BCN.L Regulatory News (BCN)

30 September 2016

Bacanora Minerals Ltd

('Bacanora' or the 'Company')

Rebuttal of Proposed Merger

The Board of Bacanora ('Bacanora' or 'the Company'), the Toronto and London listed (TSX-V: BCN and AIM: BCN) company focused on developing the Sonora Project ('Sonora' or 'the Project') in Mexico into a world class lithium carbonate operation, announces that it has received an unsolicited non-binding indicative proposal ('the Proposal') from Rare Earth Minerals plc ('REM'), an AIM listed investment vehicle with a 19.8% holding in the Company. The Proposal envisages an all-share merger of Bacanora and REM with REM acting as the acquiring entity (via a reverse takeover) and issuing newly issued REM shares to Bacanora's shareholders. The merger exchange ratio proposed by REM is between 135 and 141 REM shares for each outstanding Bacanora share ('the Proposed Offer'). The Board of Bacanora strongly rejects the Proposal believing it significantly undervalues the Company and jeopardises Sonora's development path to production.

Below, the Board summarises its view of the potential business combination and its rationale for rejecting the Proposed Offer:

· The midpoint of the Proposed Offer range represents a premium of only 13.1% to the Bacanora closing share price of 88.50 pence per share on 29 September 2016 (being the last trading date prior to this announcement);

· On a relative six month volume weighted average share price basis, the midpoint of the Proposed Offer range represents a discount of 0.7% as at 29 September 2016 (being the last trading date prior to this announcement);

o The Board notes that on 20 September 2016, REM acquired 4.5 million ordinary shares from a large existing shareholder in cash at a price of 100p per share; in contrast the Proposed Offer envisages the settlement to be satisfied wholly through the issue of new shares in REM

· The Proposed Offer would result in dilution to the near term and life of mine cash flow for Bacanora's existing non-REM shareholders given that 83.6% of the Sonora plant feed is expected to originate from Bacanora's 100% owned La Ventana concession over the current 21 year life of mine, as stated in the Preliminary Feasibility Study ('PFS') announced on 3 March 2016;

· Bacanora's team has already delivered on key milestones at Sonora as it focuses on delivering the world's next major lithium mine, having:

o Defined a high grade, large scale resource;

o Produced battery grade lithium carbonate at its wholly owned pilot plant which is now running continuously;

o Completed the PFS which demonstrates the attractive economics of Sonora and remains on track to deliver a fully funded BFS in Q1 2017; and

o Introduced two well-known institutional shareholders to the register which signifies the attractiveness of Sonora and the market's confidence in the Board and management team to deliver on the Project;

· The Bacanora team continues to work towards delivering critical near-term milestones that are expected to be highly value-accretive to Bacanora.

In addition, the Board believes that:

· Bacanora's Board and management have substantial experience in arranging financing, developing and operating mining projects and have the necessary capabilities to deliver the Sonora project;

· REM's portfolio of early stage projects, mostly in the form of non-controlling equity interests, is likely to dilute Bacanora's investment case and create a less transparent investment proposition; and

· REM's limited financial resources are not likely to assist the Sonora Project's funding requirements.

The Board also notes REM's vote against the proposed re-domicile of Bacanora to the UK, which is widely viewed to be in the best interest of all the Company's shareholders, at the General Meeting held on 28 September 2016.

Bacanora interim Non-Executive Chairman James Leahy said, "The Proposed Offer is opportunistic and materially undervalues Sonora. The Bacanora team has made excellent progress in successfully de-risking and advancing Sonora, and at the same time has successfully raised capital from blue chip institutions, who are fully supportive of progress made to date and management's ability to deliver Sonora as the world's next major lithium mine. In our view, as well as undervaluing the Company, the Proposed Offer has the potential to impede the project's development going forward."

Macquarie Capital (Europe) Limited is acting as Financial Adviser to Bacanora with respect to the proposal from REM.

This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014.

For further information, please contact:

ABOUT BACANORA:

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

· The Sonora Lithium Project, which consists of ten mining concession areas covering approximately 100 thousand hectares in the northeast of Sonora State. The Company, through drilling and exploration work to date, has established an Indicated Mineral Resource (in accordance with NI 43-101) of 4.5 million tonnes (LCE) and 2.7 million tonnes Inferred. A PFS completed in Q1 2016 demonstrated the robust economics associated with becoming a 35,000 tpa lithium carbonate and 50,000 tpa SOP producer in Mexico.

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