Armadale Capital: Final results and gold production in Mpokoto details

We have made considerable progress, both on the ground and on a wider corporate level, in advancing the Mpokoto Gold Project (Mpokoto or the Project) in the Democratic Republic of the Congo (‘DRC’) closer to production. Importantly, we now have a cleaner corporate structure, achieved through the acquisition of Kisenge Limited, which means that Armadale shareholders now hold a direct 80% ownership of a much enhanced project, covering both Mpokoto and a further substantial 800,000 hectares in the Katanga province of the south of the DRC. This encompasses four 30-year mining licences covering Mpokoto, together with the opportunity to explore a much larger and prospective area, through the Kisenge Exploration Licences.

Your board remains fully committed to putting the Project into production in the first half of 2016. In line with this we are currently engaged in advanced discussions with potential partners, with a view to them working alongside Armadale to construct and operate the Project, as well as providing the capital requires to bring the Project into production. Your board looks forward to being able to update shareholders shortly in this respect.

In conjunction with developing Mpokoto, your board continues to look at options to realise our interest in the JSE listed Mine Restoration Investments Ltd. (MRI). Taking a longer term view, and given our size and resources, it makes sense for Armadale to focus on Mpokoto and the potential cash generation that can be derived from this early next year.

Mpokoto

Much has been achieved and announced since I last reported to you following our initial investment in Mpokoto in August 2013. At that time, in excess of US$20m had been invested by previous owners and it an estimated resource of 380,000 oz gold (Au) from 7.2 million tonnes (mt) with a grade of 1.65 grammes per tonne (g/t) Au had been declared. Our belief that there was significant further upside has been proven and the latest resource estimate is nearly double the initial one at 678,000 oz Au from 14.58 mt ore at 1.45 g/t. There is currently, in addition, an exploration target of 2.4-3.0 mt grading 1.25-1.5 g/t which should yield an initial additional 120,000-150,000 oz Au. This is targeted to be brought into the resource during the next phase of drilling.

We are nearing completion of the Definitive Feasibility Study, which we expect to endorse the operating parameters from the expanded scoping study. These include average operating costs (ex royalties and tax) of US$647/oz Au to produce approximately 25,000 oz per annum over the current life of mine of nine years. We expect the initial capital cost to treat the oxide ore to be in the order of US$20.4m. This would give an NPV of US$55.3m based on a forecast gold price of US$1,250/oz and a discount rate of 8%. Even at US$1,100/oz, the NPV of the Project is still attractive at US$32.3m. Accordingly, we believe substantial value has been created, and we remain positive about the prospects of production.

As we look to transition into production, we are now in funding discussions with parties, which include mining contractors, joint venture parties and mining finance banks, and look forward to providing an update to shareholders shortly.

Mine Restoration Investments Ltd (MRI)

In June 2014, as part of a major recapitalisation of MRI’s balance sheet, Armadale converted all outstanding debt into shares of MRI at ZAR0.05 per share, leaving Armadale with a resultant holding of approximately 28 per cent of MRI’s share capital.

MRI’s principal business, the processing of waste coal fines in Kwa-Zulu Natal, has been slow in ramping up production of processed fines since its plant commenced operations in early 2014. However, MRI has reported that the plant is operating on a profitable basis, that they are confident the majority of issues have now been dealt with, and the company is looking forward to increasing production significantly.

In addition to the equity interest in MRI, Armadale has a loan outstanding from Trinity Asset Management Ltd (‘TAM’), one the major shareholders of MRI, secured on MRI shares. Despite extensive negotiations with TAM the loan note remains outstanding and overdue and your board has decided it is prudent to provide fully for value of the loan. We continue to be actively engaged at pursuing options to realise our investment in MRI.

Board

I am delighted to have recently welcomed Dr Andrew Tunks to the board as a non-executive director. Andrew is a highly qualified geologist who has extensive experience in both gold and operating in Africa. We believe that the Andrew’s established relationships, leadership and experience in developing gold projects around the world is a perfect fit for Armadale as it progresses the Mpokoto Gold Project through its final development phases and into production.

Results

As at the date of this report the group does not have any revenue and has reported a loss of which a significant proportion relates to the impairment of the value of our investment related to MRI. During the year under review our principal focus has been the development of Mpokoto and a substantial proportion of our costs relate to expenses incurred developing the Project, as is typical of an exploration company.

We look forward to reporting to shareholders on the progress of Mpokoto as we continue to unlock its inherent value potential and thank all shareholders for their ongoing support. The board remains fully focused on building a solid emerging mining operation whose value is greater than what we believe is currently reflected in the share price. Your board will continue to work tirelessly in our efforts to build shareholder value through the Mpokoto Project.

Peter Marks