CRA.L Regulatory News (CRA)

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

24 January 2018

Cradle Arc plc

("Cradle Arc" or the "Company")

Admission to AIM and First Day of Dealings

Cradle Arc, the African focused base and precious metals exploration and production company, is pleased to announce that trading in its Ordinary Shares on AIM will commence at 8.00 a.m. today, under the ticker CRA.L (Admission).

As part of the Admission process, the Company has raised, in aggregate, £5.65 million before expenses, comprising £3.25 million in pre-IPO funding, via the issue of the October 2017 Convertible Loan Notes, which will automatically convert into Ordinary Shares on Admission, and a further £2.4 million on Admission, through a Placing of 24,000,000 new Ordinary Shares at a Placing Price of 10 pence per Ordinary Share. On Admission, the Company will have a total of 201,329,482 Ordinary Shares in issue, implying a market capitalisation of approximately £20.1 million (approximately US$28.1 million) at the Placing Price.

Overview:

· Raised £5.65 million before expenses in pre-IPO and IPO equity raisings to support the ramp-up of production at the Mowana Copper Mine in Botswana, an established and relatively low risk mining jurisdiction

· Mowana mine has strong value fundamentals, with a current base case NPV of US$87 million, which is projected to increase to up to US$245 million following certain planned plant upgrades*

· Mowana also has significant potential future upside from the development of the exploration areas that fall outside of the current base case mine plan and the potential development of the Makala underground mine

· In addition to its cornerstone copper producing asset in Botswana, the Company also owns the development ready Matala gold asset in Zambia with a JORC resource estimate of 568,000oz @ 2.7 g/t Au

· Strong management and shareholder alignment with the Company's directors holding approximately 57.5 per cent. of the issued share capital

· In Q1 2018, the Company intends to make an offer at the Placing Price to those shareholders who were on its register as at the close of business on 21 December 2016 (being the date when the Company's shares were suspended from trading on AIM, following the announcement of the proposed acquisition of Mowana) and who continue to hold their Ordinary Shares immediately prior to such offer, to raise up to £500,000 gross

Mowana Copper Mine (Cradle Arc, 60 per cent.)

· Mowana acquired on attractive terms via a transaction originally agreed in December 2016, when the copper price was approximately US$2.5/lb (approximately US$5,512/tonne), since when the copper price has increased by approximately 25 per cent. to circa US$3.1/lb (approximately US$6,897/tonne), making the investment even more compelling

· Over US$170 million of capital historically invested by previous operators at Mowana, which was in production between 2008 and 2015 before ceasing operations at a time of low copper prices and following operating challenges now addressed through a revised mine plan

· Production restarted in March 2017 and the Company is currently ramping up to the base case nameplate production rate of approximately 12,000tpa of copper in concentrate:

o Processing at a throughput rate of 1.2 Mtpa, mining at a grade of 1.16 per cent. Cu

o Average all-in cash costs of approximately US$4,400 per tonne of saleable copper

o Base case NPV of US$87 million*

· Low capex expansion option to increase production at Mowana to approx. 22,000tpa of copper in concentrate through the installation of a Dense Media Separation (DMS) pre-concentration process:

o DMS is expected to increase throughput to approximately 2.6Mtpa with reduced cash costs

o Increased NPV of up to US$245 million*

· JORC compliant resource base of 686,000 tonnes of contained Cu in Measured & Indicated categories and a further 758,000 tonnes contained Cu in Inferred, to support a long mine life operation, with significant exploration upside potential

* NPVs are quoted in real terms, following debt servicing, using a 10 per cent. discount rate and an average copper price of US$2.84/lb and US$2.81/lb in the base case and DMS scenarios respectively. Through its holding in the project, 60 per cent. of the NPV value would be attributable to Cradle Arc.

Capitalised terms used in this announcement carry the same meanings as those ascribed to them in the Admission Document, unless the context requires otherwise.

Kevin van Wouw, CEO of Cradle Arc, said:

"The central pillar of our portfolio is Mowana, an established copper mine in Botswana, which is currently in production and ramping up to approximately 12,000tpa of saleable copper per annum, at an all in cash cost of US$4,400/t versus a current copper price of US$6,897/t, clearly highlighting the already robust economics of the mine. Our plans to expand and optimise Mowana, primarily through the implementation of a DMS pre-concentration process, considerably improve the economics of this asset and can potentially raise the total project NPV significantly, to US$245 million. In addition to the producing Mowana mine, there is significant additional upside potential from the exploration opportunities open to us in the region and exciting opportunities across our wider portfolio.

"Our strategy is centred on applying new mining models and techniques, to achieve cash positive production from proven mining assets, having secured JV partnerships for our Mali assets, to maximise value in the near term for our shareholders. This strategy has been presented to potential investors and I am delighted to report that the appetite for this model has been significant and we have now added several well-known institutional holders to our register. I look forward to providing regular updates to shareholders on our progress with Mowana and our other attractive portfolio assets."

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

FURTHER INFORMATION

BACKGROUND

Cradle Arc is the holding company of a group of companies focused on the exploration and development of precious and base metals projects in Africa. At Admission, the Group will hold a 60 per cent. interest in a producing copper mine in Botswana and a wholly owned development project, with near-term gold production potential, in Zambia. The Group also holds certain exploration assets in Mali, Burkina Faso and Mauritania.

On 13 November 2017, the Company completed the acquisition of CAI, which will, at Admission, be the holding company of the Group's principal asset, being its 60 per cent. interest in the producing Mowana Copper Mine, located in north east Botswana, which has an independent JORC compliant Mineral Resource estimate of 72,093 kt containing 686 kt Cu in the Measured and Indicated categories at an average grade of 0.94 per cent. Cu and a further 99,778 kt containing 758 kt tonnes Cu grading at 0.76 per cent. Cu in the Inferred category.

Further information on the Mowana Copper Mine and the other assets in the Group's portfolio are set out in sections 5 and 6 of the Company's Admission Document published on 18 January 2018.

HISTORY OF THE GROUP

On 21 December 2016, the Company announced that it had entered into a conditional acquisition agreement to acquire the entire issued share capital of CAI for consideration comprising £1 million payable in cash (the Cash Consideration) and the issue of new Ordinary Shares to the Vendor representing, in aggregate, 60.0 per cent. of the Company's enlarged share capital.

The proposed Acquisition constituted a reverse takeover under the AIM Rules for Companies and accordingly, trading in the Company's Ordinary Shares on AIM was suspended from 21 December 2016 pending publication of an admission document. On 5 July 2017, the Company announced that, due to the delay in publishing such admission document, the admission of the Company's Ordinary Shares to trading on AIM would be cancelled. Pursuant to AIM Rule 41, the admission of a company's shares falls to be cancelled where such shares have been suspended from trading for six months. The Company's Ordinary Shares were suspended for more than six months and, despite securing a short extension to the prescribed deadline, cancellation took effect from 7.00 a.m. on 11 July 2017.

During the period it was suspended, the Company raised, in aggregate, US$1.8 million (gross) from the issue of the January 2017 Convertible Loan Notes and the June 2017 Convertible Loan Notes. The net proceeds from the issue of these notes were predominantly used to provide funding to Leboam, via the CAI Loan Facility, enabling recommencement of operations at Mowana in March 2017 and the subsequent ramp-up in production.

On 17 August 2017, the Company announced that it had entered into a legally binding agreement to sell its interest in its non-core Kossanto East Project (Kossanto East) in western Mali to Ashanti Gold Corp. (Ashanti), for consideration of CAD$1 million. Following completion of the sale, Ashanti will acquire full ownership of Kossanto East and Cradle Arc will retain a 1.5 per cent. net smelter return (NSR). Ashanti will also have the right to purchase the NSR, in whole or in part, by paying US$100,000 for each 0.1 per cent. (up to a maximum of US$1.5 million) to the Company.

On 26 September 2017, the Company and the Vendor entered into the Amended Acquisition Agreement, pursuant to which the Vendor agreed to defer receipt of the Cash Consideration until, in aggregate, £5 million had been raised by the Company on or prior to Admission, such that the Acquisition would complete following the issue of the Initial Consideration Shares. To reflect the proposed Acquisition, on 17 October 2017, the Company changed its name to Cradle Arc plc pursuant to a board resolution.

In late October 2017, the Company raised £3.25 million (gross) of pre-IPO funding, through the issue of the October 2017 Convertible Loan Notes, which will automatically convert into new Ordinary Shares on Admission at the Placing Price.

On 13 November 2017, following the passing of the Whitewash Resolution at the Whitewash General Meeting and the subsequent issue of the Initial Consideration Shares, the Acquisition of CAI unconditionally completed, which the Board believes serves to demonstrate the Company's strategic intent to become a mid-tier base and precious metals producer.

On Admission, a debt restructuring will become effective, following which CAI's subsidiary, Leboam, will unconditionally complete the acquisition of the assets that comprise the Mowana Copper Mine through a liquidation process (the Leboam Acquisition). Summaries of the Leboam Acquisition and the debt restructuring are set out below.

THE LEBOAM ACQUISITION AND THE ZCI DEBT RESTRUCTURING

The Leboam Acquisition

Leboam agreed conditionally to acquire the assets that comprise Mowana from Messina Copper (Botswana) (Pty) Limited (MCB) (in liquidation) through a liquidation process which was approved by the High Court of Botswana in Lobatse pursuant to a meeting of MCB's creditors held on 16 December 2016, with ZCI retaining a pledge over the Leboam shares held by CAI. Prior to the commencement of MCB's liquidation proceedings, MCB was a wholly owned subsidiary of African Copper plc, the shares of which were cancelled from trading on AIM on 8 June 2015.

On 13 November 2015, at the point MCB entered into liquidation proceedings, ZCI was MCB's major creditor with approximately US$110 million of secured debt outstanding, holding security over the Mowana assets.

Revised ZCI Debt Restructuring

Pursuant to the terms of the Revised ZCI Debt Restructuring, on Admission, ZCI will convert US$79 million of its existing secured debt into a 40 per cent. shareholding in Leboam (as enlarged by the issue of such shares) and a US$9.9 million secured loan will be booked to Leboam (the ZCI Secured Loan). In addition, ZCI will retain its existing US$21 million term loan which is repayable over a 10 year term and incurring interest at LIBOR (the ZCI Term Loan). Whilst currently secured, the ZCI Term Loan will be unsecured with effect from Admission. The ZCI Secured Loan is repayable in monthly instalments over 33 months with a nine month moratorium on capital repayments and interest accruing at a rate of 13.5 per cent. per annum and payable monthly.

Completion of the Leboam Acquisition

On Admission, Leboam will also credit the liquidator with a loan of US$10 million (the Liquidator Loan Facility), which will be repayable in monthly instalments over 24 months following Admission with a nine month moratorium on capital repayments and interest accruing at a rate of 13.5 per cent. per annum payable monthly. The Liquidator Loan Facility will be secured by way of a share pledge from CAI over the shares it holds in Leboam and be backed by a guarantee issued by the Company in favour of the liquidator. On Admission, following the new US$9.9 million ZCI Secured Loan and the US$10 million Liquidator Loan Facility being issued, the Leboam Acquisition will complete.

Accordingly, pursuant to the Revised ZCI Debt Restructuring and completion of the Leboam Acquisition, on Admission, Cradle Arc will be interested in 60 per cent. of Leboam's issued share capital (via CAI, its wholly owned subsidiary), and the Group will have a US$9.9 million secured loan owing to ZCI, a US$3.6 million secured loan owing to Fujax pursuant to the Fujax Financing Agreement, a US$10 million secured loan owing to the liquidator and a US$21 million unsecured loan outstanding to ZCI. Summaries of the Revised ZCI Debt Restructuring contracts, the Fujax Financing Agreement and the Liquidator Loan Facility Agreement are set out in sections 12.3 and 12.4, 12.9 and 12.25 of Part VII of the Company's Admission Document respectively.

DETAILS OF THE PLACING AND THE ADDITIONAL CONSIDERATION SHARES

Pursuant to the Placing, Tamesis and Beaufort Securities have conditionally raised £2.4 million (before expenses) for the Company, through the placing of, or direct subscription for, the Placing Shares with investors at the Placing Price, conditional, inter alia, upon Admission.

Following Admission, the Placing Shares will collectively represent approximately 11.92 per cent. of the Enlarged Share Capital. The Placing, which is not underwritten, is conditional upon, inter alia, Admission becoming effective by not later than 8.00 a.m. on 24 January 2018 (or such later date as the Company, Strand Hanson, Tamesis and Beaufort Securities may agree, being not later than 31 January 2018).

The Placing Shares will be issued fully paid and will, upon issue, rank pari passu with the Existing Ordinary Shares including the right to receive all dividends and other distributions declared, made or paid on or in respect of such shares after their date of issue, being the date of Admission.

Pursuant to the terms of the Amended Acquisition Agreement, the Vendor will be issued with 75,000,000 Additional Consideration Shares on Admission, further details of which are set out in section 12.1 of Part VII of the Admission Document. Admission of the Additional Consideration Shares is expected to occur at the same time as the Placing Shares.

On Admission, there will accordingly be a total of 201,329,482 Ordinary Shares in issue (comprising the Existing Ordinary Shares, the Placing Shares, the October 2017 CLN Shares, the Additional Consideration Shares and the Fee Shares). As a result of the issue of the New Ordinary Shares on Admission, Existing Shareholders (excluding PenMin (Botswana)), will be diluted by approximately 65.89 per cent. and will hold, in aggregate, 13.99 per cent. of the Enlarged Share Capital.

Further details of the Placing Agreement are set out in section 12.14 of Part VII of the Admission Document.

REASONS FOR THE PLACING AND USE OF PROCEEDS

The gross proceeds of the Placing are £2.4 million, which the Board expects to deploy as follows:

OFFER TO SHAREHOLDERS

As previously announced, in recognition of Shareholders' continued loyalty and valuable support, the Board intends to offer those Shareholders (save for restricted overseas Shareholders) who held shares as at the date of the Company's suspension from trading on AIM in December 2016 and who continue to hold their Ordinary Shares, the opportunity to participate in an equity fundraising, at 10 pence per share, the same price as the Placing. Such fundraising will be capped at a maximum of £500,000. The Board currently expects to make such an offer in Q1 2018 and further details will be announced, following Admission, as and when appropriate.

DIRECTORS

The Board comprises two executive directors and two non-executive directors. The Directors are based in the UK and South Africa and are supported by experienced senior management in the countries where the Group operates. As a whole, the Board and the Company's senior management have significant experience in establishing, growing, financing and subsequently monetising mineral development projects. Brief biographical details of the Directors on Admission are set out below.

Toby David Howell, aged 42 (Non-Executive Chairman)

Mr Howell is a corporate finance professional with 17 years' experience in the financial services industry and has specific natural resources experience on AIM. He began his career at UBS Warburg and went on to hold positions at firms including ARM Corporate Finance Ltd, Hichens, Harrison & Co plc and Mirabaud Securities LLP. He is currently a partner of Nash Capital Group LLP, a business focused on corporate finance, M&A, SME finance and asset backed lending. He is an officer in the British Army Reserve with operational leadership experience, a graduate of Newcastle University and holds the CISI diploma.

Kevin John Ludolph van Wouw, aged 54 (Chief Executive Officer)

Mr van Wouw has over 30 years' experience in the mining industry and is currently the Managing Director of PenMin. Prior to PenMin, Mr van Wouw was the General Manager, Operations at FLSmidth (Pty) Ltd, where he introduced both its project management and risk management systems. Prior to this, he founded Minero Consulting, working as Project Director on numerous African mining projects, and was also Projects Director at LionOre Mining International Limited, where he was directly responsible for the commercialisation of its ActivoxTM technology, as well as conceptualising and implementing the Commercial DMS application for Tati Nickel Mining Company (Pty) Ltd (Tati Nickel), in Botswana. He was also Senior Project Manager for the Ngezi and Mimosa Platinum Projects while working for DRA International (Pty) Ltd. He has in-depth knowledge of the development of projects across many different currencies and sovereign regions, and the macroeconomic impact of African projects. Mr van Wouw holds an Honours degree in Metallurgy from Pretoria University and is a Fellow of the South African Institute of Mining and Metallurgy.

Mark Christopher Jones, aged 57 (Chief Operations Officer)

Mr Jones is a mining engineer with over 35 years' experience in mining production and associated businesses, 25 years of which have been spent in Africa. He has specific expertise in gold and base metals in Africa, Europe and the Former Soviet Union. Mr Jones was founder and CEO of African Mining and Exploration plc (now named Savannah Resources plc) that sold certain Malian assets to Cradle Arc. Previous positions include CEO of Aurum Mining plc and Expert Explosives (Pty) Ltd and he was also formerly a non-executive director of Antracor Mining Ltd. Mr Jones is a graduate of the Camborne School of Mines and holds an MBA.

Roger Alyn Williams, aged 54 (Non-Executive Director)

Mr Williams is a Chartered Accountant with over 20 years' international experience in mining finance and an honours degree in French and Spanish. He was previously CFO of Randgold Resources Limited and part of the management team that transformed it from being an exploration and development company into a major gold producer. He then went on to become CFO of JSE-listed AECI Limited. His other experience includes directorships and interim executive appointments with various mining and mining services companies. Mr Williams is currently a Non-Executive Director of Sylvania Platinum Limited, Digby Wells and Associates and AfriTin Mining Ltd.

Forward-looking statements 

This announcement and the Admission Document contain forward-looking statements relating to the Company's future prospects, developments and strategies, which have been made after due and careful enquiry and are based on the Directors' current expectations and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Forward-looking statements are identified by the use of terms and phrases such as "believe", "could", "envisage", "estimate", "intend", "may", "plan", "will" or the negative of those, variations or comparable expressions, including references to assumptions. These forward-looking statements are subject to, inter alia, the risk factors described in Part II of the Admission Document. The Directors believe that the expectations reflected in these statements are reasonable, but may be affected by a number of variables which could cause actual results or trends to differ materially. Each forward-looking statement speaks only as of the date of the particular statement.