BRD.L Regulatory News (BRD)

BlueRock Diamonds PLC / AIM: BRD / Sector: Natural Resources

21 May 2021

BlueRock Diamonds PLC ('BlueRock' or the 'Company')

Teichmann Group to Provide £1.61m Loan Financing,

Operational Update & Issue of Equity

BlueRock Diamonds PLC, the AIM listed diamond producer, which owns and operates the Kareevlei Diamond Mine ('Kareevlei') in the Kimberley region of South Africa, is pleased to provide an update on corporate and operational activities.

OVERVIEW

· Heads of Terms agreed with the Teichmann Group ('Teichmann') for a £1.61m loan note with the intention that this will be replaced by a convertible loan note ('CLN'), which will increase the aggregate shareholding of the Teichmann Group concert party to approximately 49% if converted (the 'Teichmann Financing')

· Completed 80% of expansion project (the 'Project') at Kareevlei, which is on track to be commissioned in July and is expected to increase annual revenue to circa USD16m per annum

· Ongoing review of the expansion of the Kareevlei operation including environmental and sustainability factors leading to increased upfront costs

· Further development being brought forward to provide increased mining flexibility, though requiring additional working capital

· Board and management strengthened with key appointments of Rob Croll, Minexec (Pty) Ltd, and a proposed Teichmann appointee

· Strong market pricing year to date

Mike Houston, Executive Chairman said, "I am pleased that Teichmann is demonstrating its commitment by investing a further £1.61m into the Company, which will provide us with the capital to deliver the expansion project while providing the working capital to further develop mining operations. In addition, we will benefit from a further strengthening of our already close working relationship with Teichmann, which will provide a greater depth of expertise at the operational and management level in South Africa. 

"The Project is progressing according to schedule and we expect to complete it in line with current timing expectations. Once complete, the Project will be transformational; we expect annual revenue to more than double to circa USD16m and our total South African per unit cost to reduce significantly to around USD220 per carat compared with our average sale price for the first three months of 2021 of USD446 per carat.

"Our project management team estimate that the new wet circuit is 80% complete. Since the involvement of this new team, we have undertaken a full review of the Project and its costings, which has taken a much closer look at the capacity and flexibility in mining and the utilisation of the new plant, as well as environmental and sustainability issues. This has led to an increase in the overall up-front capital and development costs but with expected longer-term benefits to shareholders.

"If we have had one lesson from the Covid 19 period, it is the importance of having a structure in place that has ability to visit and support the operational team and ensure we have the right skillset and work culture as we expand production. I am therefore pleased with our strengthened team both at management and Board level. Rob Croll, who has joined as a Non-Executive Director, has also agreed to head up a technical committee of the Board. With his mining experience and being South African based, Rob will be able to visit the operations regularly and provide the Board with an independent view.

"We have also appointed Minexec (Pty) Ltd, headed up by Meiring Burger, to work alongside our Kareevlei CEO, Gus Simbanegavi, to provide additional management support and to ensure that the delivery of the increased tonnages is achieved with the maximum efficiency. Meiring has a strong operating mining background in Africa with a focus on a culture of accountability and skill development.

"All of the above will be further enhanced due to Teichmann's presence in South Africa, whose continued support for the Company has been demonstrated by the proposed Teichmann Financing and its investment in a second fleet of vehicles to mine the quantities required to meet our increased production targets.

"We will keep shareholders updated regularly during what is a challenging but exciting phase in the development of BlueRock into a mid-sized mining company."

Gary Teichmann, Executive Director of Teichmann Group, said "We are looking forward to cementing our relationship with BlueRock over the coming years. We firmly believe that Kareevlei is an exciting asset and will endeavour to assist BlueRock in completing its project as planned and achieving its production targets."

DETAILS

Background

BlueRock is focused on maximising the long-term profitability at its Kareevlei Mine in South Africa, and to this end has implemented an expansion project aimed at increasing production to 1Mt per annum ('pa') from circa 400,000 tonnes pa and increasing annual revenue to circa USD16m assuming a grade of 4 cpht and an average sale price of USD400. The Project is on track to be commissioned in July, in line with current expectations, with the new plant beginning to operate at the increased production levels during August. Consequently, the Company's full year production guidance remains at 750,000 tonnes to 850,000 tonnes processed and carats produced of between 30,000 to 39,000 carats. The average value per carat for Q1 2021 was USD446 per carat compared with the pre-Covid average for 2019 of USD415.

In February 2021, BlueRock appointed BinVic (Pty) Limited ('BinVic'), a fully integrated project execution service provider, to manage the Project. Since that time, the Company has undertaken a thorough review of the timing and cost of its proposed expansion plans resulting an increase in the total project costs by around ZAR15m to around ZAR64m. The increase is a result of a combination of issues: advancing certain works, which had been planned to take place later in the year centred mainly around environmental and sustainability considerations resulting in short term capital implications but longer term sustainability and future cost savings; global price increases, particularly in relation to steel and electronic equipment; and changed project specifications combined with an underestimate of labour/equipment hire costs primarily for fabrication and construction purposes.

In addition, following further review of the life of mine plan, the Company has decided to increase the development mining on the main pit and is considering bringing the Company's largest pipe, KV3, into operation earlier than planned. The introduction of KV3 would provide further flexibility and lower the strip ratio once the initial pipe development has been completed.

The team is also looking at stepping up production in the wet season with the new plant designed to do so. To this end, focus will be placed on ensuring that the Company has the right inventory management in place throughout the production process.

Teichmann Financing

The increased costs of the Project, the higher working capital linked to increased mine development, improved accommodation critical to securing skilled personnel and a general strengthening of the balance sheet will be met out of the expected new funds being injected into BlueRock through the Teichmann Financing, for which non-binding Heads of Terms have been agreed.

Under the Heads of Terms, the initial loan will have a short term expiring on 31 August 2021 and a coupon of 14.5 per cent. per annum. It is expected that the initial loan will be refinanced through the future issue of the CLN to Teichmann, the CLN totalling £1.61m will have a strike price of 40p, a three and half -year term and a 14.5 per cent. coupon compounding annually. Interest will roll up and be paid at maturity, repayment or on conversion. The CLN will be convertible three months after issue at any time by Teichmann and by BlueRock if the Company's share price is above 60p. The proposed CLN will not be issued by the Company until shareholders have approved additional Company authorities to issue new shares. In addition, the Company will apply to The Panel on Takeovers and Mergers for a waiver of the obligation, that might arise on the exercise of the conversion rights under the CLN, for Teichmann (and its concert party) under Rule 9 of the Takeover Code to make a mandatory offer for the Company, subject to the approval of independent shareholders in accordance with Appendix 1 of the Takeover Code (the "Waiver").

In the event that the CLN is not issued, by 31 August 2021 being the term of the initial loan, BlueRock will be required to repay the higher of a) all amounts invested by Teichmann plus the interest on the entire amount of the loan that would have accrued over a three and a half year period; and b) all amounts invested by Teichmann plus the market value of such shares as would have been issued should the CLN have been issued, been converted and run for its full term less the principal amount invested.

Should the CLN be approved and issued to Teichmann, on conversion, the interest on the full amount of the CLN for the entire term will be added to the principal amount of the CLN prior to conversion. Assuming that no further shares are issued prior to conversion on conversion, Teichmann will hold approximately 49% of the enlarged issued share capital of the Company.

The timing of the funds due from Teichmann under the Teichmann Financing is to be agreed but will reflect the near-term cash flow needs of the Company, with all principal to be provided within 12 months of the Company and Teichmann entering into definitive documentation relating to the Teichmann Financing.

The Company intends to convene a General Meeting as soon as practicable to consider the issue of the CLN.

The Company has also agreed non-binding heads of terms with Teichmann SA (Pty) Limited in relation to the payment for its mining services contract influenced by short term higher development costs and the possible decision to bring forward the development of the KV3 pipe (the "Mining Agreement"). Under this agreement, Teichmann SA (Pty) Limited will provide extended credit terms to BlueRock in respect of balances due up to 30 June 2021, with such balances expected to be repaid from July 2021 onwards subject to agreement of a repayment plan. Teichmann SA (Pty) Limited will be granted security over the assets of the Company's operating subsidiary Kareevlei Mining (Pty) Ltd during the period of the extended credit, which cannot be called until the funds envisaged under the Teichmann Financing are paid in full.

The Teichmann Financing and the Mining Agreement remains subject to entering into formal documentation and, given that Teichmann is classed as a related party of the Company, the Teichmann Financing and the Mining Agreement will be treated as related party transactions in accordance with the AIM Rules.

The Company has an existing relationship agreement in place with Teichmann, which will remain in force.

BinVic

BinVic has agreed that its costs, which are capped at ZAR 13.9m (approximately £0.7m), will be settled in two instalments. The first instalment, which is equal to 80% of the overall cost, is being issued today at a price of 45.5p and will total 1,223,332 shares ("BinVic Shares"). The balance will be paid on satisfactory completion of the project in cash. BinVic has agreed to lock-in provisions for 12 months.

As lead contractor on the plant expansion, BinVic's willingness to take a high percentage of its Project costs in shares is a clear statement of its confidence in the future of BlueRock.

Board Changes

Rob Croll, an experienced mining engineer, has been appointed to the Board as an independent Non- Executive Director with immediate effect. During his years in the mining industry, Rob has held various senior executive and consulting positions and gained significant exposure to the financial markets. Based in South Africa, he is currently Lead Independent Non-Executive Director of Resource Generation Limited. Rob brings with him a strong independent technical and commercial perspective to BlueRock's current operation at Kareevlei and future investments.

It is anticipated that Teichmann will exercise its existing right to appoint a director to the board of BlueRock; the Company will update the market in this regard in due course.

Admission to Trading on AIM and Total Voting Rights 

Application will be made for the BinVic Shares, which will rank pari passu with the existing Ordinary Shares, to be admitted to trading on AIM ("Admission"). It is expected that Admission will become effective, and dealings will commence on or around 26 May 2021.

Following the issue of the BinVic Shares, the issued share capital of the Company will consist of 14,121,002 Ordinary Shares. No shares were held in treasury at the date of this announcement. The total current voting rights in the Company are therefore 14,121,002.

 The above total current voting rights number is the figure which may be used by shareholders as the denominator for the calculation by which they will determine if they are required to notify their interest in, or a change to their interest in the Company.

AIM Schedule 2(g) disclosures

The following information is disclosed pursuant to Rule 17 and Schedule Two paragraph (g) of the AIM Rules for Companies in relation to Robert Charles Croll, aged 69:

There are no further disclosures required under Schedule 2(g) of the AIM Rules for Companies.

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018 ('MAR'). Upon the publication of this announcement via Regulatory Information Service ('RIS'), this inside information is now considered to be in the public domain.

ENDS

For further information, please visit BlueRock's website www.bluerockdiamonds.co.uk or contact:

Notes to editors: