and are 100% owned by MIT. 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 16,503 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. The five Mexilit concessions consist of El Sauz, El Sauz 1, El Sauz 2, Fleur and Fleur 2 and cover, in total 5,325 hectares. Mexilit is owned 70% by Bacanora and 30% by REM. REM made payment of $2,250,000USD ($2,384,775CAD) to acquire the 30% interest in Mexilit this year of which $500,000USD was received in the prior year and was recorded as mineral property deposit. In total, $1,500,000USD of the proceeds from REM was restricted for expenditure on the Mexilit concessions. REM's option to earn up to 49.9% of Mexilit under terms yet to be agreed upon expired subsequent to the year end. The remaining three concessions, Buenavista, Megalit and San Gabriel, cover 96,964 hectares, and are subject to a separate agreement between the Company and REM. Under the Megalit agreement, REM has earned the 10% interest in Megalit in the year with a payment of $750,000USD ($829,350CAD) of which $250,000USD was restricted for expenditure on the Megalit concessions. Refer to note 16 regarding REM's acquisition of additional 20% of the common shares of Megalit subsequent to June 30, 2014 for $1,500,000USD of which $500,000USD ($544,400CAD) was received before June 30, 2014 and is presented as a mineral property deposit. 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 in a loss of control and as such have been accounted for as equity transactions.

The balance of investment in mining claims as of June 30, 2014 and 2013 corresponds to concession payments to the federal government, deferred costs of exploration and paid salaries, and consists of the following: