CRA.L Regulatory News (CRA)

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

3 April 2018

Cradle Arc plc

("Cradle Arc", the "Company" or, together with its subsidiaries, the "Group")

Operational and Financial Update

Cradle Arc (AIM: CRA), the African focused base and precious metals exploration and production company, is pleased to provide an operational and financial update in respect of its Mowana Copper Mine in Botswana ("Mowana" or the "Mine"), including details of an enhanced independent mineral resource estimate for the Mowana open pit, an accelerated Mine development plan (the "Accelerated Development Plan") and US$10 million of secured debt funding (the "Debt Funding").

Highlights:

· Maiden JORC (2012) mineral resource estimate for Mowana of 75 million tonnes at 1.15% Cu for 861,000 tonnes of contained copper

o Measured and Indicated Resource estimate of 40 million tonnes at 1.17% Cu for 466,000 tonnes of contained copper

o Previously published JORC resource estimate for Mowana was not constrained as per the requirements of JORC (2012); on a directly comparable basis, at a 0.25% Cu cut-off, the resource grade has increased by 18% and contained copper by 6%

· Maiden JORC (2012) ore reserve estimate for Mowana scheduled to be announced in Q2 2018

· Accelerated Development Plan to be implemented following the positive resource update and metallurgical test results, in order to fast-track access to the deeper ores, which have demonstrated better recoveries and grades, enabling Cradle Arc to reach steady state production and positive cash flows more rapidly

· Additional mining fleet of 25 vehicles, including trucks, excavators, loaders and support equipment, delivered to site, to facilitate the Accelerated Development Plan

· US$10 million secured Debt Funding, providing additional working capital for implementation of the Accelerated Development Plan and enabling the Group to refinance offtake linked pre-payment facility provided by Fujax, serving to improve the overall cost of borrowing for the Mine and improve the capital base of the Group

Kevin van Wouw, CEO of Cradle Arc, said:

"Mowana has demonstrated its significant scale and, following the successful recommencement of production during 2017, our focus has now turned from the testing phase to increasing throughput and building towards profitability. To achieve this, we have formulated an Accelerated Development Plan, whereby four mining units will be in service in the Mowana open pit. We are delighted to have secured US$10 million of debt funding to support these efforts and refinance part of the Group's existing indebtedness. The net funds raised will enable us to bolster our mining fleet, accelerate access to the supergene and sulphide ores where grades are higher and recoveries have been shown to be strong, and refinance the Group's offtake linked pre-payment facility to reduce overall borrowing costs and improve the capital base of the group.

"Our new resource model captures our improved understanding of the Mowana opportunity, allowing for better returns to be achieved in the near term as we move from the testing and recovery phase towards steady state operations and our goal of achieving initial nameplate capacity of c.12,000 tonnes of copper per annum. Alongside this, work continues on the definition of the maiden JORC (2012) reserve estimate, which will incorporate the planned process plant improvements so that, once we have achieved initial nameplate capacity at the current plant, we can look to build production to over 20,000 tonnes per annum via the planned DMS upgrades. With a restructured and strengthened balance sheet and clearly defined accelerated development plan, we look forward to establishing Mowana as a major copper producer."

FURTHER INFORMATION

Operational Update

Following the Company's admission to trading on AIM on 24 January 2018, additional mining equipment comprising 20 x 40-tonne ADTs, 3 x CAT D8 dozers, 2 x CAT374 excavators, a grader and a water truck, along with the accompanying support equipment and spares, has been delivered to site in support of the Group's Accelerated Development Plan.

The Accelerated Development Plan envisages having four mining units in service in the Mowana open pit, with a mining unit consisting of a 75-tonne excavator and five 40 tonne articulated dump trucks (ADTs). With the ability to operate each mining unit independently in the open pit, the Accelerated Development Plan will enable the Group to mine additional faces in the ore body simultaneously and thereby increase the volume of ore and waste mined.

Accordingly, the Accelerated Development Plan provides for more rapid access to the sulphide and supergene ores, which have demonstrated very good metallurgical recoveries as confirmed by recent onsite laboratory testwork, ahead of the Group's original schedule, as well as increasing the tonnes of ore delivered to the run of mine (ROM) pad. This expected increase in ROM tonnage permits improved blending and will allow the Group to build stockpiles of ore ahead of the planned implementation of the Dense Media Separation (DMS) upgrades which, subject to securing the requisite additional funding or financing from retained cash flows, is anticipated to result in copper production at Mowana increasing significantly.

Pursuant to the Accelerated Development Plan, which is based on and supported by the new resource model, the Group will now focus its activities on the higher-grade ores at the 950 level and below. Recent test work completed by the Group's onsite metallurgists, which, as announced on 31 January 2018, has been independently verified in South Africa, has confirmed that these ores should provide excellent metallurgical recoveries, with the average plant recovery expected to be in excess of 85%. Accordingly, mining operations will initially be concentrated on the 960 - 980 levels of the open pits to remove waste material and progress to mine the higher grade ores at the 950 level and below, as soon as possible.

The Group has concluded a successful period of campaign runs, whereby the Mine processed and tested different ore types from the Mowana open pit, historical stockpiles and tailings. The comprehensive data compiled from this metallurgical test work has allowed the Group to develop the Accelerated Development Plan, which has been targeted at achieving a period of steady state production as quickly as possible. Stockpiled material and freshly mined ores underwent comprehensive metallurgical performance analysis, which identified that ores below the 960 level would have acceptable plant recovery rates.

At the end of February 2018, the plant was shut down temporarily to facilitate the completion of a mill re-line, along with other essential maintenance, in readiness for the pursuit of steady state operations. As a result of such maintenance activities and the formulation of the Accelerated Development Plan, there has been no material change to the quantity of copper concentrate produced from that reported in the Company's general meeting circular published on 26 February 2018.

Having secured the additional Debt Funding, excavation of the waste material in the 950 - 980 levels of the Mowana open pit will accelerate to ensure that the Mine ramp-up remains on track to achieve nameplate production of 12ktpa. As the maiden ore reserve is not yet available, providing specific guidance on timing is not currently possible, however, the Accelerated Development Plan, along with the maiden JORC (2012) resource, provides confidence that Mowana should be able to move through breakeven mid-year as build up to full name plate capacity takes place. The Group intends to initiate quarterly reporting of production levels and other key performance indicators once steady state operations have been achieved.

Enhanced Mineral Resource Estimate

The Board decided to update and consolidate the existing mineral resource models in order to improve confidence in the resource at Mowana. Upside potential was identified following a successful reverse circulation ("RC") drilling campaign conducted by the Group in 2017, which comprised a total of 51 RC holes for 2,546 metres and which has been augmented by the inclusion of data from other historical drill holes that had not been previously incorporated.

Cradle Arc has afforded Wardell Armstrong International Ltd ("WAI") with access to a comprehensive dataroom, containing the relevant drill data, which was reviewed and analysed by WAI's consultants to form the basis of its maiden JORC (2012) mineral resource estimate, as set out in Figure 1. The refined geological interpretation of the mineralised zones has included material outside of the main breccia orebody and is supported by new data generated by Group's 2017 drill programme.

The maiden JORC (2012) mineral resource estimate for Mowana includes a measured and indicated resource of 40 million tonnes at 1.17% Cu for 466,000 tonnes of contained copper and an inferred resource of 35 million tonnes at 1.12% for 395,000 tonnes of contained copper. The new estimate produced by WAI includes the results of acid soluble copper, which was not included in the previous unconstrained Golders Associates' resource model. Mineralisation remains open for expansion along strike to the north and at depth.

Figure 1: maiden JORC (2012) mineral resource estimate for Mowana

The previous JORC resource estimates published for Mowana were not reported in accordance with JORC 2012. In 2015, Golder Associates defined and published a resource estimate at a 0.25% Cu cut-off grade, which, because it overstated the resource estimate, needed to be adjusted by the Company to account for overlap between pits (for further information see Table 2 on page 28 of Cradle Arc's AIM admission document published 18 January 2018 (the "Admission Document")) (the "Adjusted 2015 Golder Resource"). The Adjusted 2015 Golder Resource estimate comprised a measured and indicated resource of 65 million tonnes at 0.96% Cu for 659,000 tonnes of contained copper and an inferred resource of 96 million tonnes at 0.76% for 727,000 tonnes of contained copper.

For direct comparison purposes with the resource figures presented and reported on in the Adjusted 2015 Golder Resource, WAI has also produced an estimate for an unconstrained resource, using a 0.25% cut-off, including the data from the Group's 2017 drill campaign.

This estimate shows an unconstrained measured and indicated resource of 66 million tonnes at 0.99% Cu for 657,000 tonnes of contained copper and an inferred resource of 74 million tonnes at 0.99% for 728,000 tonnes of contained copper. Figure 2 below sets out a comparison between the 2015 Golder Associates' model and WAI's aforementioned model, neither of which is constrained and therefore neither are in accordance with the JORC Code (2012).

Figure 2: Comparison of the 2015 Adjusted Golder Resource (as reported on in the Admission Document and adjusted by the Company to account for overlap between pits) with the new WAI's equivalent model, at a 0.25% cut-off (non-JORC (2012)).

Notably, there is a decrease in the overall tonnage but a significant improvement in the overall grade and contained copper. The measured and indicated categories have increased by approximately 1.3 million tonnes and decreased by approximately 0.5 million tonnes respectively, due to the additional drill hole data generated in 2017. Material in the inferred category has decreased due to the removal of very low grade internal waste (below 0.1% Cu).

The improvement in the unconstrained resource model, along with the maiden JORC (2012) mineral resource estimate, provides a solid foundation for Life of Mine (LOM) planning, day-to-day Mine scheduling and the targeting of higher grade ores.

The new WAI resource model demonstrates the importance of improving the confidence of the resource estimate, through converting the large inferred component into the indicated and measured categories. Through this, the Company anticipates that it will be able to gain further insight into the large copper orebody, which, in turn, will allow Cradle Arc to formulate a strategy on how to unlock future opportunities to increase output beyond the proposed DMS upgrade, both by extending the open cast opportunity as well as investigating the future underground potential of the orebody. On receipt of the maiden mineral reserve estimate, the Group will allocate its resources accordingly to scope out such opportunity effectively.

WAI is currently working on an ore reserve from the maiden Mowana JORC (2012) resource that will comply with the guidelines of the JORC Code (2012), the results of which are currently anticipated to be to be announced in Q2 2018.

Fujax Offtake and Financing Arrangements

As set out in the Admission Document, Leboam's off-take partner, Fujax Minerals and Energy Limited ("Fujax"), is also a lender to Leboam having advanced certain pre-payment financing to Leboam to commence production at the Mine during its start-up year. The balance outstanding pursuant to this pre-payment facility (the "Pre-Payment Facility"), including accrued interest, is approximately US$3.9 million. The Pre-Payment Facility is currently unsecured and Leboam has not drawn down on the secured Fujax Financing Agreement (as defined in the Admission Document).

The Group considers the cost of borrowing from Fujax to be prohibitive due to its interest rate of 13.5% and royalty obligation of 5% of the Mine's gross revenues for the duration that monies are outstanding to Fujax, over and above standard offtake marketing fees, and so the Company has therefore elected to repay the balance outstanding in full. On 1 April 2018, being the 13 month anniversary of initial drawdown, the Pre-Payment Facility became repayable on demand. Leboam therefore intends to settle the balance outstanding as soon as practicable from the net proceeds of the Debt Funding.

Accordingly, following settlement of the amount due, Fujax will no longer be a lender to Leboam and the 5% revenue royalty will no longer be payable. Leboam will continue to sell copper concentrate to Fujax, as Leboam's offtake partner.

New Debt Funding

The Company has agreed to grant to a consortium of lenders (the "Financing Parties"), in aggregate, US$10 million secured loan notes (the "Loan Notes") pursuant to the terms of a loan note instrument. Obtaining this new Debt Funding is a key component to enabling the Group to pursue its abovementioned Accelerated Development Plan. The Company will utilise the net proceeds from the Debt Funding for the repayment by Leboam of the Fujax Pre-Payment Facility (as set out above), additional working capital for implementation of the Accelerated Development Plan and for its general corporate purposes. The Loan Notes are not convertible and there are no equity rights attached to the Loan Notes save in respect of the Warrants (set out below).

The Loan Notes are redeemable 12 months from the date of the loan note instrument. The Company shall be entitled to redeem the Loan Notes prior to the redemption date however, a redemption fee equal to three per cent. of such principal amount shall be payable to the Financing Parties if the Loan Notes are redeemed prior to the date falling 11 months from the date of loan note instrument.

The redemption obligations of the Company are secured initially by way of a pledge over the entire issued share capital of Leboam's direct holding company, Cradle Arc Investments (Proprietary) Limited.

The Company has also agreed to use reasonable endeavours to enter into such security documents required to allow the Financing Parties to share in the existing security held by Leboam's 40% shareholder, ZCI Limited ("ZCI") (the "Security Arrangements").

Interest is payable on the Loan Notes at the rate of 18% per annum (payable quarterly in arrears). In the event that the Security Arrangements are not entered into within 2 months from the date of the loan note instrument, or if the Loan Notes remain outstanding after six months, then the interest rate will increase from 18% to 22% per annum.

An aggregate arrangement fee of 4% of the principal amount of the Loan Notes is payable to the Financing Parties in respect of the Debt Funding, which will be deducted from the proceeds of the Loan Notes.

The agreements in respect of the new Debt Funding contain customary warranties, undertakings and events of default.

In conjunction with the new Debt Funding, the Company has agreed, subject to shareholder approval, to grant to the Financing Parties, in aggregate, 71,336,852 warrants to subscribe for new ordinary shares in the Company (the "Warrants"). The Warrants are exercisable at a price of 5 pence per share during the exercise period of 12 months from the date of the warrant instrument constituting the Warrants.

The issue of the Warrants is subject to shareholder approval to be sought at the 2018 Annual General Meeting of the Company or a general meeting of the Company to be held by no later than 30 May 2018. The Company has received an irrevocable undertaking from PenMin Botswana (Pty) Ltd to vote in favour of the resolutions to approve the issue of the Warrants. As at the date of this announcement, PenMin (Botswana) holds 115,517,689 Ordinary Shares, representing approximately 55% of the total issued share capital of the Company.

Tamesis Partners LLP is acting as the Company's financial adviser in connection with the Debt Funding.

Related Party Transaction

City Financial Investment Company Limited ("City Financial") has subscribed for US$0.75 million of loan notes as part of the Debt Funding. As City Financial is a substantial shareholder, this is considered to be a related party transaction pursuant to Rule 13 of the AIM Rules for Companies. Accordingly, the Directors of the Company, having consulted with the Company's Nominated Adviser, Strand Hanson Limited, consider that the terms City Financial's participation are fair and reasonable insofar as the Company's shareholders are concerned.

Review of Information

Kevin van Wouw, who is the Company's CEO and a Fellow of the South African Institute of Mining and Metallurgy, has reviewed and approved the technical information contained within this announcement. Mr van Wouw has sufficient experience relevant to the style of mineralisation and type of deposit under consideration and to the activity that he is undertaking and meets the criteria as a qualified person under the AIM guidance note for mining and oil & gas companies. Mr van Wouw has reviewed this announcement and consents to the inclusion in this announcement of the matters based on his information in the form and context in which they appear.

Glossary of technical terms

**ENDS**

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

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