Regular with a name change here. I was in almost exactly the same position as you. BM was pregnant at the time adoption was finalised and had baby shortly after. The baby has remained with her as has different dad to my child.
I'd echo what others have said about drip feeding it right from the start so that it just becomes part of her adoption story. This was advice given to me by Joy Rees on a life story training course I went on. BM mentions sibling in letterbox letters and although my child hasn't read the letterbox letters yet I didn't want to be in the situation of LO asking 'who is X?' if and when she does read the letterbox letters.
My child has begun to get more and more interested in her life story as she's got older. Interestingly, she is never interested or at least has never asked about the baby BM went on to have. She does however ask lots of questions about both her birth parents. Time will tell whether this situation changes as she gets older but I wholeheartedly believe that it is in my child's best interests to be aware BM had another child after she was adopted. I think it is likely to be less unsettling to feel like you have always known this rather than to have it explained to you later in life when it would probably feel more like a bombshell or a secret that had been deliberately kept from you. I don't know whether this is the right thing to do but it felt better than having some very significant info about my child's life that I wasn't willing to share with her.
It's really tricky because I know when I heard the news BM was pregnant and was keeping this baby I was completely floored by it and felt that this would be a huge issue for my child 'why could my BM get her shit together for this baby but not for me?' But so far this hasn't cropped up - although am guessing it probably will at some point!
When I raised this with my SW she said to look at it a different way and perhaps explain it to my child in the following way. BM couldn't keep first baby due to dad's issues and behaviour. If my child had remained with her she would always have had a link with him and would never have been able to keep my child truly safe. BM agreeing (albeit very reluctantly) to adoption was a way to ensure my child's safety. She was able to keep the next child because the main risk (dad) was different. The only danger with this narrative is it runs the risk of making BM into the victim and whilst I don't want to demonise her to my child at all, I think it is very important to acknowledge that she also made choices and chose behaviour that put my child at very serious risk.
However, whilst I'm mindful this explanation is a fairly simplistic way of looking at it, it does kind of get the point across and may hopefully help my child to process the situation in a more positive way (ie it's not that you weren't good enough for BM but that BM couldn't protect you) when she gets older and wants to process this part of her life story.
I don't know, it's a really tough situation to be in. I think after all that rambling my advice would be drip feed the info that BM has had another baby as soon as you can. The phrase I've used is 'SWs are working hard to help X learn how to be a good mother and look after this baby'. I have deliberately avoided describing the baby (who is now a child) as her sibling as felt at this point that would just be confusing.
As the years have passed I have no idea where BM is or whether she had had subsequent children. None are mentioned in letterbox but i haven't had replies for the last 3 times and I think it's highly likely BM will go on to have more if she hasn't already.
Objectively, I am extremely glad BM has managed to seemingly turn her life around. She'd had a horrendous time and found herself in shitty situations that she didn't have the support or capacity to cope with.
Emotionally however, I can often feel quite angry on my child's behalf that BM got her act together so quickly after losing her first child. Particularly when I am seeing on a daily basis the huge emotional impact of BM's choices and behaviour on my child's sense of self and self esteem. It's a tough one.