BCN.L Regulatory News (BCN)

Bacanora Lithium plc / Index: AIM / Epic: BCN / Sector: Natural Resources

5 June 2019

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

Feasibility Study Estimates €428 million NPV and 27.4% IRR for Zinnwald Lithium Project

Bacanora Lithium Plc, the London traded lithium company, is pleased to announce the results of the NI 43-101 Feasibility Study ('FS') for the Zinnwald Lithium Project in Germany ('Zinnwald' or 'the Project') which confirm the positive economics and favourable operating costs for the production of 5,112 tonnes per annum ('tpa') (~7,285 tpa LCE) of battery grade Lithium Fluoride ('LiF'), a high value, downstream product used in the manufacture of lithium battery electrolytes for the European electric vehicle industry. With a long life of project of 30 years, the FS estimates a pre-tax project Net Present Value ('NPV') of €428 million (8% discount rate); an Internal Rate of Return ('IRR') of 27.4%; favourable Life of Mine ('LOM') operating costs and a 46% EBITDA operating profit margin.

Bacanora acquired an initial 50% interest in Deutsche Lithium GmbH ('DL') (the 100% owner of Zinnwald) in February 2017 and has an option to acquire the outstanding 50% ('the Option') that it does not own. The Company is pleased to announce it has reached an agreement with the administrators of SolarWorld AG ("SolarWorld"), which holds the remaining 50% interest, to extend the Option period from August 2019 to February 2020.

Highlights

Confirmed strong economic potential

· Estimated Project pre-tax IRR of 27.4%; NPV of €428 million (8% discount rate)

· Estimated Project post-tax IRR of 21.5%, NPV of €270 million with a project payback of 6.1 years

· Average LOM annual earnings before interest, taxes, depreciation and amortisation ('EBITDA') estimated at €58.5 million per annum

· Long life project with the 30 year FS mine plan equating to less than 50% of the current identified mineral resources

· Base case 30 years revenue and EBITDA estimated at €3.86 billion and €1.75 billion respectively

Zinnwald: a significant lithium deposit, strategically positioned in Germany's industrial heartland

· Total Mineral Reserve (Proven and Probable) estimate of 31.20 million tonnes ('Mt') of ore at a grade of 3,004 ppm containing 94 thousand tonnes ('kt') of contained lithium ('Li')

· Demonstrated Mineral Resource (Measured and Indicated) estimate of 35.51 Mt of ore at a lithium grade of 3,519 ppm, containing 125 kt of Li

· Deutsche Lithium also owns the exploration licences for the lithium deposits of the claims "Falkenhain" and "Altenberg DL" which have the potential to significantly increase Zinnwald's resource base and Project life

Conventional flow sheet uses established sulphate route processing technology

· Integrated plant designed to process approximately 570,000 tpa of ore (LOM average)

· Capital cost estimate of €159 million includes mining, processing plant, infrastructure, tailings management, general administration costs as well as the requisite contingencies

· FS includes sale of 32,000 tpa of by-product potassium sulphate ('SOP', 'K2SO4') to the European fertiliser industry

Next Steps: advance Zinnwald towards production to satisfy expected continued growth in demand for lithium driven by growing sectors such as electric vehicles and energy storage

· Subject to Board approvals and other key milestone events, project detailed design is expected to commence in H1 2020

Peter Secker, CEO of Bacanora, commented, "With a €428m NPV and 27.4% IRR, the FS confirms a battery grade LiF operation at Zinnwald that has the potential to generate significant value for shareholders. The €58.5 million in annual earnings that the €159 million capital investment is forecast to generate in each of the 30 years of mine life, the strong position on the global industry cost curve, the conventional processing route, and the exposure to fast-growing end markets such as EVs, all add to the compelling investment case that Zinnwald represents. With numbers such as these, we are keen to realise the Project's potential to become a leading supplier to the fast-growing European battery and automotive sectors at the earliest opportunity. We are already working hard to secure strategic partners to develop the Project and we are actively considering a public listing for Deutsche Lithium, our 50%-owned subsidiary that holds Zinnwald, to help achieve our aim.

Bacanora now has two high value lithium projects where Feasibility Studies have not only been completed but have confirmed the credentials of each. In tandem with advancing Zinnwald towards the development stage, we are looking to finalise the finance package to build an initial 17,500 tpa lithium carbonate operation in Sonora, Mexico. Like Zinnwald, Sonora has highly attractive economics including a US$1.25 billion NPV, 26% IRR and ~US$4,000 per tonne LOM operating costs which place it among the lowest cost producers in the world. Our two projects have a combined, independently estimated NPV of more than US$1.7 billion, a level that far outstrips our current £36 million market capitalisation as of 4 June 2019. We are confident this valuation gap will soon close. I look forward to providing further updates on our progress during this exciting time for the Company."

Key Elements of the Feasibility Study

Project Introduction

Zinnwald is located in southeast Germany, some 35 km from Dresden, adjacent to the border of the Czech Republic, within 3 km of the town of Altenberg and 50 km of the town of Freiberg. The Project is in a granite hosted Sn/W/Li belt that has been mined historically for tin, tungsten and lithium at different times over the past 300 years. With an abundant supply of fluorspar/hydrofluoric acid available in the immediate vicinity, DL has chosen to focus on LiF production. LiF is one of the two key components in the manufacturing process of LiPF6, which is the most commonly used conducting organic salt in lithium batteries and serves as the "shuttle" in the battery electrolyte which "ships" the lithium ion between the cathode and the anode. The strategic location of the Project allows immediate access to the German automotive and downstream lithium chemical industries.

Feasibility Study - Key Indicators

Based on a forecast selling price of €22,000 per tonne LiF, the FS demonstrates the attractive economics of Zinnwald and the key findings are shown in the table below:

Table 1. Key Study Indicators

(* All costs are in Euro)

Mineral Resource Estimates

The Zinnwald lithium property hosts one of the largest lithium deposits in Europe. As part of the FS, the upgraded resource has been reported in accordance with National Instrument 43 -101 - Standards of Disclosure for Mineral Projects ('NI 43-101') and was carried out by G.E.O.S. Ingenieurgesellschaft mbH ('G.E.O.S.'), Reporting Persons: EurGeol Kersten Kühn, Mr. Matthias Helbig from G.E.O.S and Dr. Thomas Dittrich from Deutsche Lithium GmbH. EurGeol Dr. Wolf -Dietrich Bock, an independent qualified person as defined by NI 43-101, has reviewed and approved the technical information contained in this press release and is independent of the Company.

The table below provides a breakdown of the upgraded Mineral Resource estimate for the Zinnwald Project as of 30 September 2018:

Table 2. Lithium Mineral Resource estimate of the Zinnwald Lithium Deposit

(* Vertical thickness ≥ 2 m, cut-off Li = 2,500 ppm)

Notes: (i) Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability.

(ii) Lithium Carbonate Equivalent ("LCE"); using a conversion factor of 1 unit of lithium metal equivalent to 5.323 units of LCE.

Using a minimum thickness of 2 m and 2,500 ppm Li cut-off, the Zinnwald Demonstrated Mineral Resource (Measured and Indicated) is 35.5 Mt at a grade of 3,519 ppm Li containing 124,974 tonnes of Li.

Mining Operations and Mineral Reserve Estimates

The mining operation for the Project is planned as an underground mine development using a decline for the access to the mine and ore transportation to Freiberg, 50 km away from Zinnwald. The mine technology will be a common LHD - room and pillar technology. The Mineral Reserve estimate was prepared by independent mining consultants G.E.O.S with a cut-off of 2,500 ppm lithium metal.

The estimated Mineral Reserves of the Zinnwald lithium deposit is based on the development of the whole deposit. Internal dilution mostly consists of greisen and greisenized granite that shows average lithium grades of roughly 1,900 ppm. External dilution shows average lithium grades of around 1,700 ppm.

The portion of the Demonstrated Mineral Resource which cannot be mined due to existing mine workings or which cannot be economically mined due to isolation of ore bodies or insignificant ore thickness, amounts to 7% and was excluded. Based on this reduced resource, Mineral Reserves have been estimated based on standard mining technology with optimized back fill applying sublevel stoping with longitudinal stopes.

The suggested mining method of the Zinnwald lithium deposit, which can be specifically adjusted to locally changing geological conditions, includes maximum dimensions of the rooms of 7 m x 7 m with 2 m wide safety pillars and 1 m thick horizontal roof pillars. Backfill material is characterized by a compressive strength value of at least 4 to 5 MPa. The portion of the Proven Mineral Reserve accounts for 16.5 Mt of ore and contains 51 kt Li. This corresponds to 54 % of the total lithium metal Reserve. The Probable Mineral Reserve is 14.7 Mt of ore with a content of 43 kt Li. It comprises 46 % of the total lithium metal Reserve. For further details see the table below.

Table 3. Lithium Mineral Reserve estimate of the Zinnwald Lithium Deposit

Notes: (i) Tonnes rounded to the nearest thousand.

(ii) Lithium Carbonate Equivalent ("LCE"); using a conversion factor of 1 unit of lithium metal equivalent to 5.323 units of LCE.

Process Design

Metallurgical test work and process design for the FS was carried out at:

- UVR-FIA GmbH of Freiberg, Germany,

- IBU-Tec AG of Weimar,Germany,

- K-UTEC AG of Sondershausen, Germany and

- Ercosplan GmbH of Erfurt, Germany.

The basic engineering for the process plants and infrastructure have been prepared by:

- Beneficiation process - KÖPPERN Aufbereitungstechnik GmbH of Freiberg, Germany (Köppern),

- Pyrometallurgy - CEMTEC Cement & Mining Technology GmbH of Enns, Austria (Cemtec), and

- Hydometallurgy - AMPROMA GmbH of Ammersee, Germany (Amproma).

The process plant design comprises a pre-concentration stage to produce an initial concentrate prior to roasting. The concentrate is subsequently heated in a kiln, at approximately 950 degrees Celsius, in combination with limestone and gypsum. Following roasting a hot water leaching step recovers lithium and after removal of impurities LiF is precipitated using potassium fluoride. LiF is filtered and packaged, to produce a >99.5% LiF final battery grade product. The integrated plant has been designed to initially process 522 kt of ore per year (average of first 5 years of production), producing 5,112 tpa of lithium fluoride. The plant will scale up to process up to 600 kt of ore per year over the life of the mine.

The plant design also includes a circuit to produce up to 32,000 tpa of K2SO4/SOP by-product through a series of evaporation and precipitation stages.

Capital Cost Estimates

The metallurgical processing facility will be located in Freiberg. The capital cost estimate is based on using brown field processing plant site locations for both the concentrator and the lithium processing plants, but all equipment costs are based on all new equipment, to produce the concentrate and the battery-grade lithium fluoride.

The capital cost estimates for the mine, process plant, infrastructure, tailings management, construction, engineering, procurement, and construction management ('EPCM') fees, and general and administration are based on basic engineering from G.E.O.S., Köppern, Cemtec and Amproma and were compiled in a financial model by eXnet audit GmbH Wirtschaftsprüfungsgesellschaft of Dresden, Germany (eXnet).

Table 4. Summary of Estimated Capital Costs

Notes: * subsidies/grants (estimated) by the Government of Free state Saxony based on European and national law.

Operating Cost Estimate

The estimated mining and processing operating costs are based on an operation achieving average annual production of approximately 5,112 tonnes of battery-grade, 99.5% LiF, (7,285tpa LCE). The estimated average unit operating cost for the mine, primary and secondary processing facilities are as follows:

Table 5. Average Annual Operating costs per tonne

Cash Flow Sensitivity Analysis

The Project is currently estimated to have a payback period of 6.1 years. Cash flows are based on a 100% equity funding basis and the economic analysis indicates a pre-tax NPV, discounted at 8%, of approximately €428 million and an IRR of approximately 27.4%, as shown below. Post tax the NPV is approximately €270 million and the IRR 21.5%.

Table 6. Sensitivity Analysis - Discount Rate Impact (€ m)

Table 7. Sensitivity Analysis - Post Tax NPV and IRR %

Base case 30 years LiF revenue is estimated at €3.86 billion, with a 30 year EBITDA of approximately €1.75 billion.

Market Review and Lithium Pricing

SignumBox (Chile) has provided the Company with their detailed 20 years analysis of the global lithium market. The Fraunhofer Institute in Germany (www.fraunhofer.de) has provided a detailed analysis of the electrolyte/LiF market. These reports can be summarized as follows:

· By 2037, SignumBox anticipate global annual demand for lithium chemicals to reach about 1,700,000 tonnes of LCE in their base scenario, compared to the current 360,000 tonnes in 2019, equating to an average annual growth rate of about 11.5% over the next 20 years.

· Contract prices for battery grade lithium carbonate products have increased significantly since Q3 2015, from a global average price of lithium carbonate of approximately US$6,000 per tonne to over approximately US$12,000 per tonne, (Q2 2019).

· SignumBox estimate total demand for electrolyte materials reached 142,000 tonnes in 2018, this represents a 11,4% growth compared with 2017, with a value of US$4 billion. They expect annual demand to grow to over 230,000 t by 2030

· Fraunhofer estimates mid case consumption of LiF in electrolyte production will be in the range 20,000 to 40,000 tonnes annually by 2030, depending on LiF density remaining in the range of 5% to 10% of the electrolyte

Lithium fluoride pricing for the FS has been averaged from a number of sources including Zion Market Research, SignumBox market and price forecast and spot market price in China. For the FS cashflow analysis, the Company has taken a consensus approach for pricing and is using a price of €22,000/t for battery grade lithium fluoride over the 30 years of production. The SOP price is estimated at €500 per tonne. The cashflow analysis was prepared by the Company's financial consultants exNet.

Environment and Permits

DL holds an approved mining licence for the Zinnwald deposit and has completed the Project Environmental Impact Assessment (EIA). Final approvals for construction and operation would be issued once a project construction timetable is submitted to the local authorities.

Project Timetable

Subject to Bacanora's Board of Directors ('Board') approvals, project financing and general lithium market conditions, the Company will continue to progress the development of the Zinnwald Lithium Project. The detailed design engineering phase of the project is currently scheduled to commence in H1 2020. During this stage, a definitive schedule for the project development will be completed and presented to the Board for final approval. Regular updates on the project progress will be provided throughout the project schedule.

Zinnwald Option Agreement

Bacanora has an option to acquire the outstanding 50% interest in Deutsche Lithium held by SolarWorld for €30 million. The Company has reached an agreement with the administrators of SolarWorld to extend the option period from August 2019 to February 2020. Under the agreement, Bacanora has also agreed to invest a further €0.5m in Deutsche Lithium through to the end of the extended option period. In the event that Bacanora does not exercise this right within the above stated timeframe, SolarWorld has the right but not the obligation to purchase Bacanora's 50% interest for €1.

Report Filing

A technical report on this Feasibility Study, prepared in accordance with NI 43-101, will be filed on SEDAR at www.sedar.com and at www.bacanoralithium.com within forty-five (45) days of the date of this news release.

Qualified Persons

Each of the qualified persons below has reviewed and approved the technical information contained in this press release and are independent of the Company. The qualified persons are:

EurGeol Dr. Wolf-Dietrich Bock is the qualified person as defined by NI 43 -101 and responsible for the overall preparation of the report with assistance by EurGeol Kersten Kühn as qualified person as well.

Richard Gowans P. Eng, of Micon International Limited is the qualified person as defined by NI 43-101 and responsible for the test work and process engineering.

The Mineral Resource, Mineral Reserve, the mine plan, capital cost and operating cost estimates were prepared by EurGeol Kersten Kühn of G.E.O.S. and EurGeol Dr. Wolf-Dietrich Bock. Both are independent qualified persons as defined by NI 43-101 and were supported by Holger Kunz from company eXnet to calculate the financial model.

The Mineral Resource and Mineral Reserve estimates in this press release were prepared in accordance with the CIM "Definition Standards on Mineral Resources and Mineral Reserves" adopted by the CIM Council on 10 May 2014, and the CIM "Estimation of Mineral Resources and Mineral Reserves Best Practice Guidelines," adopted by CIM Council on 23 November 2003, in compliance with NI 43-101 guidelines.

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

For further information, please contact:

ABOUT BACANORA LITHIUM:

Bacanora owns ten mining concession areas covering approximately 100 thousand hectares in the northeast of Sonora State in Mexico. Seven of these ten mining concessions (the 'Sonora Lithium Project'1) were included in the Feasibility Study announced 12 December 2017. The Company, through drilling and exploration work to date, has established a Measured plus Indicated Mineral Resource estimate of over 5 Mt (comprising 1.9Mt of Measured Resources and 3.1Mt of Indicated Resources) of LCE2 and an additional Inferred Mineral Resource of 3.7 Mt of LCE. The Company's Feasibility Study has established Proven Mineral Reserves (in accordance with NI 43-101) of 1.67 Mt and Probable Mineral Reserves of 2.85 Mt LCE and confirmed the economics associated with becoming a 35,000 tpa lithium carbonate and 30,000 tpa SOP producer in Mexico. In addition to the Sonora Lithium Project, the Company also has a 50% interest in the Zinnwald Lithium Project and the Falkenhain and Altenberg DL Licences in southern Saxony, Germany. Each of the Zinnwald Lithium Project and the Falkenhain and Altenberg DL Licences are located in a granite hosted Sn/W/Li belt that has been mined historically for tin, tungsten and lithium at different times over the past 300 years. The strategic location of the Zinnwald Lithium Project and the Falkenhain and Altenberg DL Licences provides close geographical proximity to the German automotive and downstream lithium chemical industries.

1. The Sonora Lithium Project is comprised of the following lithium properties: La Ventana lithium concession, which is 100 percent owned by Bacanora and El Sauz and Fleur concessions, which are held by Mexilit S.A. de C.V. ('Mexilit') which is owned 70 percent by Bacanora and 30 percent by Cadence Minerals Plc.

2. LCE = lithium carbonate (Li2CO3) equivalent; determined by multiplying Li value in percent by 5.323 to get an equivalent Li2CO3 value in per cent. Use of LCE is to provide data comparable with industry reports and assumes complete conversion of lithium in clays with no recovery or process losses.

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 Canada, the United Kingdom, Germany, the United States, Mexico 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.

The contents of this announcement have been approved solely for the purposes of section 21(2)(b) of the Financial Services and Markets Act 2000 by Citigroup Global Markets Limited, whose registered office is at Citigroup Centre, Canada Square, Canary Wharf, London, E14 5LB. Citigroup Global Markets Limited, which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority in the United Kingdom, and Canaccord Genuity Limited, which is authorised and regulated by the Financial Conduct Authority, are each acting exclusively for Bacanora and no one else in connection with the Project, and will not regard any other person as their client in relation to the Project and will not be responsible to anyone other than Bacanora for providing the protections afforded to their respective clients, nor for providing advice in relation to the Project or the contents of this announcement or any transaction, arrangement or other matter referred to herein.

None of Citigroup Global Markets Limited, Canaccord Genuity Limited nor any of their respective subsidiary undertakings, affiliates or any of their respective partners, directors, officers, employees, advisers, agents or any other person accepts any responsibility or liability whatsoever for, or makes any representation or warranty, express or implied, as to the truth, accuracy, completeness or fairness of the information or opinions in this announcement (or whether any information has been omitted from the announcement) or any other information relating to Bacanora, or any of their subsidiaries or associated companies, whether written, oral or in a visual or electronic form, and howsoever transmitted or made available or for any loss howsoever arising from any use of this announcement or its contents or otherwise arising in connection with it. Each of Citigroup Global Markets and Canaccord Genuity, Broker (together, the "Banks") is acting exclusively for Bacanora and no one else in connection with any matter referred to in this announcement and will not be responsible to anyone other than Bacanora for providing the protections afforded to their respective clients nor for providing advice in relation to any matter referred to in this announcement. Neither the Banks nor any of their respective subsidiaries, branches or affiliates owes or accepts any duty, liability or responsibility whatsoever (whether direct or indirect, whether in contract, in tort, under statute or otherwise) to any person who is not a client of the Banks in connection with this announcement, any statements contained herein or otherwise.

*ENDS**