Conditional Sale of interest in Deutsche Lithium

8 October 2020

Bacanora Lithium plc

("Bacanora" or the "Company")

Conditional Sale of interest in Deutsche Lithium to Erris Resources Plc

Further to the announcement of 30 September 2020, Bacanora Lithium plc (AIM: BCN), a lithium exploration and development company, is pleased to announce that it has now entered into the conditional sale and purchase agreement ("SPA") to sell its 50% shareholding in Deutsche Lithium GmbH ("DL" or "Deutsche Lithium") to Erris Resources plc ("Erris"), in exchange for new shares in Erris and a net profits royalty (the "Proposed Transaction"). The SPA is subject, inter alia, to the approval by Erris shareholders of the resolutions to be proposed at a general meeting to be held on 26 October 2020 ("GM").

Erris has today published an admission document in relation to the proposed acquisition of Bacanora's 50% interest in DL, which is available to view and download on the Erris website at https://www.errisresources.com/ .

The main asset owned by DL is the Zinnwald Lithium Project ("Zinnwald" or the "Project"), located in Germany, which would become the sole focus of Erris and its management team going forward. The Proposed Transaction will allow Bacanora to focus on bringing its world class Sonora Lithium Project ("Sonora"), located in Mexico, into production; maximise shareholder return on the investment to date in Zinnwald; generate a clear see-through value of Zinnwald for its shareholders; and lead in turn to Zinnwald being brought to production by a new, dedicated management team.

Under the SPA, Bacanora will be selling its 50% share in DL plus €1.35m cash in exchange for 90,619,170 new shares in Erris ("Consideration Shares"), together with a net profit royalty. Erris has also today announced that it has conditionally raised £3,750,000, before expenses, by way of a placing of 75,000,000 new shares ("Placing Shares") in Erris at 5p per share (the "Placing"), which will be used by Erris for progressing Zinnwald and for general working capital purposes. Following the completion of the Proposed Transaction and the issue of the Consideration and Placing Shares, Bacanora will own 44.3% of the enlarged issued share capital of Erris. The Proposed Transaction is therefore also subject to Erris shareholders approving the waiver of the UK Panel on Takeovers and Mergers of any obligation by Bacanora or its concert parties to make a general offer under Rule 9 of the City Code on Takeovers and Mergers.

The remaining 50% of DL is owned by the administrators of SolarWorld AG ("SolarWorld") which entered administration in August 2017, and who have consented to the sale by Bacanora, subject to Erris adhering to Bacanora's ongoing joint venture obligations. The €1.35m cash component of the Proposed Transaction primarily reflects the guaranteed investment in Zinnwald to which Bacanora was already committed, under the second amendment to the joint venture agreement ("JV") signed with SolarWorld in February 2020, as well as to cover a portion of transaction costs.

The SPA provides that Erris will grant Bacanora a royalty of 2% of the net profits earned by Erris which relate to its 50% shareholding in Deutsche Lithium and its sale of lithium products or minerals particularly in relation to Zinnwald. The royalty agreement provides that the royalty will be paid to Bacanora for an initial 40-year term and Erris has the right to extinguish the agreement by paying Bacanora a one-off payment of €2m.

In accordance with AIM Rule 7, Bacanora will be subject to a lock-in period during which it cannot dispose of its shareholding in Erris for one year from the date of admission of the Consideration and Placing Shares to AIM. Bacanora will also enter into a relationship agreement with Erris whereby it will undertake that, for so long as it is interested in more than 25% of Erris's voting share capital, it will not act to unduly influence Erris or the Erris board and will ensure that transactions entered into with Erris are on an arms' length basis. As part of this relationship agreement, Bacanora has the right to appoint one director to the board of Erris, whilst its shareholding is between 20% and 45%. Following completion of the Proposed Transaction, Bacanora's initial appointee will be its Chief Executive Officer, Peter Secker.

Erris

Erris was established in 2012 as a mineral exploration and development company and its focus has been to create shareholder value through the process of discovering new ore deposits, with a focus on European jurisdictions. Its ordinary shares were admitted to trading on AIM in December 2017, as part of which Osisko Gold Royalties, a TSX and NYSE intermediate precious metal royalty company with a market capitalisation of approximately C$2.2 billion, invested £1.5m for a 19.9% stake. The company was also supported at the project level by Centerra, a wholly owned subsidiary of Centerra Gold Inc., a TSX listed gold mining and exploration company with a market capitalisation of approximately C$5bn, which funded a number of generative exploration programmes in Sweden from 2016 to 2019.

Erris currently has three main projects, the Loch Tay Gold project in Scotland, the Abbeytown Zinc Project in Ireland and the Brännberg Gold Project in Sweden. The Loch Tay project, together with €400,000 and the existing non-board employees of Erris, will be spun out of Erris to the existing shareholders in Erris as part of the Proposed Transaction, and will not form part of the Erris group following completion of the Proposed Transaction. The work undertaken by Erris at Abbeytown was successful in advancing the project. However, the macro climate in relation to zinc and general market appetite does not support any further substantial work being undertaken for the time being. Erris' work in Scandinavia, and particularly Brännberg, has also further advanced these projects, but again, the equity capital markets' appetite for these projects has been muted. Both the Abbeytown and Brännberg projects will continue to be owned by Erris and the company will look for future funding partners.

On 30 September 2020, Erris announced its unaudited interim financial results for the six month period ended 30 June 2020 which showed operating losses of €0.4m. As at 30 June 2020, Erris had net assets of €3.5m and cash balances of €1.3m.

Deutsche Lithium

Zinnwald 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, Deutsche Lithium has chosen to focus on Lithium Fluoride ("LiF") production. LiF is a high value downstream lithium product and one of the two key components in the manufacturing process of LiPF6, which is the most important conducting salt in lithium electrolytes and serves as the "shuttle" in the battery electrolyte which "ships" the lithium ion between the cathode and the anode. Approximately 95% of all lithium battery electrolytes use LiPF6, and the percentage used in each cathode is increasing in newer battery types. The strategic location of the Project allows access to the German automotive and downstream lithium chemical industries.

In May 2019, DL announced the results of the NI 43-101 feasibility study for the Project ("Feasibility Study"), which confirmed the positive economics and favourable operating costs for the production of 5,112 tpa of battery grade LiF (~7,285 tpa lithium carbonate equivalent ("LCE")). With a long life project of 30 years, the Feasibility Study estimated a pre-tax project Net Present Value of €428m (8% discount rate); an Internal Rate of Return of 27.4%; and favourable Life of Mine operating costs resulting in a 46% EBITDA operating profit margin.

The 30-year Feasibility Study mine plan equates to the extraction of less than 50% of the currently identified resource.

 • Measured plus Indicated Mineral Resource estimate containing 35.51 Mt at a grade of 3,519 ppm containing 124,974 t Li at cut-of grade of 2,500 ppm Li

• Represents approximately 665,000 tonnes of LCE, comprising 357,000 tonnes of LCE in Measured Resources and 307,000 tonnes of Indicated Resources

• Estimated Inferred Mineral Resources of 4.87 Mt at a grade of 3,549 ppm containing 17,266 t Li metal (approximately 92000 tonnes LCE)

In addition to the mining licence in relation to the Project, DL holds two other exploration licences; the Falkenhain licence (covering 295.7 ha and with a 5-year term to 31 December 2022) and the Altenburg licence (covering 4,225.3 ha and with a 5-year term to 15 February 2024).

As at 30 June 2020, DL had net assets of €8.0m and cash balances of €0.2m. In the six months ended 30 June 2020, it incurred losses of €0.1m. Further financial information on DL is included as part of the Erris Admission Document.

ENDS

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

The information contained within this announcement is deemed by the Company to constitute inside information under the Market Abuse Regulation (EU) No. 596/2014

Notes to editors

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

Sonora Lithium Ltd ("SLL") is the operational holding company for the Sonora Lithium Project and owns 100% of the La Ventana concession. The La Ventana concession accounts for 88% of the mined ore feed in the Sonora Feasibility Study which covers the initial 19 years of the project mine life. SLL is owned 77.5% by Bacanora and 22.5% by Ganfeng Lithium Ltd. SLL also owns 70% of the El Sauz and Fleur concessions. 

On completion of its agreement with Erris Resources Plc, the Company will own 44.3% of Erris, which in turn will have a 50% interest in the Zinnwald Lithium Project and the Falkenhain and Altenberg Licences in southern Saxony, Germany.

Cautionary Statement Regarding Forward-Looking Information

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

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

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

Important notice

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