Cradle Arc PLC Working Capital Facility Extension & Ops Update (7322H)

TIDMCRA

RNS Number : 7322H

Cradle Arc PLC

19 November 2018

Cradle Arc plc / EPIC: CRA.L / Market: AIM / Sector: Mining

19 November 2018

Cradle Arc plc

("Cradle Arc" or the "Company")

US$4 million Extension to Pre-Existing Working Capital Facility from Fujax

and Operational Update

Cradle Arc (AIM: CRA), the African focused base and precious metals exploration and production company, is pleased to announce that its 60 per cent. owned subsidiary, Leboam Holdings (Pty) Limited ("Leboam"), the holding company of the Mowana Copper Mine in Botswana ("Mowana" or the "Mine"), has entered into a binding term sheet with Fujax Minerals and Energy Limited ("Fujax"), whereby Fujax has conditionally agreed to provide Leboam with a US$4 million extension to its pre-existing working capital facility (the "Working Capital Facility Extension") on similar terms to the First Advance Agreement concluded in February 2017, as set out in the Company's AIM admission document published on 18 January 2018. The extension remains subject, inter alia, to completion of the requisite documentation and Fujax's final credit committee approval, expected to occur shortly, and the funds to be drawn down from the enlarged facility will be used for the group's general working capital purposes.

In addition, the Company is pleased to provide an operational update on the Mowana Copper Mine in Botswana.

Operational summary

-- Mowana produced 140 tonnes of contained copper (Cu) in October 2018 compared to management's original forecast of 392 tonnes.

-- Processing plant continued to experience intermittent equipment breakdowns during the fourth quarter, impeding production.

-- Funds received from drawdown on the US$2m loan facility in October 2018 used to purchase certain essential spares parts and the repair of key items of equipment to improve the reliability and availability of the processing plant going forward.

-- Mowana's engineering team has been swiftly effecting installation and making repairs on site whilst minimising downtime.

-- Ongoing rehabilitation of boreholes on site after severe drought conditions affected water supply to the Mine, resulting in frequent stoppages.

-- Crushing and filter sections of the processing plant have now been repaired and restored to full availability with major bottlenecks removed, and stable production is expected for the remainder of the quarter.

-- Mill availability is improving and the final concentrate grade achieved throughout Q4 to date has been above forecast levels.

-- A planned mill reline, scheduled for the last week of November 2018, is expected to see mill throughput increase to its nameplate capacity of 155 tonnes per hour.

-- Mining operations have focused on waste stripping in order to increase space in the open pit.

-- Test results on main ore body in the north pit confirmed that approximately 2 million tonnes of ore are currently accessible, with low levels of acid solubility, with internal metallurgical flotation test work returning Cu recoveries of in excess of 76%.

Kevin van Wouw, CEO of Cradle Arc, commented:

"The extended working capital facility from Fujax is a vote of confidence in the Mowana operations. Fujax has partnered and supported Cradle since the acquisition of Mowana as both funder to and off-taker of mine concentrate and is intimate with the mine operations and the opportunity the mine brings to the company and its shareholders. This will help ensure that we have sufficient headroom and contingency as management seeks to build upon the stabilised operations and recommence production ramp-up.

The implementation of the previously announced key improvement and rehabilitation works at the processing plant has now largely been completed, with the main outstanding items being a full reline of the mill and continued rehabilitation of the water supply boreholes from the wellfield 7km from the mine. Accordingly, with the ores available for processing and operations at Mowana on a more stable footing, we expect steady improvement in performance of the project over the coming months."

Working Capital Facility Extension

Fujax has agreed to extend its pre-existing loan facility to Leboam by an amount of US$4m which, at the sole discretion of Fujax, can be drawn down by Leboam in any number of tranches up until 31 March 2019, and will bear interest at a rate of 13.5 per cent. nominal per annum compounded monthly in arrears. The quantum drawn down shall be at the sole and absolute discretion of Fujax having regard to Leboam and Mowana's operating performance, primarily in the period to 31 December 2018, and the proposed specific use of the funds concerned.

The Working Capital Facility Extension will be repayable monthly over a 24 month term, with a six month payment holiday, scheduled to commence from April 2019. The Working Capital Facility Extension will be secured by way of a parent guarantee and share pledge agreement between the Company and Fujax, pursuant to which the Company will pledge the entire issued share capital of its subsidiaries, Luiri Limited and Cradle Arc Investments (Pty) Limited.

The Working Capital Facility Extension agreement will contain customary terms and conditions, warranties and indemnities, undertakings and protections for a facility of this nature.

In addition, the Company's current offtake arrangements with Fujax, as set out in its AIM Admission document, shall be amended to:

   i)      reflect an obligation on the Company to sell production from any of its current and future operations/assets in Botswana, whether open cast or underground to satisfy the contracted concentrate tonnage to be supplied; 

ii) grant a further right to acquire an additional 80,000 tonnes of concentrate for every US$1m drawn down under the Working Capital Facility Extension, subject to a maximum additional amount of 320,000 tonnes; and

iii) grant Fujax a net smelter royalty of 3.75% for the duration of the offtake agreement once the existing 5% royalty fee in connection with Fujax's current provision of financing lapses.

In conjunction with the Working Capital Facility Extension, the Company has also agreed, subject to shareholder approval, to grant Fujax warrants to subscribe for new ordinary shares in the Company (the "Warrants"). The quantum of the Warrants is to be calculated as 20% of the funds drawn down pursuant to the extension exercisable at a 20% premium to the Company's prevailing market share price on the date the abovementioned amendments to the offtake arrangements are implemented.

The Warrants will be exercisable for a period of 24 months from their date of issue. Accordingly, shareholder approval for the issue of the Warrants will be sought at a general meeting of the Company to be convened in due course.

The Working Capital Facility Extension is subject, inter alia, to completion of the requisite documentation and Fujax's final credit committee approval, expected to occur shortly.

Operational Update

During the first half of Q4 2018, the processing plant at Mowana has continued to experience intermittent equipment breakdowns which has impeded production. The funds received from drawdown on the US$2m loan facility from Penmin Botswana Proprietary Limited, which was completed on 19 October 2018, have been applied to the acquisition of certain essential spare parts and the repair of key items of equipment in order to improve the reliability and availability of the processing plant going forward and enable more robust and continuous processing operations. These parts have started to arrive on site and Mowana's engineering team has been swiftly effecting installation and making repairs whilst seeking to minimise downtime. Additionally, severe drought conditions have been experienced which have affected water supply to the Mine resulting in frequent stoppages in order to allow for water accumulation.

In October 2018, the Mine produced 140 tonnes of contained copper (Cu) compared to management's original forecast of 392 tonnes. The lower production levels were principally attributable to longer lead times for a crusher bowl liner replacement from the original equipment manufacturer (OEM), a breakdown on the filter plant which also required OEM intervention and frequent stoppages due to the abovementioned water shortages. Both the crushing section and filter section have now been repaired and restored to full availability, whilst water supply has been increased via a focused rehabilitation of the boreholes that supply the Mine, with such rehabilitation work ongoing. Mill availability is improving and the final concentrate grade achieved throughout Q4 to date has been above forecast levels.

We have taken the opportunity of the downtimes at the processing plant to focus mining activity on waste stripping in order to increase the space in the open pit. Consequently, the main ore body in the north pit is currently sitting at between 950-940 RL with test results confirming that approximately 2 million tonnes of ore are currently accessible with low levels of acid solubility, with internal metallurgical flotation test work returning Cu recoveries of in excess of 76%. With the crushing and wet sections of the processing plant now fully operational, and the major bottlenecks having been addressed and removed, management are confident of maintaining stabilised operations over the remainder of the quarter and recommencing production ramp-up. A planned mill reline, scheduled for the last week of November 2018, is expected to see mill throughput increase to its nameplate capacity of 155 tonnes per hour.

**S**

For further information on the Company, please visit www.cradlearc.com or contact:

 
 Cradle Arc plc                 Tel: [phone] 
  Kevin van Wouw 
  Mark Jones 
 
   Strand Hanson Limited          Tel: [phone] 
   James Spinney 
   Matthew Chandler 
   James Dance 
 
   SP Angel Corporate Finance     Tel: [phone] 
   LLP 
   Ewan Leggat 
   John Meyer 
 Tavistock Communications       Tel: [phone] 
  Limited 
  Charles Vivian 
  Gareth Tredway 
 

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

About Cradle Arc

AIM-quoted Cradle Arc plc is the 60 per cent. owner of the Mowana copper mine in Botswana, an operational open pit mine and processing facility located in the north-east of the country, approximately 120km northwest of Francistown.

The Company has an independent open pit ore reserve estimate (Proved and Probable JORC 2012) of 31.8Mt at 1.17% Cu for 370,800 tonnes contained copper, based on a Dense Media Separation (DMS) mine plan.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [e-mail] or visit www.rns.com.

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November 19, 2018 02:05 ET (07:05 GMT)