BCN.L Regulatory News (BCN)

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

Interim Report

for the six month period ended 30 June 2021

Bacanora Lithium Plc, (AIM: BCN) the lithium development and exploration company, is pleased to announce its unaudited interim financial results for the six months ended 30 June 2021. Below are selected highlights from the interim report, which can be found on the Company website.

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

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

· On 8 February 2021, Bacanora completed a successful placing and retail offer which raised gross proceeds of £48.1 million (US$66.3 million) through the issue of a total of 106,995,885 new ordinary shares at a price of 45 pence per placing share.

· In addition to the placing and retail offer, Ganfeng Lithium Co., Ltd. ("Ganfeng"), Bacanora's cornerstone investor and offtake partner, exercised its pre-emption right at the placing price and increased its holding in the Company on 26 May 2021. Ganfeng subscribed for a total of 53,333,333 new ordinary shares at the placing price of 45 pence per share, representing gross proceeds of £24.0 million (US$33.9 million). On completion of Ganfeng's investment, Bacanora has 384,144,901 shares in issue and Ganfeng has an ownership stake of 28.88% at the reporting date.

· Ganfeng completed its option to increase its stake in Sonora Lithium Ltd ("SLL") from 22.5% to 50% (the "Option") on 26 February 2021. SLL is the operational holding company for the Sonora Project. Consequently, Ganfeng have subscribed for 73,955,680 new ordinary shares in SLL at 29.59 pence at a total value of £21.9 million (US$30.4 million). On completion of the transaction, a revised 50:50 Joint Venture Agreement ("JVA") came into force, whereby each party is responsible for their portion of the Project capex.

· After review of the provisions of the revised JVA, the Company has assessed that Bacanora now has joint control over SLL and its subsidiaries (the "Sonora Lithium Group"). Therefore, in the Group financial statements, the Group no longer consolidates the Sonora Lithium Group and instead recognises its investment in the Sonora Lithium Group.

· Due to the passage of time from the initial US$150 million debt facility agreement in July 2018 with RK Mine Finance ("RK"), Bacanora and RK signed a non-binding indicative term sheet to amend certain terms during the period. The Company and RK were in discussions for a number of months with a view to agreeing updated legally binding terms and documentation. However, due to extension fee considerations and the limited availability period for an extension post the expiry date of 18 June 2021, the Company and RK have agreed that the remaining undrawn facility, amounting to US$125 million, will no longer be available for draw down. The Company will continue to engage with RK as well as seek alternative terms with other debt providers in light of the current favourable debt market conditions. The first tranche of the RK debt facility, US$25 million, was drawn down in July 2018 and Bacanora will maintain this first tranche in accordance with the existing terms of the debt facility.

· Bacanora and its subsidiaries (the "Group") has a strong consolidated cash balance of US$130.7 million as at 30 June 2021. Together with the cash in Sonora Lithium Group of US$29.9 million, the total aggregated cash balance amounted to US$160.6 million as at 30 June 2021.

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

· On 6 May 2021, Bacanora and Ganfeng announced that they had entered into an agreement regarding the terms of a possible cash offer by Ganfeng for the entire issued and to be issued share capital of Bacanora that Ganfeng does not already own.

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

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

· Whilst COVID-19 has impacted the Company and its partners, work to complete the front-end engineering design ("FEED") has continued throughout the period, with GR Engineering Services ("GRES") completing the front-end concentrator and mechanical engineering and Ganfeng completing its flow sheet design testwork for the production of battery-grade lithium from the samples provided by the pilot plant.

· Ganfeng is continuing to work with its suppliers and, along with the Company, is maintaining its previously advised project delivery schedule with first lithium production in H2 2023. The project delivery schedule includes the first equipment deliveries from China arriving in Mexico in Q2 2022.

· Rescue and removal of surface vegetation and topsoil in the area required for the construction of the lithium processing plant have been completed. Plant site location survey, geotechnical, and hydrogeological works have also been completed.

· As a result of COVID-19 related travel restrictions, site works for bulk earthworks, civil engineering, and pouring foundations have been rescheduled to Q4 2021.

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

· In June 2021, Zinnwald, Bacanora's associate company, acquired the remaining 50% of Deutsche Lithium GmbH ("DL") that it did not already own for a total consideration of €8.8 million consisting of a cash payment of €1.5 million and the issue of approximately 50 million new shares in Zinnwald (the "DL Acquisition").

· DL is developing the Zinnwald Project in Germany. The DL Acquisition gives Zinnwald full ownership and operational control of the Zinnwald Project and is in line with its corporate objective to become a key supplier to the European lithium market. On completion of the acquisition, Bacanora's shareholding in Zinnwald decreased to 35.5% from an initial holding of 44.3%. Bacanora maintains its right to appoint one director to the board of Zinnwald.

Peter Secker, CEO of Bacanora, commented:

During the first half of the year, the Company achieved one of its major milestones to date being the successful conclusion of the £48 million equity fundraise. This financing, combined with the £24 million funds raised from Ganfeng exercising its pre-emption rights, ensures the Company now has sufficient funds to support the short-term funding requirements and the construction programme for the next 15 months.

Alongside our 50% JV partner and major shareholder, Ganfeng, this fundraise has allowed the Company to begin the move into the construction phase in Mexico. I am pleased to report that preliminary topsoil and earthworks have now been completed alongside geotechnical work ahead of the main earthworks. This is a credit to our team in country who have been able to achieve these early workstreams despite the travel restrictions caused by the global pandemic.

The second half of the year will see early initial earthworks to prepare the site for construction activities and commencement of building the construction camp and ancillary facilities.

I would like to thank our teams in Mexico and the UK for their commitment to our objective of unlocking substantial value for stakeholders through the development of the Sonora Project

For further information please visit www.bacanoralithium.com or contact:

This announcement contains inside information as defined in Article 7 of the Market Abuse Regulation No. 596/2014 ("MAR"). Upon the publication of this Announcement, this inside information is now considered to be in the public domain.

Notes to editors

Bacanora Lithium Plc is an AIM-listed (ticker 'BCN') lithium development company. The Company is focused on building, in collaboration with its major shareholder and offtake partner, Ganfeng Lithium (the world's largest lithium metals producer), a 35,000 tonne per annum open pit lithium carbonate operation at its flagship asset, the Sonora Lithium Project in Mexico. The Sonora Lithium Project has 8.8 million tonnes of lithium carbonate (Li2CO3) equivalent resources, with an approximate 250-year resource life, as detailed in its December 2017 Feasibility Study.

Sonora Lithium Ltd ("SLL") is the operational holding company for the Sonora Lithium Project and owns 100% of the La Ventana concession. The La Ventana concession accounts for 88% of the mined ore feed in the Sonora Feasibility Study which covers the initial 19 years of the project mine life. SLL is owned 50% by Bacanora and 50% by Ganfeng Lithium Co., Ltd. SLL also owns 70% of the El Sauz and Fleur concessions. 

Bacanora also owns 35.5% of Zinnwald Lithium Plc (AIM: ZNWD), which in turn owns the Zinnwald Lithium Project and the Falkenhain, Altenberg and Sadisdorf Licences in southern Saxony, Germany.

Cautionary Statement Regarding Forward-Looking Information

Except for statements of historical fact, this news release contains certain "forward-looking information" within the meaning of applicable securities law. Forward-looking information is frequently characterized by words such as "plan", "expect", "project", "intend", "believe", "anticipate", "estimate" and other similar words, or statements that certain events or conditions "may" or "will" occur. Although we believe that the expectations reflected in the forward-looking information are reasonable, there can be no assurance that such expectations will prove to be correct. We cannot guarantee future results, performance or achievements. Consequently, there is no representation that the actual results achieved will be the same, in whole or in part, as those set out in the forward-looking information.

Forward-looking information is based on the opinions and estimates of management at the date the statements are made, and are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those anticipated in the forward-looking information. Some of the risks and other factors that could cause the results to differ materially from those expressed in the forward-looking information include, but are not limited to: commodity price volatility; general economic conditions in the UK, the United States, Mexico, Germany and globally; industry conditions, governmental regulation, including environmental regulation; unanticipated operating events or performance; failure to obtain industry partner and other third party consents and approvals, if and when required; the availability of capital on acceptable terms; the need to obtain required approvals from regulatory authorities; stock market volatility; competition for, among other things, capital, skilled personnel and supplies; changes in tax laws; and the other risk factors disclosed under our profile on SEDAR at www.sedar.com. Readers are cautioned that this list of risk factors should not be construed as exhaustive.

The forward-looking information contained in this news release is expressly qualified by this cautionary statement. We undertake no duty to update any of the forward-looking information to conform such information to actual results or to changes in our expectations except as otherwise required by applicable securities legislation. Readers are cautioned not to place undue reliance on forward-looking information.

Important notice

The contents of this announcement have been prepared by and are the sole responsibility of Bacanora.

Chairman Statement

Dear Stakeholders,

It is with great pleasure that I update you, our valued stakeholders, on Bacanora Lithium's most recent developments through this half year review. The first six months of the 2021 financial year have proved an active and highly productive period for the advancement of our flagship Sonora Lithium Project in Mexico.

We achieved one of our most significant milestones to date being the successful equity fund raising for our share of the capital cost requirements for the Phase 1 development of the Sonora Project, with gross proceeds of £48.1 million (US$66.3 million) in February 2021. Furthermore, Ganfeng exercised its pre-emption rights and increased its shareholding in Bacanora to 28.88%, which raised a further £24.0 million (US$33.9 million) in May 2021. The Company now has sufficient funds to support the short-term funding requirements and the construction programme for the next 15 months.

On the subject of financing, it should be mentioned that Bacanora has been in discussions with RK regarding the US$150 million debt facility that was secured in July 2018. Due to extension fee considerations and the limited availability period for an extension, the Company and RK have agreed that the remaining undrawn facility of US$125 million will no longer be available for draw down. The Company will continue to engage with RK as well as seek alternative terms with other debt providers in light of the current favourable debt market conditions.

The second pivotal development was the negotiation of a new JVA with our cornerstone investor Ganfeng, which enabled it to increase its stake in SLL, the operational holding company of the Sonora Project, from 22.5% to 50%. Following approval of the deal, SLL's board was restructured to comprise two Bacanora appointed directors and two Ganfeng appointed directors, with the chairman being one of the Bacanora directors. Bacanora has remained the operator of the Project, while Ganfeng continues to be responsible for leading certain engineering, procurement and construction ("EPC") activities including the battery-grade lithium hydrometallurgical plant.

This deal was a positive reiteration of Ganfeng's commitment not only to the development and commissioning of the Sonora Project but also of the Project's quality and potential. This transaction resulted in the investment of US$30.4 million into SLL, which not only assisted in bolstering SLL's financial position as it heads towards the start of construction but also further de-risking the Project and reducing the equity demands on Bacanora's own shareholders to fund Phase 1 of the Project.

During this period under review, the initial site works commenced at the Sonora Project, including initial environmental site activities in preparation for the construction of the mine and processing plant and development of associated infrastructure. Plant site location survey, geotechnical, and hydrogeological works have been completed. The rescue and removal of surface vegetation and topsoil in the area required for the construction of the lithium processing plant has also been completed. These activities, undertaken by a team of 15 personnel including two ecologists, a biologist, and a forestry engineer, were performed in compliance with obligations contained within the Project's environmental approvals. We are pleased to report that the majority of these personnel were local to the area.

Parallel to these activities, preparatory work required to upgrade the main access road to the site commenced in preparation for providing access for heavy equipment to begin the bulk site earthworks later in the year. Similarly, construction of site accommodation and ancillary facilities also got underway.

Not only are these activities a milestone in the Project's story but they are significant achievements against the backdrop of COVID-19 related uncertainty and disruption that continued to influence the macro socio-economic landscape in the first half of 2021. It is a testament to the determination and commitment of the Bacanora team that we were able to forge ahead, despite those challenges, with our objective of unlocking substantial value for stakeholders through the development of the Sonora Project.

The Company's priority remains the health and well-being of its staff, partners and Project stakeholders; Bacanora and the Project team continue to take all appropriate measures to protect them in accordance with the relevant governmental and regional requirements and at the same time mitigate the impact of COVID-19 safety protocols on Project construction.

Since becoming a cornerstone investor in October 2019, Ganfeng's expertise in lithium battery chemistry and construction has been critical for the metallurgical testwork for the project. Throughout this process, Bacanora has continued to supply Ganfeng with ore samples from Sonora for modelling and optimisation of the process design ahead of the eventual commercial volumes in 2023.

We are pleased to have begun the early initial surface work to prepare the site for construction activities and are grateful to our team for their ability to perform these workstreams during a global pandemic. We look forward to updating shareholders on the early construction activities.

Mark Hohnen, Chairman

08 September 2021

Corporate and operations review

Group structure and financing

The period to date has seen several developments with regards to the fulfilment of the Company's strategic objectives. The Company's primary focus has been to complete the design and funding required to construct the Sonora Project.

The Company has made significant progress in funding the Sonora Project. Ganfeng initially invested in the Group in 2019 through its initial subscription for 29.99% share in Bacanora Lithium Plc and acquisition of a 22.5% stake in SLL, the operational holding company for the Sonora Project. In February 2021, Ganfeng completed its option to increase its stake in SLL to 50%. Ganfeng purchased 73,955,680 new ordinary shares in SLL at 29.59p at a total value of £21.9 million (US$30.4 million). On completion, a new JVA came into force, which replaces the original joint venture agreement. Ganfeng now owns 50% of the enlarged issued capital of SLL and will be responsible for funding its 50% pro rata share of the development cost of the Sonora Project. The funds received from the exercise of Ganfeng's option will be applied towards the development of the Project. The board of SLL comprises two Bacanora appointed directors and two Ganfeng appointed directors, with the chairman being one of the Bacanora directors. Bacanora will remain as the operator of the Project, while Ganfeng will be responsible for leading certain EPC activities associated with the Project. As a result of this change in shareholding in SLL and the terms of the new JVA, Bacanora has been assessed as having joint control of the Sonora Lithium Group.

In order to fund Bacanora's share of the Project's capital expenditure, the Company completed a successful placing and retail offer in February 2021. The placing and retail offer raised gross proceeds of £48.1 million (US$66.3 million) through the issue of a total of 106,995,885 new ordinary shares at a placing price of 45 pence per share. Furthermore, on 26 May 2021 Ganfeng completed its pre-emption right to increase its shareholding in the Company. Ganfeng subscribed for a total of 53,333,333 new ordinary shares at the placing price of 45 pence per share, representing gross proceeds of £24.0 million (US$33.9 million). Consequently, at the reporting date the Company had 384,144,901 shares in issue of which Ganfeng own 28.88%.

Recognising the passage of time from the initial US$150 million debt facility agreement with RK entered into in July 2018, Bacanora and RK signed a non-binding indicative term sheet to amend certain terms to extend the facility during the period. The Company and RK were in discussions for a number of months with a view to agreeing legally binding terms and documentation. However, due to extension fee considerations and the limited availability period for an extension post the expiry date of 18 June 2021, the Company and RK have agreed that the remaining undrawn facility, amounting to US$125 million, will no longer be available for draw down. The first tranche of US$25 million of the RK debt facility, will be retained with the existing terms of the debt facility. The Company will continue to engage with RK as well as seek alternative terms with other debt providers in light of the current favourable debt market conditions.

With a consolidated Group cash balance of US$130.7 million and an aggregated cash balance (including cash of US$29.9 million in Sonora Lithium Group) of US$160.6 million as at 30 June 2021, the Company has sufficient funds to support the short-term funding requirements and its share of the ongoing construction programme for the next 15 months. Bacanora's existing cash balance will cover a significant portion of the capital cost requirements for the Company's 50% share of the Project. Replacement of the US$125 million debt facility, which is no longer available to the Company, will be the final part of the Project financing package. Any further debt financing is subject to Board approvals from both prospective debt providers and the Company and entering into definitive legal agreements with each other.

Recommended cash offer for Bacanora

On 6 May 2021, Bacanora and Ganfeng announced that they had entered into an agreement regarding the terms of a possible cash offer by Ganfeng for the entire issued and to be issued share capital of Bacanora that Ganfeng does not already own. Please see the announcement on the Company's website for further details1.

On 25 August 2021, the Bacanora Independent Directors and the Ganfeng Board announced that they had reached agreement on the terms of a recommended cash offer to be made by Ganfeng for the entire issued and to be issued ordinary share capital of Bacanora not already owned by Ganfeng. The full announcement of the recommended firm offer is available on the Company's website2.

In addition to the recommended cash offer the Bacanora Board also intend to make a conditional distribution in specie, comprising the shares in Zinnwald currently owned by Bacanora, to all Bacanora shareholders (including Ganfeng) on the record date, being the date the Offer becomes or is declared unconditional. The distribution is subject to various conditions including approval by the shareholders of a reduction of share premium to create distributable reserves, approval by the High Court of the reduction, approval by RK, the Offer becoming or being declared unconditional and expiry of certain lock in restrictions over the Zinnwald shares. The making of the distribution, and the transfer of the Zinnwald shares, will, in any event, occur no earlier than 30 October 2021. None of the conditions are capable of being waived by the Company. Please see the announcement on the Company's website for further details.3

Zinnwald acquisition

In June 2021, Zinnwald, an associate company, completed its strategic acquisition of the 50% of DL that it does not already own from the estate of SolarWorld Aktiengesellschaft, for a total consideration of €8.8 million, settled by a cash payment of €1.5 million and the issue of approximately 50 million new ordinary shares of 1 pence each4 in Zinnwald. The DL Acquisition gives Zinnwald full ownership and operational control of the Zinnwald Project in Germany. On completion of the DL Acquisition, Zinnwald's issued share capital consisted of 255,105,953 Ordinary Shares with one voting right each. Bacanora's shareholding in Zinnwald continues to be 90,619,170 shares representing a dilution in shareholding from the initial holding of 44.3% to 35.5%. Bacanora maintains its right to appoint one Director to the Board of Zinnwald.

Sonora Project

A significant amount of preparatory work for the plant site was completed during the period including plant site location survey, geotechnical, and hydrogeological works. Vegetation and topsoil rescue for the plant site has been completed. The work to protect the flora at the plant site area was completed in Q2 2021. The Sonora Lithium Group relocated the flora and is working to ensure that vegetation formerly located at the plant site is preserved. The majority of the workforce for this work has been employed from the local Bacadehuachi area.

Test well construction and pumping tests were completed in the period. This work enables the hydrological model to be validated for the selected site so that design of the permanent well can begin to supply process water for the site.

The Sonora Lithium Group has completed the purchase of 1,173 hectares of land for the new plant site location at Las Perdices in July 2021, with the payment of the remaining US$0.3 million consideration. This payment was in addition to US$0.2 million initial instalment made in July 2018 and a second instalment of US$0.1 million in December 2020.

The Sonora Project's priority remains the health and well-being of staff, partners and its local communities. The Sonora Lithium Group continue to take all appropriate measures to protect them in accordance with the relevant governmental and regional requirements. In August 2021, Sonora was in the Orange (High) traffic light level of risk5, meaning essential and non-essential labour activities are permitted but with certain limitations, and always following safety protocols6.

Site works for bulk earthworks, civil engineering, and pouring foundations have been rescheduled to Q4 2021, in light of the current travel restrictions. Bacanora continues to work with its joint venture partner, Ganfeng, to mitigate the impact of COVID-19 safety protocols on project construction, optimising work rotations and reducing accommodation population density. By extending work rosters for employees and contractors, the Sonora Lithium Group hopes to provide more time for contractors to be on-site, whilst enabling camp accommodation optimisation. This will ensure room sizes and staffing levels meet the new COVID-19 social distancing requirements.

Work to finalise the FEED is ongoing with experienced engineering groups. The plant is split into three sections. Engineering for the front-end ore concentrator and mechanical processing is led by GRES. GRES has completed its concentrator design work and will integrate this into the overall project scope. The pyrometallurgical engineering, primarily for the kiln design, is being engineered by an international manufacturer of industrial kilns. The hydrometallurgical plant, including the production of the final battery-grade lithium product, will be engineered by Ganfeng themselves due to their proven expertise in this field.

On completion of Ganfeng's increase of its shareholding in SLL to 50% in February 2021, a new 50:50 JVA came into effect with Ganfeng. Consequently, Ganfeng is responsible for leading certain engineering and procurement activities for the hydrometallurgical lithium plant and will work jointly with GRES for the construction stage of the Project. Once Ganfeng completes their design work for the hydrometallurgical plant, GRES will develop an integrated "wrap" engineering package for the entire process plant. GRES has agreed to integrate a complete engineering, procurement, construction and/or management "EPC/M" solution for the plant to incorporate the process guarantees from the respective engineering firms for the pyrometallurgical and hydrometallurgical circuits.

Ganfeng is continuing to work with its suppliers and, along with the Company, is maintaining its previously advised project delivery schedule with first lithium production in H2 2023. The project delivery schedule includes the first equipment deliveries from China arriving in Mexico in Q2 2022 and initial lithium plant dry commissioning scheduled for H2 2023. Recent quotes for bulk steel deliveries and plate work in Mexico have confirmed that pricing is still within the budget.

A short list of LNG suppliers has been completed and supply sources, from Hermosillo or Agua Prieta, are being evaluated with draft supply contracts being reviewed. Evaluation of co-gen power suppliers continued in 2021, with proposals from a shortlist of three providers currently under evaluation.

In 2020, politicians from the MORENA party tabled plans to reform Mexico's constitution and mining code in order to nationalise lithium resources in the country7. In June 2021, the Mexican government stepped back from nationalisation of existing lithium concessions and announced a potential new lithium bill due in September 2021. Economy Minister Tatiana Clouthier has said that the government was considering a public-private partnership to develop new lithium concessions and indicated that the government may institute a rule with a mandatory state owned stake of 51% for new lithium concessions8.

Lithium Market Update

Despite the unprecedented global disruption precipitated by the COVID-19 pandemic, 2020 and H1 2021 saw a revival in market sentiment for lithium with allied rebound in demand and prices. In 2020, lithium prices were beset by a softening in demand caused by COVID-19 related softening demand caused by lockdowns which restricted manufacturing output and related reduction in consumer confidence. By the turn of the year prices had begun to recover, with reported prices in December 2020 for 99.5% lithium carbonate battery-grade spot midpoint prices CIF China, Japan & Korea at US$6,750 and min 56.5% lithium hydroxide battery-grade spot midpoint prices CIF China, Japan & Korea at US$9,000 per tonne respectively9. Across H1 2021, lithium product prices continued their upward trajectory, by June 2021 prices continued to be strong with lithium carbonate and lithium hydroxide both at US$13,500 and US$15,000 per tonne respectively10. This trend has continued into Q3 2021, with Fastmarkets reporting prices of US$14,000 and US$15,500 per tonne respectively in July 202111. According to Fastmarkets, prices were US$7,500 and US$9,750 per tonne for lithium carbonate and hydroxide in June 2020 respectively this represents between a 27% and 54% increase year on year ("YOY"). Orocobre announced Olaroz lithium carbonate sold in Q1 2021 at an average of US$5,853 per tonne FOB with pricing up more than 50% on Q4 2020 and up nearly 90% since Q3 2020. They provided forward guidance that Q2 2021 sales price of US$7,400 per tonne was anticipated12. This buoyancy of the lithium price follows on from the market tightening as the electric vehicle ("EV") revolution accelerates, demand has eroded the oversupply seen in 2019 and 2020. This tightness in the market is expected to continue, with Credit Suisse saying that lithium demand might treble by 2025 from 2020 levels and that supply would be stretched to meet that demand, but higher prices were needed to incentivise the required supply response13.

World demand for lithium is forecast to increase from 305,000 tonnes lithium carbonate equivalent ("LCE") in 2020 to 452,000 tonnes in 2021 (48% increase YOY)14. This is primarily driven by sales of EVs which increased by 126% YOY for Q1 2021, which is skewed due to low sales in Q1 2020 attributable to the pandemic. However global EV sales are expected to exceed 4.6 million in 2021 vs 3.2 million units in 2020, which would be a 44% increase for the year, which is comparable to the 43% increase from 2019 to 202015. The consequence of this dramatic change in consumer behaviour is that in 2023, demand for lithium is forecast to increase at a CAGR of 30% to 675,000 tonnes LCE from 2020 levels. By 2030, global battery demand is expected to increase 14-fold by 203016 with Statista estimating lithium demand of 1.8 million tonnes by 203017.

In contrast to the impressive demand fundamentals, lithium production is only anticipated to be 441,000 tonnes LCE in 2021, down from 464,000 tonnes in 2020. However, lithium production is expected to grow at a CAGR of 13.4% to 679,000 in 2023. Macquarie said this year's deficit would be 2,900 tonnes of LCE, rising to 20,200 tonnes in 2022 and then up to 61,000 tonnes in 202318. It is at this point that lithium stocks are expected to be exhausted and persistent undersupply to be entrenched. By 2030, Fitch estimates lithium production will increase to 1.5 million tonnes LCE19. The investment required to triple production in that period will require incentive pricing. By 2023, forecast lithium hydroxide prices are expected to be US$14,300 per tonne20. In May 2021, Fitch Solutions has published a price forecast of over US$15,000 in 2025 for lithium carbonate and hydroxide21.

Current lithium-ion batteries utilise an anode (the negative electrode) made of graphite often with some silicon added, a cathode (the positive electrode) and a liquid electrolyte to pass lithium ions between the electrodes. The cathode plays an important role in determining the characteristics of the battery as the battery's capacity and voltage are determined by the cathode material. The potential difference is usually small for the anode, but the potential difference is relatively high for the cathode. Therefore, the cathode plays a significant role in the voltage of the battery. The greater amount of lithium, the bigger the capacity; and the bigger potential difference between cathode and anode, and therefore the higher the voltage22. In existing commercial batteries, cathodes are frequently made from lithium cobalt oxide, lithium manganese oxide, lithium iron phosphate ("LFP"), as well as lithium nickel manganese cobalt oxide ("NMC") or lithium nickel cobalt aluminium oxide ("NCA")23. Developments in the use of cathodes affect the type of lithium raw material used in its production and therefore the market dynamics of that material. LFP and NMC batteries often use lithium carbonate for their production, whilst high purity, nickel-based NMC and NCA lithium batteries tend to use lithium hydroxide24. LFP type batteries benefit from low-resistant properties, thereby increasing their safety and thermal abilities, and they have lower costs but with lower energy densities25. The development of Cell to Pack batteries has ameliorated the impact of lower energy densities by fitting more LFP battery into the same space, thereby enabling companies like Tesla (Model 3) and BYD to fit high range batteries at a lower cost26.

NMC batteries can use lithium hydroxide over lithium carbonate as they have higher specific discharge capacity and capacity retention (longer useful life). Raising the nickel content at the cathode, allows the energy density of these batteries to increase accordingly, with less cobalt involved thereby reducing costs and dependence on the cobalt supply chain. Lithium hydroxide is preferable for Ni-rich NMC/NCA cathode materials27.

Lithium is a specialist product; lithium buyers seek surety of supply and consistency of product with tight specifications. This is particularly true for lithium hydroxide because of its association with high-nickel chemistries and inherent challenges. Historically lithium hydroxide has been derived from lithium carbonate products, as such the price has been based on the presiding carbonate price plus the additional processing cost, therefore prices for each product broadly moved in parallel with a spread of circa US$1,500-$2,000 per tonne28. However, the increase in usage of LFP batteries in China has increased the demand for lithium carbonate relative to hydroxide, which has led to a premium for lithium carbonate in H1 2021 in the domestic Chinese market. In due course, the propensity for US and European consumers to demand larger vehicles with higher ranges, with less cobalt, may drive demand for high Ni-NMC cathode chemistries that favour lithium hydroxide over time, which may reverse the trend for carbonate premia. The characteristics of the lithium market, and particularly lithium hydroxide, drives the creation of long term offtake agreements, with transactions occurring on private contract terms, which are more stable than pricing in the spot market. This contributes to the opacity of the lithium market as well as reduced volatility in pricing for contract suppliers/customers versus spot market participants and particularly spot lithium carbonate. Cash-settled lithium hydroxide futures commenced trading in May 2021 via price assessment from Fastmarkets29. This increasing sophistication will enable greater participation in the market, as well as increased pricing transparency.

As lithium is increasingly viewed as being a long term strategic material for the future, so it is experiencing rising government intervention and resource nationalism. Manufacturers of batteries in the USA and Europe are ramping up construction of the giga-plants to ensure surety of supply to local industries. In September 2020 the European Raw Materials Alliance was launched which aims to make Europe economically more resilient by diversifying its supply chains, creating jobs, attracting investments to the raw materials value chain, fostering innovation and developing the circular economy30. The EU is funding initiatives to develop supportive frameworks under the Horizon Resilience programmes31. Currently, Europe has 15 large-scale battery cell factories under construction, including Northvolt's plants in Sweden and Germany, CATL's German facility, and SK Innovations second plant in Hungary. Britishvolt is due to break ground this summer at their site in Blyth, Northumberland. Also in the UK, Nissan announced that it will build a gigafactory in Sunderland32. By 2025 planned European facilities will produce enough cells to be self-sufficient for the European automotive industry and power at least 6 million EVs33. In the US, Tesla secured its own lithium mining rights in Nevada and have signed an offtake agreement with Piedmont Lithium for spodumene concentrate from North Carolina in order to secure local lithium supplies34. The Biden administration on 8 June 2021 outlined plans to address shortfalls in semiconductor and battery manufacturing as well as critical minerals supplies, marking a new chapter in US efforts to compete internationally in those markets, allocating at least US$50 billion in investments for domestic semiconductor manufacturing and providing US$50 billion to fund a federal supply chain resilience programme. In Argentina, State Oil company YPF has created YPF Litio, which will work toward lithium extraction in the country35. However, despite the push to control resources and battery manufacturing locally, according to Roskill, research shows the geographical distribution of lithium ion battery cell manufacturing capacity will remain Asia-centric and particularly China-focused. China is expected to account for over 58% of global capacity by 203036. This desire for localisation provides an opportunity for Sonora Project and Zinnwald to supply the key element, lithium, to their respective geographic markets. Battery recycling will provide an additional stream of lithium via industrial scale processing of spent batteries, this will provide a steady stream of battery chemicals especially to markets which have not got ready supplies of primary sources of those elements.

Prior to the COVID-19 crisis, lithium oversupply was being addressed by reductions in production and expansion in the wider market, particularly of spodumene concentrate. A number of lithium companies either mothballed operations, reduced output or delayed construction of new capacity37,38,39,40,41. In response to the recent positive demand, the closures of the spodumene mines are being unwound and new production volumes announced. For instance, Galaxy announced that Mt Cattlin is now running at capacity in June 2021 and their Sal de Vida project underway42. Covalent Lithium began its US$700 million Mt Holland spodumene mine and lithium hydroxide refinery construction, in July 2021 after approval from its JV partners Wesfarmers and Sociedad Quimica y Minera de Chile ("SQM") earlier in the year. It is estimated that Mt Holland will produce 45,000 tonnes of lithium hydroxide per annum43,44.

In order to accelerate the adoption of electric vehicles as part of their net zero commitments by 2050, governments are combining the stimulus of subsidies for clean technologies with prohibition of the sale and use of more polluting vehicles. In July 2021, the European Union proposed climate change legislation aimed at pushing it towards its goal of becoming carbon neutral by 2050. The proposals include effectively banning the sale of petrol and diesel powered cars by 2035. The UK is more ambitious, with the sale of pure combustion engine vehicles banned from 203045 and is expanding the area of the ultra-low emission zone around London on 25 October 202146. President Biden has re-joined the Paris Climate agreement and plans to spend up to US$2 trillion investment in clean energy over four years and ensure 100% clean energy by 2035. Furthermore, specific plans for the automotive industry include support for car buyers to switch to EVs and a commitment to build 500,000 charging stations. 14.7 million new cars were sold in 2020 in the US, of which just 0.3 million plug-in hybrids and EVs were sold47,48. The US electric vehicles market is expected to reach 6.9 million unit sales by 2025, which will be supported by expanded EV infrastructure49. President Biden's green new deal promises US$174 billion for among other things, developing domestic supply chains for electric vehicles and helping consumers buy specifically American-made vehicles50. This underlines the importance of strategic supply access.

As a result of the optimism in the lithium market, like Bacanora, a number of lithium companies have been able to raise additional funds for development of their construction projects. For instance, Galaxy Resources raised AU$161 million equity financing in November 2020 with proceeds to be applied to Sal de Vida stage 1 and James Bay51. Between November 2020 and January 2021, Lithium Americas announced the closing of US$100 million offering to fund working capital52 and a further US$400 million offering to develop its Thaker Pass lithium project53. Also, in January 2021, Neo Lithium Corp, raised C$30.1 million in a private deal placing to fund its 3Q lithium project in Argentina54. In April 2021, SQM raised US$1.1 billion to fund the 2021-24 capital programme55. In May 2021, Livent announced it was resuming its 5,000 tonne lithium hydroxide addition at Bessemer City in the US and its phase one lithium carbonate expansion of 10,000 tonnes in Argentina. The company also announced it would start on a 10,000t phase two expansion in Argentina, aiming for commercial production by the end of 202356. In June 2021, Livent announced that it expected to receive net proceeds of up to US$252.4 million in a stock offering57.

As a result of the attractive long-term fundamentals of the lithium market and value opportunities in the market, the industry is also seeing a trend for consolidation. In April 2021, Orocobre and Galaxy agree to a proposed A$4 billion merger of equals to form the fifth largest global lithium chemicals company58. In June 2021, Ganfeng announced it would raise HK$4.9 billion (US$630 million) from the sale of new shares to boost capacity and fund potential investments. In February 2021, Ganfeng increased its stake in SLL from 22.5% to 50% for US$30.4 million. In May 2021, Ganfeng completed its exercise of pre-emption right in Bacanora for US$33.9 million, taking its holding to 28.88%. Ganfeng has acquired a 35% stake in the Sal de la Puna lithium project in Argentina for US$2.8 million in February 2021. Ganfeng also invested US$130 million for a 50% stake in the Goulamina spodumene lithium mine in Mali in June 2021, agreed to acquire Millennial Lithium in a US$277 million deal in July 2021 and agreed a US$25 million investment and offtake with Core Lithium in August 202159,60.

Rio Tinto's announcement in April 2021, that it has commenced production of battery-grade lithium from Boron mine site's tailings was a good indication that one of the majors was tentatively looking to enter the lithium market with an initial capacity of at least 5,000 tonnes per year from their demonstration plant61. This was followed up in July 2021 with the announcement that Rio Tinto has committed US$2.4 billion to the Jadar lithium-borates project in Serbia, which will produce 58,000 tonnes of lithium carbonate per year at full capacity62. Sizeable deals have been commonplace up the value chain as well, as demonstrated by Northvolt's raise of US$2.8 billion in equity to expand capacity at the factory it is building in northern Sweden63. In addition, Britishvolt have said that it is considering a London listing by the end of Q2 2022, construction of the £2.6bn plant located in Northumberland, is set to begin at the end of July 202164. The plant is expected to be operational by 2023, and by 2027 will produce 300,000 batteries for EVs a year. SK Innovation have announced that it will invest the equivalent of US$26bn into EV battery production over the next five years to quintuple output65.

There is intense development across many different battery types and chemistries competing to prevail as the dominant technology. There is a wide variety of technologies, with improved charge, energy density, life cycles and cost of batteries, for a range of applications, please see reference for further details on some of the new technologies in development. Battery costs continue their inexorable reductions66. Wright's Law aims to provide a reliable framework for forecasting cost declines as a function of cumulative production. Specifically, it states that for every cumulative doubling of units produced, costs will fall by a constant percentage. US$100 per kilowatt-hour is the point of cost parity with internal combustion engine vehicles, which would be an inflection point for mass uptake of EVs. Market commentators like BloombergNEF are predicting cell costs fall to US$60/kWh by 2029 (a year earlier than previous estimates), from US$137/kWh in 202067. Reuters reported last year that CATL was producing cobalt-free LFP battery packs battery packs at below US$80/kWh68. CATL have announced the construction of a new plant which would be able to make 80 gigawatt-hours of battery cells a year, this would be in addition to 69.1GWh in current production capacity and another 77.5GWh under construction. The new plant will manufacture CATLs cell-to-chassis (CTC) batteries. The new technology integrates cells directly onto an EV's frame to increase the energy density of battery systems. As such CTC battery systems have lower weight and volumes than traditional battery packs69. CATL has said electric vehicles could attain driving ranges of over 800 km (500 miles) using CTC technology, CATL aims to launch the technology before 203070.

In March 2021, Volkswagen at their "power day" announced that further savings will be delivered by optimising the cell type, deploying innovative production methods as well as consistent recycling. Volkswagen is aiming to gradually reduce battery costs in the entry-level segment by up to 50 percent and in the volume segment by up to 30 percent. On average, Volkswagen aims to drive down the cost of battery systems to significantly below €100 per kilowatt hour. It also announced a plan for six battery "gigafactories" with an eventual production capacity of 240GWh per year and to integrate the supply chain through recycling71. Not to be outdone, in April 2021, General Motors announced that it is experimenting with silicon-rich and lithium metal anodes, solid state and high voltage electrolytes, and dry processing of electrodes for its next generation of Ultium batteries, due around 2025. General Motors aims to reduce battery cell cost to well under $100 per kilowatt-hour by 2025. General Motors executives also have said the company expects its future EV batteries to last for a million miles or more, with driving ranges of 500-600 miles (805 to 965 km) between charges72.

With the ongoing investment and development of EVs, battery technology and grid storage, the lithium market has very positive demand fundamentals, currently and on the foreseeable horizon, which bodes well for our investments in Sonora and Zinnwald projects.

Financial Review

The Group made a total comprehensive income of US$29.7 million for the six months ended 30 June 2021 (six months ended 30 June 2020: US$10.8 million loss). The positive results during the period is primarily due to the recognition of a number of non-recurring items namely a gain on the change of control of Sonora Lithium Ltd of US$31.9 million, an increase in the share of net assets of Zinnwald Lithium Plc of US$2.0 million, deemed dividend income of US$4.2 million, offset by foreign exchange difference recycled through profit and loss of US$3.6 million. Excluding these non-recurring items, the Group made an underlying comprehensive loss from continuing operations of US$4.8 million. During the six months ended 30 June 2020, the total comprehensive loss of US$10.8 million included a US$6.1 million loss on a discontinued operation, principally due to the impairment of Deutsche Lithium GmbH. Excluding the discontinued operation, the Group made an underlying operating loss from continuing operations of US$4.7 million in the first half of 2020.

During the six months ended 30 June 2021, the Group incurred US$2.2 million general and administrative costs (six months ended 30 June 2020: US$2.4 million) and share-based payment expense of US$0.2 million (six months ended 30 June 2020: US$0.2 million). The operating loss was US$2.4 million for the six month period (six months ended 30 June 2020: US$2.8 million). Savings were made due to reduced corporate activities particularly on legal and professional fees and travel compared to the first half of 2020 as well as exclusion of costs of SLL and its subsidiaries from 26 February 2021 due to deconsolidation.

The Group incurred finance costs of US$2.4 million in relation to the Company's debt financing for the six months ended 30 June 2021 (six months ended 30 June 2020: US$2.5 million), of which US$1.4 million was interest paid in cash compared to nil for the six months to 30 June 2020. The finance cost decreased during the period due to an adjustment to the amortised cost of borrowings following a change in estimated timing of contractual cash flows. Finance income totalled US$0.4 million during the six months (six months ended 30 June 2020: US$0.6 million) being cash interest income on cash reserves of US$0.1 million, revaluation gain of financial warrants of US$0.1 million and interest income of loan facilities to related parties of US$0.2 million.

The net assets of the Group increased to US$163.9 million at 30 June 2021 from US$49.9 million at 31 December 2020, due primarily to the issuance of equity totalling US$96.4 million, net of costs, during the period and the total comprehensive income from for the six month period of US$29.7 million, offset by changes in net assets resulting from the loss of control and deconsolidation of SLL and its subsidiaries amounting to US$12.3 million.

The Group had a consolidated cash balance of US$130.7 million at 30 June 2021, which increased by US$91.5 million from US$39.2 million at 31 December 2020. Over the six month period, the increase in cash was a result of total equity raise of US$96.4 million, net of issue costs, offset by cash expenditure on operations of US$2.8 million, payments of interest on the RK debt facility of US$1.4 million, reduction in cash on change of control of subsidiaries of US$0.4 million, purchases of property, plant and equipment of US$0.2 million and payments to related parties of US$0.1 million. The Sonora Lithium Group has a cash balance of US$29.9 million at 30 June 2021. Together, the total aggregated cash of the Group and Sonora Lithium Group amounts to US$160.6 million at 30 June 2021.

Given the unprecedented COVID-19 health and ensuing economic crises, many companies have seen their balance sheets come under duress since the turn of the year. Being at a preconstruction phase of operations and having raised significant sums in the equity market, Bacanora and SLL have not entered into commitments to develop the Sonora Project and retain significant cash balances. Consequently, the Directors have, at the time of approving the Financial Statements, a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future.

Financing update

Despite the impact of the ongoing COVID-19 pandemic on Project financing, the Company has made significant strides in the period, to secure additional funding required for the development costs of the Sonora Project. Bacanora's cornerstone investor and offtake partner, Ganfeng, completed its option to increase its stake in SLL from 22.5% to 50% on 26 February 2021. Ganfeng subscribed for 73,955,680 new ordinary shares in SLL at 29.59 pence at a total value of £21.9 million (US$30.4 million). This investment forms part of the Sonora Lithium Group's assets to fund the Project. The strategic investment from Ganfeng forms a major part of the finance package for the construction of an initial 17,500 tonnes per annum LCE operation for the Sonora Project. As part of the revised JV agreement, Ganfeng and Bacanora will contribute proportionally to the construction funding for the Sonora Project in SLL.

In order to support Bacanora's 50% share of the Sonora Project construction funding requirement, Bacanora embarked on an ambitious fundraising process. On 8 February 2021, Bacanora completed a successful placing and retail offer which raised gross proceeds of £48.1 million (US$66.3 million) through the issue of a total of 106,995,885 new ordinary shares at a placing price of 45 pence per share. On 26 May 2021, Ganfeng completed its pre-emption right to increase its shareholding in the Company to 28.88%. Ganfeng subscribed for a total of 53,333,333 new ordinary shares at the placing price of 45 pence per share, representing gross proceeds of £24.0 million (US$33.9 million).

During the period, Bacanora and RK signed a non-binding indicative term sheet to amend certain terms to the US$150 million debt facility, recognising the passage of time from the initial drawing. The Company and RK have been in discussions for a number of months with a view to agreeing legally binding terms and documentation to amend said terms. However, due to extension fee considerations and the limited availability period for an extension post the expiry date of 18 June 2021, the Company and RK have agreed that the remaining undrawn facility, amounting to US$125 million, will no longer be available for draw down. The first tranche of the RK debt facility, US$25 million, was drawn down in July 2018 and Bacanora will maintain this first tranche in accordance with the existing terms of the debt facility. The Company will continue to engage with RK as well as seek alternative terms with other debt providers in light of the current favourable debt market conditions. Careful stewardship of the Company's capital resources have meant that the Company enjoyed a strong cash position of US$130.7 million at the period end. These funds will support the Company's 50% share of the capital costs required for the Sonora Project over the next 15 months. In addition, Sonora Lithium Group's cash balance of US$29.9 million will enable the Company to commence earthworks for the Project in 2021.

On behalf of the Board of Directors,

Janet Blas, Chief Financial Officer

08 September 2021

Interim Consolidated Statement of Financial Position

As at 30 June 2021

The Interim Consolidated Financial Statements of Bacanora Lithium Plc, registered number 11189628, were approved and authorised for issue by the Board of Directors on 08 September 2021 and were signed on its behalf by:

Mark Hohnen

08 September 2021

Interim Consolidated Statement of Comprehensive Income

For the six month period ended 30 June 2021

Interim Consolidated Statement of Changes in Equity

For the six month period ended 30 June 2021

Interim Consolidated Statement of Cash Flows

For the six month period ended 30 June 2021

Notes to the Interim Consolidated Financial Statements

1 Corporate information

Bacanora Lithium Plc (the "Company" or "Bacanora") was incorporated under the Companies Act 2006 of England and Wales on 6 February 2018. The Company is listed on the AIM market of the London Stock Exchange, with its common shares trading under the symbol, "BCN". The registered address of the Company is 4 More London Riverside, London, SE1 2AU.

The Group is a mining group engaged in the identification, acquisition, exploration and development of mineral properties located in Mexico and Germany, through its investments in the Sonora Lithium Project and Zinnwald Lithium Plc.

2 Basis of preparation

a) Statement of compliance

These Interim Consolidated Financial Statements for the six months ended 30 June 2021 and the information relating to the year ended 31 December 2020 and six months ended 30 June 2020 contained within the Interim Consolidated Financial Statements do not constitute statutory accounts as defined in Section 435 of the Companies Act 2006. The audited Consolidated Financial Statements for the year ended 31 December 2020 have been delivered to the Registrar of Companies and the auditor's report on those Financial Statements was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under Section 498(2) or 498(3) of the Companies Act 2006.

These Interim Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements for the year ended 31 December 2020.

These Interim Consolidated Financial Statements were authorised for issue by the Board of Directors on 08 September 2021.

b) Basis of measurement

These Interim Consolidated Financial Statements have been prepared on a historical cost basis, except for certain financial instruments and investments that have been measured at fair value.

These Interim Consolidated Financial Statements are presented in United States dollars ("US$"). The functional currency of the Company and its subsidiaries is the United States dollar.

c) Going Concern

The Directors have, at the time of approving the Interim Consolidated Financial Statements, a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. The Group has a significant cash balance of US$130.7 million as at 30 June 2021 and has not entered into funding commitments to its investments in associate or joint venture. Thus, the going concern basis of accounting in preparing the Financial Statements continues to be adopted.

3 Significant accounting policies

The preparation of Interim Consolidated Financial Statements in compliance with IFRS requires management to make certain critical accounting estimates. It also requires management to exercise judgement in applying the Group's accounting policies.

The Interim Consolidated Financial Statements have been prepared using accounting policies consistent with those used in the preparation of the audited Consolidated Financial Statements for the Group for the year ended 31 December 2020 except for those which have changed within the interim period to 30 June 2021, which have been disclosed below.

a) Basis of consolidation

The Interim Consolidated Financial Statements comprise the Financial Statements of the Company and following subsidiaries at 30 June 2021:

1Battery Finance (Jersey) Ltd was dissolved on 4 May 2021.

2Bacanora Battery Metals Ltd was dissolved on 4 May 2021.

3The Company has joint control over SLL and its subsidiaries (the "Sonora Lithium Group") from 26 February 2021, and therefore performed deconsolidation procedures during the period.

Subsidiaries are controlled by the Company where the Company is exposed to, or has rights to, variable returns from its involvement with the subsidiary and has the ability to affect those returns through its application of this power. 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 subsidiaries are prepared for the same reporting period as the Parent Company, using consistent accounting policies. All intercompany balances and transactions are eliminated in full. A change in ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction.

On 26 February 2021, Ganfeng Lithium Co., Ltd. ("Ganfeng") completed its option to increase its stake in Sonora Lithium Ltd ("SLL") from 22.5% to 50%. SLL is the operational holding company for the Sonora Lithium Project. Consequently, Ganfeng subscribed for 73,955,680 new ordinary shares in SLL at 29.59 pence at a total value of £21.9 million (US$30.4 million). On completion of the transaction, a revised 50:50 Joint Venture Agreement ("JVA") came into force, whereby each party is responsible for their portion of Project capex. After performing a detailed control assessment including a review of the provisions of the revised JVA, management have assessed that the Company now has joint control over the Sonora Lithium Group, and therefore the results of the Sonora Lithium Group have been consolidated to 26 February 2021. Subsequently, the Group's investment in the Sonora Lithium Group has been accounted for using the equity method. For further detail see note 7.

b) Standards, amendments and interpretations adopted

During the period, the following standards and amendments have been implemented.

The implementation of the above amendment did not result in material adjustments to the Interim Consolidated Financial Statements.

c) Standards, amendments and interpretations effective in future periods

At the date of authorisation of these Interim Consolidated Financial Statements, the following new standards, amendments and interpretations to existing standards have been published but are not yet effective and have not been adopted early by the Group.

The impact of the implementation of the above amendments is currently being evaluated.

4 Critical accounting estimates and judgements

The preparation of the Interim Consolidated Financial Statements requires management to make certain judgements, estimates, and assumptions about recognition and measurement of assets, liabilities, income and expenses. The actual results are likely to differ from these estimates.

Management's assessment of the significant judgements, estimates, and assumptions that have the most significant effect on the Interim Consolidated Financial Statements have not changed from the year ended 31 December 2020 except for the following:

a) Investments in associates - Zinnwald Lithium Plc

The Group has significant influence over Zinnwald Lithium Plc as assessed using IAS 28. This influence is derived through its shareholding, seat on the company's board of directors and its rights to a 2% net royalty. No value has been attributed to the net royalty rights due to it not meeting the recognition principles of IFRS 9.

The investment is assessed at each reporting period date for impairment in accordance with IAS 28. An impairment is recognised if there is objective evidence that events after the recognition of the investment have had an impact on the estimated future cash flows which can be reliably estimated. In addition, the assessment as to whether economically recoverable reserves exist is itself an estimation process.

During the period, Zinnwald Lithium Plc acquired the remaining 50% of Deutsche Lithium GmbH that, prior to the transaction, it did not already own, for a total consideration of €8.8 million consisting of a cash payment of €1.5 million and the issue of approximately 50 million new shares. This resulted in Zinnwald Lithium Plc owning 100% of Deutsche Lithium GmbH and obtaining control of Deutsche Lithium GmbH. Zinnwald Lithium Plc has estimated the acquisition date fair value of the previously held 50% shareholding in Deutsche Lithium GmbH, resulting in a €1 million revaluation gain being recognised.

b) Investments in joint ventures - Sonora Lithium Ltd

The Group applies IFRS 11 to all joint arrangements and classifies them as either joint operations or joint ventures, depending on the contractual rights and obligations of each investor. Bacanora and Ganfeng have contractually agreed sharing of control through the JVA, where decisions about certain relevant activities of the Sonora Lithium Group require the unanimous consent of both parties. The Sonora Lithium Group is structured through separate legal entities and both parties have legal rights to the net assets of the arrangement through their respective shareholdings. Therefore, management have assessed that Bacanora has joint control of the Sonora Lithium Group and classified its investment in the Sonora Lithium Group as a joint venture.

The investment is assessed at each reporting period date for impairment in accordance with IAS 28. An impairment is recognised if there is objective evidence that events after the recognition of the investment have had an impact on the estimated future cash flows which can be reliably estimated. In addition, the assessment as to whether economically recoverable reserves exist is itself an estimation process.

On the change of control from subsidiaries to joint venture, management have applied judgement in determining the fair value of its retained interest in SLL. The fair value of the retained interest has been determined by reference to the Company market price at which the shares in SLL were issued to Ganfeng, therefore utilising level 2 hierarchy inputs.

c) Borrowings

The Group revises its estimates of cashflows on the primary and secondary Eurobonds when new information is available. This includes the estimated production profile based on the Sonora Feasibility Study and estimated timing of the commissioning of the Sonora Lithium Project which will impact the future cashflows of the production linked secondary Eurobond. When the estimates are revised, the Group recalculates the amortised cost of the Eurobond as the present value of the estimated future contractual cash flows that are discounted at the financial instrument's original effective interest rate or, when applicable, the revised effective interest rate for market rate changes. In the six month period to 30 June 2021, the cashflow estimates have been revised and the original effective interest rate has been used to recalculate the present value of the estimated future contractual cashflows.

5 Significant events and transactions

a) Placing and retail offer

On 8 February 2021, Bacanora completed a successful placing and retail offer which raised gross proceeds of £48.1 million (US$66.3 million) through the issue of a total of 106,995,885 new ordinary shares at a price of 45 pence per share.

b) Ganfeng investment in SLL

On 26 February 2021, Ganfeng completed its option to increase its stake in SLL from 22.5% to 50%. Consequently, Ganfeng subscribed for 73,955,680 new ordinary shares in SLL at 29.59 pence at a total value of £21.9 million (US$30.4 million). On completion of the transaction, a revised JVA came into force, whereby each party is responsible for their portion of Project capex. After performing a detailed control assessment including a review of the provisions of the revised JVA, management have assessed that the Company now has joint control over the Sonora Lithium Group, and therefore the results of the Sonora Lithium Group have been consolidated to 26 February 2021. Subsequently, the Group's investment in the Sonora Lithium Group has been accounted for using the equity method. For further detail see note 7.

c) Bacanora and SLL deed of release

On 19 May 2021, SLL performed a US$8.3 million capital reduction. On the same day, the Company and SLL signed a deed of release relating to a payable balance totaling US$8.3 million. The release of the payable resulted in a deemed distribution of US$8.3 million. Bacanora's 50% share has been credited against the Company's investment in joint venture to reflect the decrease in share of net assets of the Sonora Lithium Group. A gain of US$4.2 million, resulting from the receipt of Ganfeng's share of the distribution, has been recognised through the Statement of Comprehensive Income.

d) Ganfeng pre-emption rights investment

On 26 May 2021, in addition to the placing and retail offer, Ganfeng completed its pre-emption rights at the placing price to increase its holding in the Company to 28.88%. Ganfeng subscribed for a total of 53,333,333 new ordinary shares at the placing price of 45 pence per share, representing gross proceeds £24.0 million (US$33.9 million).

e) RK debt facility

Due to the passage of time from the initial US$150 million debt facility agreement in July 2018 with RK Mine Finance ("RK"), Bacanora and RK signed a non-binding indicative term sheet to amend certain terms during the period. The Company and RK have been in discussions for a number of months with a view to agreeing legally binding terms and documentation. However, due to extension fee considerations and the limited availability period for an extension post the expiry date of 18 June 2021, the Company and RK have agreed that the remaining undrawn facility, amounting to US$125 million, will no longer be available for draw down. The first tranche of the RK debt facility, US$25 million, was drawn down in July 2018 and Bacanora will maintain this first tranche in accordance with the existing terms of the debt facility. The Company will continue to engage with RK as well as seek alternative terms with other debt providers in light of the current favourable debt market conditions.

This amendment to the terms of the debt facility have not been accounted for as a modification of the debt facility as the amendment only relates to the undrawn facility.

6 Investment in associate

The following entities have been included in the Interim Consolidated Financial Statements as an associate using the equity method:

a) Prior period - Initial recognition

On 29 October 2020, the Group acquired its interest in Zinnwald Lithium Plc in exchange for its 50% investment in Deutsche Lithium GmbH and a cash consideration, a total consideration valued at US$7.7 million.

The investment in associate has been equity accounted for under IAS 28 based on the significant influence the Group has over Zinnwald Lithium Plc. This influence is derived through its shareholding, its right to a seat on the company's board of directors and its rights to a net royalty. No value has been attributed to the net royalty rights due to it not meeting the recognition principles of IFRS 9.

The following table summarises the purchase price allocation for the transaction:

b) Current period

During the period, Zinnwald Lithium Plc acquired the remaining 50% of Deutsche Lithium GmbH that, prior to the transaction, it did not already own, for a total consideration of €8.8 million consisting of a cash payment of €1.5 million and the issue of approximately 50 million new shares. This resulted in Zinnwald Lithium Plc owning 100% of Deutsche Lithium GmbH and obtaining control of Deutsche Lithium GmbH. Bacanora's shareholding in Zinnwald Lithium Plc decreased to 35.5%.

The reconciliation of the carrying amount of the investment in associate is as follows:

The summarised financial information of Zinnwald Lithium Plc on a consolidated basis and reconciliation to the investment carrying amount is set out below. The summarised information represents amounts shown in the financial statements of Zinnwald Lithium Plc, as adjusted for differences in accounting policies and fair value adjustments related to the Company's investment in the associate. Amounts have been translated in accordance with the Company's accounting policy on foreign currency translation.

Zinnwald Lithium Plc is listed on the AIM market of the London Stock Exchange, with its common shares trading under the symbol, "ZNWD". The closing share price on 30 June 2021 was 18.5 pence per share resulting in a market fair value, of the Company's shares of £16,764,546 (US$23,230,012).

Zinnwald Lithium Plc made a loss after tax and total comprehensive loss of €935,488 for the period, of which, the Company has recognised its share of total comprehensive income for the period.

Zinnwald Lithium Plc has no commitments as at 30 June 2021.

7 Investment in joint venture

The following entities have been included in the Interim Consolidated Financial Statements using the equity method:

On 26 February 2021, Ganfeng completed its option to increase its stake in SLL from 22.5% to 50%. Consequently, Ganfeng subscribed for 73,955,680 new ordinary shares in SLL at 29.59 pence at a total value of £21.9 million (US$30.4 million). On completion of the transaction, a revised 50:50 Joint Venture Agreement ("JVA") came into force, whereby each party is responsible for their portion of Project capex. After performing a detailed control assessment including a review of the provisions of the revised JVA, which include the unanimous consent of both parties over certain relevant activities, management have assessed that the Company now has joint control over SLL and its subsidiaries, and therefore performed deconsolidation procedures. Subsequently, the Group's investment in the Sonora Lithium Group has been accounted for using the equity method.

The following is an analysis of the assets and liabilities over which the Group lost control and the net liabilities which were recognised on 26 February 2021:

The total cash and cash equivalents deconsolidated on 26 February 2021 was US$421,708.

As a result, a gain on change in control of subsidiaries has been recognised:

The reconciliation of the carrying amount of the investment in joint venture is as follows:

The summarised financial information of the Sonora Lithium Group and reconciliation to the investment carrying value is set out below. The summarised information represents amounts shown in Sonora Lithium's consolidated financial statements, as adjusted for differences in accounting policies and fair value adjustments related to the Company's investment in joint venture.

Included in the amounts above are:

Summarised financial information relating to the consolidated results of the Sonora Lithium Group for the period between 26 February and 30 June 2021 is presented below:

The Sonora Lithium Group had the following commitments at 30 June 2021:

- land purchases totalling US$0.3 million due on the clearance of liens which was achieved on 22 July 2021, payments were made and title transferred to the Sonora Lithium Group on the same day.

- concession taxes on the license properties, which are expected to total approximately US$183,180 in the following twelve months.

- rental payments totalling US$24,890 in Hermosillo, Sonora over the next six months.

8 Property, plant and equipment

The Sonora Lithium Group owns ten contiguous mineral concessions in Sonora, Mexico. Seven of these ten concessions form the Sonora Lithium Project covered by the technical Feasibility Study released in January 2018.

As disclosed in note 7, on 26 February 2021, management have assessed that the Company now has joint control over SLL and its subsidiaries, and therefore the results of the Sonora Lithium Group have been consolidated to 26 February 2021. Subsequently, the Group's investment in the Sonora Lithium Group has been accounted for using the equity method. For further detail see note 7.

The movements within of property, plant and equipment as at 30 June 2021 are set out below:

1Disposals are a result of not consolidating the balance sheet of the Sonora Lithium Group from 26 February 2021.

9 Borrowings

On 3 July 2018, the Group entered into a US$150 million senior debt facility with RK Mine Finance ("RK"), drawing down US$25 million. On 22 June 2021, it was agreed with RK that the remaining undrawn facility of US$125 million would no longer be available for drawdown.

The US$25 million drawn amount is structured as two separate Eurobonds, listed on The International Stock Exchange: 

Primary bond: US$25 million nominal amount secured notes issued at a purchase price of US$23 million with a 6-year term and bearing an interest rate of three months USD LIBOR + 8% per annum based on a nominal amount of US$25 million. Interest was capitalised every three months for the first 24 months and thereafter interest is paid every three months in cash.

Second bond: US$2 million nominal amount, zero interest-bearing, secured notes issued at a purchase price of US$12 million with a 20-year term. The nominal amount is repayable by reference to monthly production of lithium at a rate of US$160 per tonne of lithium produced, with any remaining amount repayable at the end of the 20-year term.

The loan can be voluntarily redeemed at any stage by repayment of the principal and any outstanding interest and early repayment charges.

RK holds a fixed charge security over the shares of various subsidiaries of the Group except for Bacanora Lithium Plc and Bacanora Battery Metals Limited. RK also holds a fixed charge security over certain bank accounts held by the relevant UK and Canadian holding companies and Mexican entities. RK holds a floating charge over Bacanora Lithium Plc's assets not covered by the fixed charge. RK holds fixed and floating charge over the assets of the relevant Mexican entities related to the Sonora Lithium Project.

The facility has a debt covenant for the Group to maintain a minimum working capital balance of US$15 million measured monthly. Working capital for the purpose of the debt covenant is defined as current assets minus current liabilities, excluding assets and liabilities relating to Zinnwald Lithium Plc, Bacanora Battery Metals Limited and overdue VAT receivables.

The effective interest rate of the primary and secondary Eurobonds is 19.25% and 23.47% respectively (31 December 2020: 19.37% and 23.47% respectively).

The carrying value of the Group's borrowings at 30 June 2021 is as follows:

The movement in the Group's borrowings in the six months ended 30 June 2021 is as follows:

10 Financial warrants liability

The Company granted RK with 6 million warrants alongside the above Eurobonds in July 2018. The warrants are exercisable over five years at an exercise price of a 20% premium to the 20-day VWAP determined on 3 July 2018, subject to normal anti-dilution provisions, cash settlement at the Company's option, and share exercise at either party's option. The warrants have been initially recorded, as a non-current liability, at their level 3 hierarchy fair value on 3 July 2018 of US$2.9 million and subsequently revalued at each reporting period, determined using the Black-Scholes pricing model with the following inputs.

The expected volatility has been determined by calculating the historical volatility of the Company's share price since listing. The term used in the model has been adjusted to reflect the period in which the warrants can be exercised. The number of warrants and exercise price are contractually adjusted for the dilution effects of below market value share issuances. The issuances of ordinary shares during the period resulted in adjustments to the number of warrants and exercise price.

11 Subsequent events

On 24 August 2021, the Company provided an update on the litigation with the Estate of Colin Orr-Ewing (the "Estate") in regard to its challenge to the validity of the lithium royalty over the Sonora Lithium Project. As previously reported, in the Company's recent Annual Financial Statements to 31st December 2020, the Alberta Court held a hearing on 9 March 2021 to hear the Estate's application for Summary Trial on the grounds that the Company's action was time limitation barred. The Court has now issued its judgement that found in favour of the Estate. The Company intends to appeal this judgement on a point of law. The Company maintains that the royalty is invalid on the grounds of misrepresentation and a lack of consideration and intends to exhaust all legal avenues on behalf of all its shareholders to ensure that the Alberta Courts adjudicate fully on the merits of the case, rather than restricting their review to a technical time limitation defence. The Company has at all times taken a conservative approach to the treatment of the purported royalty and included it fully in the financial model for the Sonora Feasibility Study published in 2018, as well as all financial projections to investors and debt funding partners.

On 25 August 2021, Ganfeng and Bacanora announced a recommended firm offer for Bacanora. The full announcement of the recommended firm offer is available on the Company's website73.

[1]https://polaris.brighterir.com/public/bacanora_lithium/news/rns/story/xzmd47w

2https://polaris.brighterir.com/public/bacanora_lithium/news/rns/story/xj3evow

3 https://polaris.brighterir.com/public/bacanora_lithium/news/rns/story/wv14qzw

4 https://polaris.brighterir.com/public/zinnwald_lithium/news/rns/story/xozv5mw

5 https://mx.usembassy.gov/covid-19-information-for-u-s-citizens-in-mexico/

6 https://www.natlawreview.com/article/red-orange-yellow-green-go-considerations-reopening-mexico-social-educational-and

7 https://www.mineria-pa.com/noticias/amagues-de-nacionalizar-litio-en-mexico-genera-preocupacion/

8 https://www.reuters.com/business/energy/mexico-eyes-bigger-role-lithium-industry-sees-speculation-mining-concessions-2021-03-24/

9https://seekingalpha.com/article/4396089-lithium-miners-news-for-month-of-december-2020

10 https://seekingalpha.com/article/4436538-lithium-miners-news-for-the-month-of-june-2021

11 https://seekingalpha.com/article/4441360-lithium-miners-news-for-the-month-of-july-2021

12 https://www.orocobre.com/wp/?mdocs-file=7800

13https://www.forbes.com/sites/timtreadgold/2021/07/02/lithium-price-tipped-to-rise-after-warning-of-perpetual-deficit/?sh=2b11b1744ab7

14https://publications.industry.gov.au/publications/resourcesandenergyquarterlyjune2021/documents/Resources-and-Energy-Quarterly-June-2021.pdf

15http://www.ev-volumes.com/

16 http://www3.weforum.org/docs/WEF_A_Vision_for_a_Sustainable_Battery_Value_Chain_in_2030_Report.pdf

17 https://www.statista.com/statistics/452025/projected-total-demand-for-lithium-globally/

[1]8 https://www.forbes.com/sites/timtreadgold/2021/07/02/lithium-price-tipped-to-rise-after-warning-of-perpetual-deficit/

[1]9 https://www.mining.com/lithium-outlook-bright-as-ever-fitch-report/

20 https://publications.industry.gov.au/publications/resourcesandenergyquarterlyjune2021/documents/Resources-and-Energy-Quarterly-June-2021.pdf

21 https://www.mining.com/lithium-outlook-bright-as-ever-fitch-report/

22https://www.samsungsdi.com/column/technology/detail/55272.html?listType=gallery#:~:text=Electrolyte%20is%20the%20component%20which,move%20back%20and%20forth%20easily

23 https://batteryuniversity.com/learn/article/types_of_lithium_ion

24https://publications.industry.gov.au/publications/resourcesandenergyquarterlydecember2020/documents/Resources-and-Energy-Quarterly-Dec-2020.pdf

25 https://www.spglobal.com/platts/en/market-insights/blogs/metals/051921-lithium-carbonate-hydroxide-batteries-ev-policy-subsidies-china-eu

26 https://www.spglobal.com/platts/en/market-insights/blogs/metals/051921-lithium-carbonate-hydroxide-batteries-ev-policy-subsidies-china-eu

27 https://poworks.com/which-one-is-better-for-nmc-nca-and-lfp-battery-lithium-carbonate-or-lithium-hydroxide

28 https://www.spglobal.com/platts/en/market-insights/blogs/metals/051921-lithium-carbonate-hydroxide-batteries-ev-policy-subsidies-china-eu

29 https://www.cmegroup.com/trading/metals/other/lithium-futures.html#

30https://eitrawmaterials.eu/eit-rawmaterials-will-manage-newly-launched-european-raw-materials-alliance-erma/

31 https://ec.europa.eu/info/funding-tenders/opportunities/docs/2021-2027/horizon/wp-call/2021-2022/wp-7-digital-industry-and-space_horizon-2021-2022_en.pdf

32 https://news.sky.com/story/nissan-to-unveil-new-sunderland-gigafactory-that-will-help-boost-electric-car-production-12345950

33https://www.reuters.com/article/eu-battery-idUSKBN2841Z3

34 https://stockhead.com.au/resources/tesla-supplier-piedmont-lithium-will-join-the-us-nasdaq-exchange/

35https://www.bnamericas.com/en/news/argentinas-ypf-eyeing-lithium-potential

36https://www.mining.com/competition-for-controlling-li-ion-battery-production-intensifies-report/

37https://www.reuters.com/article/galaxy-rsrcs-output/australias-galaxy-resources-to-slash-output-at-flagship-lithium-mine-in-2020-idUSL4N29S077

38https://uk.reuters.com/article/us-albemarle-results/albemarle-to-delay-construction-plans-for-125000-tons-of-lithium-processing-idUKKCN1UY1QS

39https://www.afr.com/companies/mining/tianqi-puts-brakes-on-landmark-wa-lithium-plant-expansion-20190910-p52ppp

40https://www.afr.com/companies/mining/minres-reaps-us1-3-billion-for-stake-in-mothballed-lithium-mine-20191101-p536h2

41 https://www.nemaskalithium.com/en/investors/press-releases/2019/53f0e3be-0d29-475e-b37f-7090e58ede31/

42https://wcsecure.weblink.com.au/pdf/GXY/02381236.pdf

43 https://www.mining-technology.com/news/wesfarmers-sqm-approve-mt-holland-lithium-project/

44 https://www.mining-technology.com/news/wesfarmers-construction-mt-holland-wa/

45 https://www.theguardian.com/business/2021/mar/15/car-industry-lobbied-uk-government-delay-ban-petrol-diesel-cars

46https://tfl.gov.uk/modes/driving/ultra-low-emission-zone/ulez-where-and-when

47 https://www.focus2move.com/usa-vehicles-sales/

48 https://www.theguardian.com/environment/2021/jan/19/global-sales-of-electric-cars-accelerate-fast-in-2020-despite-covid-pandemic

49https://www.spglobal.com/platts/en/market-insights/latest-news/electric-power/111920-us-ev-market-sales-to-rise-to-69-million-units-by-2025-frost-amp-sullivan#:~:text=London-,US%20EV%20market%20sales%20to%20rise%20to,units%20by%202025%3A%20Frost%20%26%20Sullivan&text=London%20%E2%80%94%20The%20US%20electric%20vehicles,19.

50 https://www.theatlantic.com/science/archive/2021/06/climate-change-green-vortex-america/619228/

51https://wcsecure.weblink.com.au/pdf/GXY/02313309.pdf?source=content_type%3Areact%7Cfirst_level_url%3Aarticle%7Csection%3Amain_content%7Cbutton%3Abody_link

52 https://www.lithiumamericas.com/news/lithium-americas-announces-closing-of-us100m-atm-offering?source=content_type%3Areact%7Cfirst_level_url%3Aarticle%7Csection%3Amain_content%7Cbutton%3Abody_link

53 https://www.lithiumamericas.com/_resources/news/nr_20210122.pdf

54 https://www.neolithium.ca/news-detail.php?id_news=67

55https://s25.q4cdn.com/757756353/files/doc_news/2021/03/PR_FinCapitalIncrease_28abr2021_ing.pdf

56 https://ir.livent.com/news/news-details/2021/Livent-Releases-First-Quarter-2021-Results/default.aspx

57 https://ir.livent.com/news/news-details/2021/Livent-Announces-Pricing-Of-Offering-Of-13000000-Shares-Of-Common- Stock/default.aspx

58 https://www.orocobre.com/wp/?mdocs-file=7803

59 https://www.reuters.com/article/core-lithium-ganfeng-lithium-supply-deal/australias-core-lithium-inks-4-year-supply-deal-with-chinas-ganfeng-idUSL4N2PG17C

60 https://www.argusmedia.com/en/news/2241836-chinas-ganfeng-plans-15gwh-battery-production-projects

61 https://www.riotinto.com/en/news/releases/2021/Rio-Tinto-achieves-battery-grade-lithium-production-at-Boron-plant

62 https://www.riotinto.com/news/releases/2021/Rio-Tinto-commits-funding-for-Jadar-lithium-project?hsamp_network=linkedin&hsamp=baSXcdeMEVKP7

63 https://www.reuters.com/business/energy/battery-maker-northvolt-raises-275-bln-expand-factory-2021-06-09/

64 https://www.cityam.com/gigafactory-firm-britishvolt-mulling-london-listing/

65 https://asia.nikkei.com/Business/Technology/SK-Innovation-pumps-26bn-into-EV-batteries-to-quintuple-output

66 https://www.pocket-lint.com/gadgets/news/130380-future-batteries-coming-soon-charge-in-seconds-last-months-and-power-over-the-air

67 https://www.bloomberg.com/news/newsletters/2021-05-25/hyperdrive-daily-the-ev-price-gap-narrows

68 https://www.reuters.com/article/us-autos-tesla-batteries-exclusive/exclusive-teslas-secret-batteries-aim-to-rework-the-math-for-electric-cars-and-the-grid-idUKKBN22Q1WC

69 https://equalocean.com/news/2021012815969

70 https://www.reuters.com/technology/exclusive-tesla-supplier-catl-plans-new-battery-plant-shanghai-sources-2021-06-03/

71 https://www.volkswagen-newsroom.com/en/press-releases/power-day-volkswagen-presents-technology-roadmap-for-batteries-and-charging-up-to-2030-6891

72 https://mobile.reuters.com/article/amp/idUSKBN2BU39B?__twitter_impression=true

73 https://polaris.brighterir.com/public/bacanora_lithium/news/rns/story/xj3evow