3rd Quarter Results

Bacanora Minerals Ltd

("Bacanora" or the "Company")

Q3 Financial Statements

Bacanora, the London and Canadian listed (AIM: BCN and TSX-V: BCN) lithium and borates company focused on Mexico, is pleased to provide an operational review of Q3 2016 and its unaudited condensed consolidated financial statements for the nine month period ended 31 March 2016, together with the accompanying notes.

HIGHLIGHTS FOR Q3 2016

· On April 15, 2016, the Company filed on SEDAR the results of the Pre-Feasibility Study ("PFS") for the development of mine and lithium carbonate ("Li2CO3") processing facility at the Sonora Lithium Project ("Project"). The positive results estimate a pre-tax Internal Rate of Return ("IRR") of 29% and an associated Net Present Value ("NPV") of US$776 million at an 8% discount rate. The PFS was prepared in accordance with National Instrument 43-101 - Standards of Disclosure for Mineral Projects ("NI 43-101"). The PFS was release on April 15, 2016, with updated mineral resource estimates and the same positive economic results.

· The results highlight the strong economic potential of producing up to 35,000 tonnes of battery grade Li2CO3, and up to 50,000 tonnes of potassium sulphate ("K2SO4") per year. Refer to the Pilot Plant and Pre-Feasibility Study section below for the highlights of the PFS, and the Company's website and SEDAR for the PFS in its entirety.

· The Company is continuing to upgrade its pilot plant in Hermosillo and is currently producing lithium carbonate samples for distribution to potential partners in Asia, in Q3 2016.

· Discussions are continuing with various Asian offtake partners, banks, debt providers and strategic investors. The Company is focused on developing a debt, equity and offtake project financing strategy for the Stage 1, 17,500tpa lithium carbonate project.

· The Company has commenced a Feasibility Study ("FS") for a two stage mine and processing facility to produce up to 35,000 tpa of lithium carbonate at its Sonora Project in northern Mexico. As part of this study we will be initiating an infill reserve drilling program, appointing international engineering and technical consultants to undertake the geological resource modeling, metallurgical testwork, mine designs and process engineering, as well as recruiting additional technical personnel with lithium development and operating expertise. The Company is currently scheduling to have the FS completed in Q1 2017.

· Subsequent to quarter end, the Company announced that it has raised £7,702,500 via the placing of 9,750,000 units (the "Placing Units") at a price of £0.79 per Placing Unit with certain funds and accounts managed by BlackRock. Each Placing Unit is comprised of one new common share of the Company and 0.3 of one common share purchase warrant, with each whole warrant being exercisable into one common share at a price of £0.79 at any time subsequent to July 25, 2016, but on or before September 30, 2016.

Colin Orr-Ewing, Chairman of Bacanora, said, "The lithium market is a highly exciting sector to be in at the moment and given the low costs and robust economics associated with delivering 35,000 tonnes of lithium carbonate a year, as demonstrated through our PFS announced during the period, we are ideally positioned to capitalise on the strong and growing market for this important commodity. The Feasibility Study is now underway, and as part of this we are positively advancing discussions with potential off-take partners in Asia which will be an integral part of our commercialisation of Sonora, which is both large in terms of resources and scalable. We are planning to distribute samples to potential partners in Q3 2016. The Feasibility Study is scheduled to be delivered in Q1 2017. Subject to the successful outcome of the FS and project financing, the Company's overall timetable could potentially align well with a potential future forecasted supply deficit that is being fueled by growth in innovative technologies such as electric vehicles, energy storage and portable devices."

For further information, please contact:

MINERAL PROPERTIES - LITHIUM

The Sonora Lithium Project consists of ten contiguous concessions covering 94,186 hectares. Two of the concessions (La Ventana, La Ventana 1) are owned 100% by Bacanora through its wholly-owned subsidiary Minera Sonora Borax S.A de C.V. ("MSB"). The El Sauz, El Sauz 1, El Sauz 2, Fleur and Fleur 2 concessions are owned by Bacanora's subsidiary, Mexilit S.A. de C.V. ("Mexilit") (which is owned 70% by Bacanora and 30% by Rare Earth Minerals PLC ("REM")). The San Gabriel and Buenavista concessions are owned by Bacanora's subsidiary, Minera Megalit S.A. de C.V. ("Megalit") (which is owned 70% by Bacanora and 30% by REM). REM had the option to negotiate an increase to its interest of up to 49.9% of Megalit. This option expired on January 12, 2016.

The Company currently holds the Megalit concession in MSB, but intends to transfer it to the Megalit subsidiary once the license is received from the Mexican Federal Mining Ministry. Because of the size of the concession the Mining Ministry is taking longer than usual to grant the license. The Company has held the exploration rights to the concession since the claim application and surveys were submitted to the Mining Ministry on November 7, 2013. The Mining Ministry turned the authorization for title to the General Direction of Mining Regulation on February 3, 2015 but to date the title has not been received. To date no work has been done, nor any expenses incurred on the Megalit concession. Management has no reason to believe that the license will not be eventually granted, but in the unlikely event of that it may not, management does not believe that it will impact the Company's future development activities, as the Megalit concession is not part of the Mineral Resource Estimate or the PFS.  

The Sonora Lithium Project is subject to a 3% gross overriding royalty payable to Mr. Colin Orr-Ewing, Chairman of the Company, on sales of mineral products produced from this property.

These concessions are located approximately 190 kilometres northeast of the city of Hermosillo, in Sonora State, Mexico. They are roughly 200 kilometres south of the border with Arizona, USA.

Based on the Company's updated NI 43-101 Mineral Resource Estimate ("MRE") announced on April 15, 2016, the Sonora Lithium Project concessions have an estimated indicated Li resource of 4.5 Mt LCE contained in 259 Mt of clay, at Li grade of 3,200 ppm, and an estimated inferred Li resource of 2.7 Mt LCE contained in 160 Mt of clay at a Li grade of 3,200 ppm. For further details on the Company's lithium resource refer to the Mineral Resource Estimate section below.

Mineral Resource Estimate

On April 15, 2016, the Company filed an Amended Mineral Resource Estimate for the Sonora Lithium Project, prepared in accordance with NI 43-101. The lead author of the amended report is Mr. Martin Pittuck (MSc., C.Eng., FGS, MIMMM) of SRK Consulting (UK) Limited ("SRK"), who is a "qualified person" within the meaning of NI 43-101 and is independent of the Company. The amended report has been filed on SEDAR, and is also available on the Company's website.

This report provides an amendment to the MRE given in the Company's announcement dated March 2, 2016 (as the Li cutoff grade has since changed) and supersedes the previous technical report for the Project that was released and filed in January 2016. This amended report incorporates the results of the PFS metallurgical testwork conducted by the Company, which also highlighted that a potassium ("K") product can be recovered as a by-product from Li2CO3 production, along with updated operating cost estimates in early 2016 (subsequent to the release of the January 2016 MRE). Following this testwork, SRK interpolated grades of potassium into the block model, updated the cut-off grade to 1,000 ppm lithium (previously 450 ppm), which is confined to a resource pit shell based on updated reasonable optimisation parameters, PFS process operating costs and lithium selling prices. Based on these PFS numbers SRK has produced an amended MRE. SRK has not received any further drilling data since the January 2016 MRE.

The amended MRE comprises an Indicated Mineral Resource estimated at 259 Mt averaging 3,200 ppm Li for 4.5 Mt of LCE, in addition to an Inferred Mineral Resource estimated at 160 Mt averaging 3,200 ppm Li for 2.7 Mt of LCE. Mineral Resources are stated inclusive of Mineral Reserves.

Table 1: SRK Amended Mineral Resource Statement as of April 12, 2016

Notes:

1. Mineral Resources are not Mineral Reserves and do not have demonstrated economic viability. All figures are rounded to reflect the relative accuracy of the estimate and have been used to derive sub-totals, totals and weighted averages. Such calculations inherently involve a degree of rounding and consequently introduce a margin of error. Where these occur, SRK does not consider them to be material.

2. The reporting standard adopted for the reporting of the MRE uses the terminology, definitions and guidelines given in the CIM Standards on Mineral Resources and Mineral Reserves (May 2014) as required by NI 43-101 and JORC.

3. SRK assumes the Sonora Lithium deposit to be amenable to surface mining methods. Using results from initial metallurgical test work, suitable surface mining and processing costs, and forecast LCE price SRK has reported the Mineral Resource at a cut-off 1,000 ppm Li (5,320 ppm Li2CO3).

4. SRK completed a site inspection of the deposit by Mr. Martin Pittuck, MSc, C.Eng, MIMMM, an appropriate "independent qualified person" as such term is defined in NI 43-101.

5. LCE is the industry standard terminology for, and is equivalent to, Li2CO3. 1 ppm Li metal is equivalent to 5.32 ppm LCE / Li2CO3. 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.

The amended Mineral Resource is inclusive of the Probable Reserves, which form the basis of the attractive economics highlighted in the PFS; the Probable Reserves remain unchanged since the 3 March 2016 announcement and are summarized in Table 2:

Table 2: Probable Mineral Reserves: (Cut-off grade of 1,200 ppm)

For the Stage 1 and Stage 2 mining design, a total of 52 Mt of ore at a grade of 3,525 Li ppm and 1.49% K and a stripping ratio of 3.1:1 will be mined over the initial 20-year mine life which forms the basis of the PFS economics.

Lithium Plant and Pre-Feasibility Study

Funds from the recent private placement are being utilized to expand and upgrade the Company's lithium pilot plant, located in Hermosillo. The expanded plant is currently being used to optimize the metallurgical flow sheet that has been developed during the PFS process as well as to produce battery grade lithium carbonate marketing samples for distribution to potential off-take partners in Europe and Asia in Q3, 2016.

Ongoing discussions with potential off-take partners in Europe and Asia are underway and will continue over the next 12 months, based on the production of battery grade lithium carbonate samples from the Hermosillo pilot plant.

Planning for an in-fill drilling program at La Ventana is being undertaken as part of the preparation for the FS that commenced in Q2, 2016.

The PFS which was published on April 15, 2016, has been prepared in accordance with NI 43-101 and is entitled, Technical Report on the Pre-Feasibility Study for the Sonora Lithium Project, Mexico, 15 April 2016. The authors of the PFS are Ausenco Limited ("Ausenco"), SRK and Independent Mining Consultants Inc. ("IMC"). The PFS has been filed on SEDAR and is also available on the Company's website.

The PFS comprises a two phase open-pit mine and lithium carbonate processing facility with a life of over 20 years, with the following production profile:

· Phase 1: 17,500 tonnes per year of battery-grade Li2CO3, for the first 2 years.

· Phase 2: Expansion to 35,000 tonnes Li2CO3 per year in or around the 3rd year of operations; and

· Designed to produce up to 50,000 tonnes per year of K2SO4 in the third year, for sale to the fertilizer industry.

The PFS demonstrates the attractive economics of the Project and key findings are shown in the table below: All costs are in US dollars, and rounded to nearest $'000.

· Estimated Project pre-tax IRR of 29%; NPV of US$776M, (at an 8% discount rate); and simple payback of five years, based on a flat US$6,000/t for battery grade lithium carbonate over the Life-Of-Mine ("LOM"). Recent price increases have seen spot prices of Li2CO3 in Asia increase to above US$6,000/t.

· Average annual earnings before interest, taxes, depreciation and amortisation ("EBITDA") estimated at US$134 million per annum.

· Stage 1 capital cost estimate of US$240M includes processing plant, on and off site infrastructure, Tailings Management Facility construction, and general administration costs.

· Mine design indicates a total of 52 Mt of ore to be mined over the planned 20-year mine life with a stripping ratio of approximately 3:1 over LOM.

· Integrated plant designed to initially process 1.4 million tonnes of ore per year, during the first 2 years of the project, subsequently increasing to 2.7 million tonnes per year subsequent to year three.

· The Company intends to complete a Feasibility Study by Q1 2017 and subject to project financing, commence detailed design and site preparation work in Q2 2017.

For complete details on the PFS please refer to the Company's March 2, 2016 press release and the report itself on the Company's website or on SEDAR.

Lithium Property Outlook

The Company remains focused on the development of its Sonora Lithium Project. In the immediate term, a number of activities are underway to support this future development.

· Completing the Feasibility Study.

· Progressing of initial metallurgical testwork for the production of battery grade lithium hydroxide material.

· Distribution of lithium samples to potential off-takers in Q3 2016.

MINERAL PROPERTIES - BORATES

Magdalena Borate

The Magdalena Borate Project consists of seven concessions, with a total area of 16,503 hectares. The Magdalena Borates Project is road accessible and located immediately east of the town of Magdalena de Kino, north of Hermosillo, Mexico.

Three main borate zones have been located on the Magdalena Borates Project: the Cajon Borate Deposit ("Cajon"); Bellota and Pozo Nuevo. Other targets include the Represo prospect, which is a new colemanite discovery that was made by Bacanora during a drilling campaign in 2014. Cajon is the most advanced of the main borate zones on which the Company has estimated drill-indicated boron resources in accordance with NI 43-101.

Initial metallurgical test work has indicated that a colemanite concentrate grading 38% - 42% B2O3 can be produced from an average feed of 10.5% B2O3 from El Cajon using a combination of scrubbing, de-sliming and flotation. The Company has constructed a pilot plant in order to conduct detailed metallurgy and improve the borate content of the colemanite concentrate. Metallurgical work at Magdalena will continue in 2016 and 2017.

Borates property outlook

Drilling results from the 2014 Magdalena drilling program have been utilized in a preliminary mine plan for Unit B, in conjunction with the previous mine plan for Unit A. Additional metallurgical testwork programs are being developed for the production of boric acid from howlite mineralization.

The following activities are proposed to be undertaken over the next 12 months:

· Bulk sampling results for drilling and metallurgical tests of Unit B results;

· Commencement of a Pre-Feasibility Study report with:

o Detailed full scale boric acid plant design and costing

o Revised mine plan; and

o Environmental baseline studies and mine permitting activities

See accompanying notes to the consolidated financial statements.

See accompanying notes to the consolidated financial statements.

Consolidated Statements of Changes in Shareholders' Equity (Unaudited)

Expressed in Canadian Dollars

See accompanying notes to the consolidated financial statements.

Notes to the Condensed Consolidated Interim Financial Statements

For the 9 months ended 31 March 2016

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 dually listed on the TSX Venture Exchange as a Tier 2 issuer and on the AIM Market of the London Stock Exchange, with its common shares trading under the symbol, "BCN" on both exchanges. The address of the Company is 2204, 6th Avenue N.W. Calgary, AB T2N 0W9.

The Company is a development stage mining company engaged in the identification, acquisition, exploration and development of mineral properties located in Mexico. The Company has not yet determined whether its mineral properties contain economically recoverable reserves. The recoverability of amounts capitalized is dependent upon the discovery of economically recoverable reserves, securing and maintaining title in the properties and obtaining the necessary financing to complete the exploration and development of these projects and upon attainment of future profitable production. The amounts capitalized as mineral properties represent costs incurred to date, and do not necessarily represent present or future values.

The Company has generated accumulated losses of $8,120,104 and the shareholders' equity of two of the Company's 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, 2015, 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, 2015.

These condensed consolidated interim financial statements were authorized for issue by the Board of Directors on May 30th, 2016.

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 March 31, 2016, 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. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS

The preparation of the Company's financial statements in accordance with IFRS requires management to make certain judgments, estimates, and assumptions about recognition and measurement of assets, liabilities, income and expenses. The actual results are likely to differ from these estimates. Information about the significant judgments, estimates, and assumptions that have the most significant effect on the recognition and measurement of assets, liabilities, income and expenses are discussed below.

a) Exploration and evaluation assets

The Company is in the process of exploring its mineral properties and has not yet determined whether the properties contain economically recoverable mineral reserves. The recoverability of carrying values for mineral properties is dependent upon the discovery of economically recoverable mineral reserves, the ability of the Company to obtain the financing necessary to complete exploration and development, and the success of future operations.

The application of the Company's accounting policy for exploration and evaluation assets requires judgment in determining whether it is likely that costs incurred will be recovered through successful exploration and development or sale of the asset under review when assessing impairment. Furthermore, the assessment as to whether economically recoverable reserves exist is itself an estimation process. Estimates and assumptions made may change if new information becomes available. If, after expenditures are capitalized, information becomes available suggesting that the recovery of expenditures is unlikely, the amount capitalized is written off in the statement of comprehensive loss in the period when the new information becomes available. The carrying value of these assets is detailed in Note 8.

b) Title to mineral property interests

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

c) Rehabilitation provision

Rehabilitation or similar liabilities are estimated based on the Company's interpretation of current regulatory requirements, constructive obligations and are measured at 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 utilizes the Black-Scholes Option Pricing Model to estimate the fair value of stock options granted to directors, officers and employees. The use of the Black-Scholes Option Pricing Model requires management to make various estimates and assumptions that impact the value assigned to the stock options including the forecast future volatility of the stock price, the risk-free interest rate, dividend yield and the expected life of the stock options. Any changes in these assumptions could have a material impact on the share-based payment calculation value.

The same estimates are required for transactions with non-employees where the fair value of the goods or services received cannot be reliably determined.

f) Income taxes

The Company is subject to income tax in several jurisdictions and significant judgment is required in determining the provision for income taxes. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. In the prior year these transactions included the transfer of properties between Mexican subsidiaries. Transactions between the Company's Mexican subsidiaries are required by Mexican tax rules to be recorded on an arms' length basis and the Company made estimates as to the measurement of these transactions. The Company recognizes liabilities and contingencies for anticipated tax audit issues based on the Company's current understanding of the tax law. Despite the Company's belief that its tax return positions are supportable, the Company acknowledges that certain positions may potentially be challenged and may not be fully sustained upon review by tax authorities. The Company believes that its accruals for tax liabilities are adequate for all open audit years based on its assessment of many factors including past experience and interpretation of tax law. This assessment relies on estimates and assumptions and may involve a series of complex judgments about future events. For matters where it is probable that an adjustment will be made, the Company records its best estimate of the tax liability including the related interest and penalties in the current tax provision. Management believes they have adequately provided for the probable outcome of these matters; however, the final outcome may result in a materially different outcome than the amount included in the tax liabilities, and such differences will impact income tax expense in the period in which such determination is made.

In addition, the Company recognizes deferred tax assets relating to tax losses carried forward to the extent there are sufficient taxable temporary differences (deferred tax liabilities) relating to the same taxation authority and the same taxable entity against which the unused tax losses can be utilized.

4. 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 is the risk of financial loss if a counterparty fails to meet its contractual obligations. The Company's credit risk relates primarily to Input Tax Credits ("ITC") receivables in Canada and Value Added Tax ("VAT") receivables in Mexico. The Company works to continue to collect the refunds on regular and complete basis. Any changes in management's estimate of the recoverability of the amount due will be recognized in the period of determination and any adjustment may be significant. The carrying amount of other receivables represents the maximum credit exposure.

All of the other receivables represent amounts due from the Canadian and Mexican governments and accordingly the Company believes them to have minimal credit risk. The Company considers all of its other receivables fully collectible, and therefore has not provided an allowance against this balance nor reclassified the balance as a non-current asset.

The Company's cash is held in major Canadian, Mexican and UK banks, and as such the Company is exposed to the risks of those financial institutions.

The Board of Directors monitors the exposure to credit risk on an ongoing basis and does not consider such risk significant at this time.

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.

5. 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 $35,793,788 at March 31, 2016 (June 30, 2015 - $23,667,847), 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.

6. PROPERTY AND EQUIPMENT

7. EXPLORATION AND EVALUATION ASSETS

The Company's mining claims consist of mining concessions located in the State of Sonora, Mexico. The specific descriptions of such properties are as follows:

a) Tubutama Borate property

Originally referred to as the Carlos Project, Tubutama Borate project consists of four mining concessions with a total area of 766 hectares. The concessions are located 15 kilometers from the town of Tubutama, and are 100% owned by MIT. During the prior year, the Company allowed two mining concessions to

lapse. The Tubutama property is subject to a 3% gross overriding royalty payable to Mr. Colin Orr-Ewing, Chairman of the Company on sales of borate produced from this property.

For the year ended June 30, 2014 an impairment charge of $1,220,826 was recognized in respect of the Tubutama Borate property. As a result of the Company's decision to let certain Tubutama concessions lapse, and the Company's focus on the other mining claims, an impairment test was performed. The recoverable amount is its value in use and is determined to be $nil as the Company expects no cash inflows to arise related to this property.

b) Magdalena Borate property

Originally referred to as San Francisco and El Represo projects, Magdalena Borate project consists of seven concessions, with a total area of 7,095 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 unrelated third party, and a 3% gross overriding royalty payable to Mr. Colin Orr-Ewing, Chairman of the Company on sales of mineral products 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, Minera Sonora Borax, S.A de C.V., has a 100% interest in two of these concessions: La Ventana and La Ventana 1, covering 1,775 hectares. The remaining concessions, El Sauz, El Sauz 1, El Sauz 2, Fleur and Fleur 2 covering 5,325 hectares are held by the Company's subsidiary, Mexilit S.A. de C.V.. Mexilit S.A. de C.V. is owned 70% by Bacanora and 30% by Rare Earth Minerals PLC ("REM").

The remaining three concessions, Buenavista, Megalit and San Gabriel, cover 89,235 hectares, and are subject to a separate agreement between the Company and REM. As at December 31, 2015, Buenavista and San Gabriel are held by the Company's subsidiary, Minera Megalit S.A. de C.V. with the requirement to transfer Megalit concession per the agreement with REM. Megalit S.A. de C.V. is owned 70% by Bacanora and 30% by REM.

Of the original USD$,3,000,000 (CAD$3,225,037) received from REM, and restricted to the Mexilit's and Megalit's concession expenditures, approximately USD$nil (CAD$nil) remains to be spend on the concessions as at March 31, 2016 (June 30, 2015 - USD$697,694, CAD$862,095).

The Sonora Lithium property is subject to a 3% gross overriding royalty payable to Mr. Colin Orr-Ewing, Chairman of the Company, on sales of mineral products produced from this property.

The balance of investment in mining claims as of December 31, and June 30, 2015 corresponds to concession payments to the federal government, deferred costs of exploration, and consists of the following:

8. REHABILITATION PROVISION

The Company records a liability for the estimated site rehabilitation costs. The Company completed the site rehabilitation work on its Magdalena Borate property during the three month period ended March 31, 2016. The present value of the obligation at March 31, 2016 was estimated at $Nil (2014 - $27,400).

9. SHARE CAPITAL

a) Authorized

The authorized share capital of the Company consists of an unlimited number of voting common shares without nominal or par value.

b) Common Shares Issued

(1) On November 13, 2015, the Company completed a private financing of 11,476,944 common shares at a price of £0.77 (CAD$1.55) per share for aggregate gross proceeds of £8,837,247 (CAD$17,871,564). The Company paid commission of $354,280 and other share issue expenses of $56,117. As part of the financing, 1,973,407 common shares were acquired by REM, a related party as defined by MI 61-101.

c) Stock options

The following tables summarize the activities and status of the Company's stock option plan as at and during the period ended March 31, 2016.

(1) All options outstanding at June 30, 2015 and March 31, 2016 were exercisable.

(1) These options are exercisable in British Pound, at a price of £0.77.

d) Warrants

The fair value of these broker warrants issued during the period ended June 30, 2015 was determined at the date of grant using the Black-Scholes option pricing model with the assumptions as follows; risk-free interest rate of 1.91%, expected volatility of 109%, expected life of 5 years, which resulted in a fair value per option of $1.36.

The following tables summarize the activities and status of the Company's warrants as at and during the year ended June 30, 2015 and as at and during the period ended March 31, 2016.

e) Contributed surplus

f) Stock-based compensation expense

During the period ended March 31, 2016, the Company recognized $3,723,081 (2014 - $55,000) of stock-based compensation expense for options granted under the Company's stock option plan. The fair value of stock options granted during the period ended March 31, 2016 was estimated on the dates of grant using the Black-Scholes option pricing model with the following weighted average assumptions, risk-free interest rate of 1.37%, expected volatility of 129% and 123%, and expected life of 5 and 2 years. The fair value of each stock option was $1.10 and $1.03. Expected volatility is based on historical volatility of the Company's stock prices and comparable peers.

g) Per share amounts

Basic loss per share is calculated using the weighted average number of shares of 97,274,353 and 91,201,755 for the three and nine months ended March 31, 2016, respectively (2015 - 84,365,661 and 82,910,748, respectively). Options and warrants were excluded from the dilution calculation as they were anti-dilutive.

10. GENERAL AND ADMINISTRATIVE EXPENSES

11. SEGMENTED INFORMATION

The Company currently operates in one operating segment, the exploration and development of mineral properties in Mexico. The Company has an office in Calgary, and London but it does not generate any revenues or hold any non-current assets at these locations. Management of the Company makes decisions about allocating resources based on the one geographic operating segment. A geographic summary of the identifiable assets by country is as follows:

12. RELATED PARTY TRANSACTIONS

a. Related party expenses

The Company's related parties include directors and officers and companies which have directors in common.

During the three and nine months ended March 31, 2016, directors and management fees in the amount of $377,109 and $974,763 respectively (2015 - $146,000 and $390,645, respectively) were paid to directors and officers of the Company. Of this amount, $Nil (2015 - $Nil and $72,900, respectively) was capitalized to exploration and evaluation assets, and $377,109 and $974,763 respectively (2015 - $146,000 and $317,745, respectively) was expensed as general and administrative costs. Of the total amount incurred as directors and management fees, $73,538 (2015 - $56,320) remains in due to related parties on March 31, 2016.

During the three and nine months ended March 31, 2016, the Company paid $Nil and $Nil respectively (2015 - $17,170 and $56,255, respectively) to a daughter of the Chairman of the Board of Directors of the Company. These services were incurred in the normal course of operations for office administrative services. As of March 31, 2016, $Nil (2015 - $5,536) remains in due to this related party.

During the three and nine months ended March 31, 2016, the Company paid $260,533 and $756,607 respectively (2015 - $298,336 and $605,640 respectively) to Grupo Ornelas Vidal S.A. de C.V., a consulting firm of which Martin Vidal, director of the Company and president of MSB, is a partner. These services were incurred in the normal course of operations for geological exploration and pilot plant operation services, as such the entire amount has been capitalized. As of March 31, 2016, $77,138 (2015 - $66,606) remains in due to related parties.

b. Key management personnel compensation

Key management of the Company are directors and officers of the Company and their remuneration includes the following:

13. COMMITMENTS AND CONTINGENCIES

The Company has commitments for lease payments for offices in London, UK and field office in Mexico. The total annual financial commitment resulting from these agreements is approximately $140,000.

The properties in Mexico are subject to spending requirements in order to maintain title of the concessions. The capital spending requirement for 2016 is $105,200. The properties are also subject to semi-annual payments to the Mexican government for concession taxes.

14. SUBSEQUENT EVENTS

On April 27, 2016, in conjunction of appointing Mr. Mark Hohnen as a director of the Company, an aggregate of 2,000,000 options to acquire common shares in the capital to the Company have been granted to Mr. Hohnen, each such option being exercisable into one common share at a price of £0.96 (CAD$1.94) per share for a period of twenty-four months from the vesting date. Of the foregoing options, the first 1,000,000 options shall vest and become exercisable on the date that is the earlier of: (i) 12 months from Mr. Hohnen's appointment as a director of the Company; and (ii) either: (a) the entering into by the Company of an offtaker agreement with a customer that has been procured by Mr. Hohnen or the participation by a potential offtake partner that has been procured by Mr. Hohnen in an equity financing of the Company that results in such party holding in excess of three percent (3%) of the voting shares of the Company; or (b) the provision by a potential offtake partner (that has been procured by Mr. Hohnen) of funding for project development as approved by the Board of Directors of the Company. The remaining 1,000,000 options shall vest and become exercisable on the date that is the earlier of: (i) 18 months from Mr. Hohnen's appointment as a director of the Company; and either: (a) the Company commences commercial production of lithium products; and (b) the Company's shares trade on the AIM Market of the London Stock Exchange at a volume weighted average price (VWAP) of not less than £1.25 for five consecutive trading days.

On April 28, 2016, 850,000 of the Company's common share options were exercised at a price of $0.50 each for gross proceeds of $425,000.

On May 20, 2016, The Company announced that it has raised £7,702,500 (approximately CAD$14.7 million) via the placing of 9,750,000 units (the "Placing Units") at a price of £0.79 per Placing Unit (the "Placing"). Each Placing Unit is comprised of one new common share of the Company (a "Placing Share") and 0.3 of one common share purchase warrant, with each whole warrant (a "Placing Warrant") being exercisable into one common share at a price of £0.79 at any time subsequent to July 25, 2016, but on or before September 30, 2016. Accordingly, an aggregate of 9,750,000 Placing Shares and 2,925,000 Placing Warrants were issued under this Placing.