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LONDON (Alliance News) - Armadale Capital PLC shares dropped on Friday after admitting it only has enough funds to last the next three months as it continues to chase the financing needed for its flagship project, which is now firmly behind schedule as a result, and may force the company to return to the equity market for funds.
Armadale shares were down 20% to 2.0 pence per share on Friday morning.
Armadale's primary focus is on the Mpokoto gold project in the Democratic Republic of the Congo, where it is aiming to initially build an operation based around "easy mining, low cost weathered ore".
Armadale said it is still in talks concerning the potential for A-MCS to become a partner on the project by constructing, operating and providing funding of at least USD20.0 million to allow construction to start in the second half of this year - however talks have been protracted.
The company admitted progress at the project is running at a slower place than originally expected as it tries to advance the development, which has a total capital cost of USD25.2 million for the initial phase, as quickly as it can.
"We now have completed all the key elements of the definitive feasibility study, which forms the basis of our mining plan and is an essential step in obtaining finance to fund the construction of the project. As shareholders are aware we have been in a long term dialogue with our potential partners African Mining Contracting Services Group to finalise project finance and I am pleased to report that A-MCS continue to show keen interest in the project," said the company.
Armadale seems set on waiting for A-MCS to come to the table, but that means the project is firmly behind schedule as Armadale said it will not have the financing in place by its internal deadline, leaving it to conduct other work that can be carried out.
"Initial production is dependent on the receipt of this financing and accordingly this is no longer expected in the first half of 2016. We will provide further updates when appropriate. Meanwhile, the exploration programme at Mpokoto will continue over the course of the year," said Armadale.
More worryingly, Armadale has no income coming through the door and a dwindling cash balance as a result and the company warned its cash balance of GBP128,000 will only keep the company going for "approximately three months" - suggesting the company could be broke by the end of August.
Armadale said it is paying particular attention to its overheads so it can plough its resources into Mpokoto, and warned on Friday that the project will continue to swallow up a "significant proportion" of its cash resources for the "foreseeable future".
Whilst securing the financing for the Mpokoto development would alleviate some major pressure, Armadale may go to the equity market for some further funds to bulk up its working capital.
"The directors believe that the project finance negotiations will be successfully concluded. Furthermore, they consider that it will be possible to raise further short-term working capital if required. However, there can be no certainty that either of these initiatives will succeed," said Armadale.
"These factors indicate the existence of a material uncertainty which may cast significant doubt about the group's ability to continue as a going concern," the company added.
If Armadale can address its woes, it will start Mpokoto with an initial open pit operation which will be able to produce around 24,900 ounces of gold per year to generate average annual revenue of around USD30.8 million based on a gold price of USD1,250 per ounce - which can be compared to current spot gold prices on Friday of USD1,254 per ounce.
That can also be compared to the estimated operating cost of around USD792 per ounce.
As well as developing a commercial project, Armadale said further exploration is continuing as it believes there is another 120,000 to 150,000 ounces of gold left to find.
The natural resource investment company also reported a pretax loss of GBP991,512 in 2015 compared to the GBP1.1 million booked in 2014.
Although the level of impairments rose to GBP316,213 from GBP67,500 last year, the company managed to reduce its administrative costs to GBP616,062 from GBP693,664 and didn't repeat the GBP225,326 loan provision that was booked in 2014.
By Joshua Warner; joshuawarner@alliancenews.com; @JoshAlliance
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