BCN.L Regulatory News (BCN)

Bacanora Minerals Ltd.

("Bacanora" or the "Company")

Financial Results for the Period Ended 30 September 2014

Bacanora is pleased to announce its unaudited financial results as at, and for the three months ended 30 September 2014 (the "Period"), and to provide an update on subsequent events. These results were prepared in line with International Financial Reporting Standards, and, unless otherwise stated, amounts are expressed in Canadian dollars ("CAD$"). Condensed consolidated financial statements are included further below.

Events during the Period

Financial Highlights during the Period

· CAD$ 13.1 million held in cash and in trust at the Period end, compared to CAD$ 1.1 million during the same period in 2013;

· CAD$ 2.6 million raised through option and warrant exercises during the Period;

· CAD$ 9.1 million invested in exploration assets and CAD$ 1.5 million in the Company's pilot plant (the "Pilot Plant") at 30 September 2014; and

· CAD$ 0.5 million loss during the Period, compared to CAD$ 0.6 million during the same period in 2013.

Operational and Corporate Highlights during the Period

· admission to trading on the AIM Market operated by London Stock Exchange plc ("AIM"), and associated CAD$7.6 million net of expenses fundraising, making this the largest AIM mining admission since 2012;

· Rare Earth Minerals plc ("REM") provided US$1 million to Bacanora to increase their ownership in Megalit S.A. de CV (the "Megalit Subsidiary") to 30 per cent. These funds will be used for exploration and drilling expenditures over the next year; and

· appointment of Kiran Morzaria to the Board as Non-Executive Director.

Subsequent Events

Operational and Corporate Highlights

· appointment of Hatch Pty as engineering consultant for both the Sonora lithium project (the "Sonora Lithium Project") and the Magdalena borate project (the "Magdalena Borate Project");

· design work initiated on Magdalena Borate Project for a plant capable of producing up to 25,000 tonnes per annum of boric acid;

· design work initiated on Sonora Lithium Project for a plant capable of producing up to 50,000 tonnes per annum of lithium carbonate equivalent ("LCE") to complement to already defined indicated resource of 3.28 million tonnes ("mt") of LCE;

· commencement of 1,000 metres of HQ drilling on the most advanced target of the Magdalena Borate Project, El Cajon; and

· commencement of 25 holes of reverse circulation ("RC") drilling at Buenavista, after which the RC rig will be mobilised to La Ventana.

Colin Orr-Ewing, Non-Executive Chairman of Bacanora, commented:

"The Company ends the Period in a robust cash position, having listed on AIM, as well as subsequently receiving the proceeds following the exercise of warrants. The significant investor interest in the Company's admission to AIM underlines the exciting potential that exists within our asset portfolio, as well as our stated strategy of advancing our two projects. Since the end of the Period we have also made solid progress on commercialisation of both the lithium and borate projects through further drilling, and the commencement of the respective feasibility studies."

ABOUT BACANORA:

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

· The Sonora Lithium Project which consists of ten mining concession areas covering 104,064 hectares in the north east of Sonora state. The Company, through drilling work to date, has established an NI 43-101 compliant indicated resource of 3.28 mt of LCE at a 2,000 ppm cut-off grade. The Company's 100 per cent. owned La Ventana deposit, which lies within the Sonora Lithium Project, hosts an NI 43-101 compliant drill Indicated lithium resource of 1.27 mt of LCE; and 

· The Magdalena Borate Project, covering 16,503 hectares in Sonora state, Mexico, where the Company's main borate zone, El Cajon, has an 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 Condensed 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 Company's common shares are also traded on the AIM Market of the London Stock Exchange, under the symbol BCN. The head office 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 capitalised 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 capitalised as mineral properties represent costs incurred to date, and do not necessarily represent present or future values.

The Company has generated accumulated losses of CAD$ 604,256 (2013 - CAD$ 1,054,253) 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 condensed consolidated interim financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") applicable to the preparation of interim financial statements, including IAS 34, Interim Financial Reporting. The condensed consolidated interim financial statements should be read in conjunction with the annual consolidated financial statements for the year ended June 30, 2014, which have been prepared in accordance with IFRS as issued by the IASB.

The Company uses the same accounting policies and methods of computation as in the annual consolidated financial statements for the year ended June 30, 2014.

These condensed consolidated interim financial statements were authorised for issue by the Board of Directors on November 26, 2014.

b) Basis of measurement

These consolidated financial statements have been prepared on a historical cost basis, except for certain financial instruments that have been measured at fair value. 

These consolidated financial statements are presented in Canadian dollars. The functional currency of the Company is Canadian dollars and for its subsidiaries is the US dollar.

c) New standards and interpretations not yet adopted

A number of new IFRS standards, and amendments to standards and interpretations, are not yet effective for the period ended September 30, 2014, and have not been applied in preparing these condensed consolidated interim financial statements. None of these standards are expected to have a significant effect on the condensed consolidated interim financial statements of the Company.

3. 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.

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"), 70% 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.

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 capitalised, information becomes available suggesting that the recovery of expenditure is unlikely, the amount capitalised is written off in the statement of comprehensive loss in the period when the new information becomes available. The carrying value of these assets is detailed in Note 8.

b) Title to mineral property interests

Although the Company has taken steps to verify the title to the exploration and evaluation assets in which it has an interest, in accordance with industry practices for the current stage of exploration of such properties, these procedures do not guarantee the Company's title. Title may be subject to unregistered prior agreements or transfers and title may be affected by undetected defects.

c) Rehabilitation provision

Rehabilitation or similar liabilities are estimated based on the Company's interpretation of current regulatory requirements, constructive obligations and are measured at fair value. Fair value is determined based on the net present value of estimated future cash expenditures for the settlement of decommissioning, restoration or similar liabilities that may occur upon decommissioning of the mine. Such estimates are subject to change based on changes in laws and regulations.

d) Contingencies

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

e) Share-based payments

The Company utilises 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 recognises 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.

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 recognised in the period of determination and any adjustment may be significant. The carrying amount of accounts and related party receivables represents the maximum credit exposure.

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

The Board of Directors monitors the exposure to credit risk on an ongoing basis and does not consider such risk significant at this time. The Company considers all of its accounts receivables fully collectible.

b) Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they became due. The Company's approach to managing liquidity risk is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses. Liquidity risk arises primarily from accounts payable and accrued liabilities and commitments, all with maturities of one year or less.

c) Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, commodity prices, and interest rates will affect the value of the Company's financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable limits, while maximizing long-term returns.

The Company conducts exploration projects in Mexico. As a result, a portion of the Company's expenditures, accounts receivables, accounts payables and accrued liabilities are denominated in US dollars and Mexican pesos and are therefore subject to fluctuation in exchange rates.

d) Fair values

The carrying value approximates the fair value of the financial instruments due to the short term nature of the instruments.

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 CAD$ 23,706,406 at September 30, 2014 (2013 - CAD$ 12,331,124), 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

The 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 CAD$ 1,220,826 was recognised 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 CAD$ nil as the Company expects no cash inflows to arise related to this property.

b) Magdalena Borate property

The 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 an arm's length party, and a 3% gross overriding royalty payable to a director of the Company on sales of borate produced from this property. 

c) Sonora Lithium property

The Sonora Lithium Project consists of ten contiguous mineral concessions. The Company, through its wholly-owned Mexican subsidiary, MSB, has a 100% interest in two of these concessions: La Ventana and La Ventana 1, covering 1,775 hectares. Of the remaining concessions, five are owned 100% by Mexilit. The 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 Rare Earth Minerals PLC ("REM"). REM made payment of CAD$ 2,384,775 to acquire the 30% interest in Mexilit. REM's option to negotiate an interest of up to 49.9% of Mexilit under terms yet to be agreed upon expired during the period ended September 30, 2014. 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. At September 30, 2014, REM owns 30% of the common shares of Megalit. REM has the option to negotiate an increase to its interest of up to 49.9% of Megalit under terms and consideration yet to be agreed upon. The change in ownership interest of Mexilit and Megalit did not result of a loss of control and as such have been accounted for as equity transactions. The Sonora Lithium property is subject to a 3% gross overriding royalty payable to a director of the Company on sales of lithium produced from this property.

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