Weatherly International Plc Regulatory News (WTI)

Weatherly International Plc

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

Interim Results for the Period from 1 July 2017 to 31 December 2017

Weatherly International plc (AIM: WTI), a Namibian focused copper producer, announces its unaudited interim results for the period from 1 July 2017 to 31 December 2017.

Highlights

Operational

· Tschudi production for the half year to 31 December 2017 was 8,844 tonnes Copper Cathode.

· Production C1 costs for the half year were US$4,944 per tonne.

Financial

· Revenue up to US$47.7m compared to US$37.8m for the comparable period last year.

· Operating loss of US$0.5m compared to a loss of US$6.7m for the same period last year.

· Unrestricted cash at 31 December 2017 of US$3.4m with a further US$3.8m received against inventory shipped to port on 3 January 2018 compared to US$6.3m at June 2017.

Corporate

· Weatherly entered into a binding agreement to purchase 100% of the Kitumba copper project in Zambia from ASX-listed Intrepid Mines Limited ("Intrepid").

· Subsequent to period end Weatherly entered into a binding agreement to purchase 65% of the shares of China Africa Resources Namibia Ltd ("CARN"), the owner of the high-grade Berg Aukas underground zinc-lead-vanadium project, which will increase Weatherly's ownership of CARN to 90%. 

· Subsequent to period end Edwin Bennett resigned as a director.

Operational Summary

Tschudi production for the half year to 31 December 2017 was 8,844 tonnes Copper Cathode with a particularly strong second quarter of 4,739 tonnes of copper cathode or 11.5% above nameplate. This outcome was assisted by some short-term benefits from relatively-fast leaching of additional oxide ore mined from an interim pit pushback bringing forward some leaching output. The grade of this additional oxide ore was lower, reducing the tonnage of contained copper metal stacked in the quarter.

Last year the Company announced that it was experiencing lower leach rates for mixed and sulphide ore than were anticipated in the BFS and has compensated for this by exposing ore faster in the pit and stacking higher volumes of copper metal in ore, which together result in a higher C1 cost in the short to medium term. The Company has expanded the heap leach pad area to provide additional time for the leaching of copper and has now completed the construction of seven new leach pads. Forced aeration of some panels has commenced as part of ongoing testing of how leach rates for mixed and sulphide ore may be improved under modified operating conditions designed to increase bacterial activity in the heap. However it is expected to take to the end of the financial year until any firm conclusions can be drawn.

Open pit groundwater inflows, and the costs of dealing with them, continue to increase as pit mining proceeds to greater depths, but the flow rates are being managed adequately to ensure a reliable supply of ore for stacking. Updated estimates of likely water inflow rates for the pit stages currently being mined have been produced by independent consultants from Strategic Water Management WA and RPS. Work is underway in order to quantify the impact of the costs of dealing with these inflows upon the economic reserve and life of mine.

While the strong December quarter demonstrates the capacity of the Tschudi SXEW plant to operate at well above nameplate levels when leaching rates provide sufficient copper into solution, full year production is not expected to exceed its nameplate producing capacity of 17,000 tpa copper cathode.

Otjihase Project

Ojtihase and Matchless remained on care and maintenance over the 6 month period.

Financial Summary

In the financial statements for the year ended 30 June 2017, we noted that there were encouraging signs that copper prices were on the rise, ending that financial year at US$5,949 per tonne. We have been pleased to see that this trend has continued and the copper price averaged US$6,521 in this 6 month period and ended the calendar year at US$7,155. As the majority of our costs are in Namibian dollars, we are also mindful of the US$: N$ exchange rate. Over the 6 month period the exchange rate averaged 13.39, weaker than the June 2017 year end rate of 13.04. However, the exchange rate finished the period at 12.36 and has averaged lower since year end which is likely to affect our reported C1 cost negatively in the second half of the financial year.

Revenue after royalties for the 6 month period was US$47.7m, 26% higher than the comparable period in 2016 reflecting the increase in copper price.

In accordance with IAS 36 "Impairment of assets" the Group was required to perform an impairment review of the assets of Tschudi as at 31 December 2017. The assets were impaired by a further US$1m as a result of strengthening of the N$ against the US$ and expenditure on the leach pads outweighing the increased copper price. Further details of the impairment can be found in the property plant and equipment note, note 6.

Tschudi's costs before interest, depreciation and impairments were US$37.1m with the result that Tschudi generated earnings before interest and depreciation (EBITDA) of US$10.6m. Care and maintenance costs at the Otjihase Project were US$1.2m and corporate costs amounted to US$0.6m leaving the Group EBITDA at US$8.7m. Depreciation in the 6 months amounted to US$8.2m and there was a US$0.1m impairment in investments and the US$1m impairment of Tschudi development expenditure leaving an operating loss of US$0.5m. This compares to a loss of US$6.7m in comparable period in 2016. However the loss increased to a loss before tax of US$5.9m after finance charges.

The Group had unrestricted cash at 31 December 2017 of US$3.4m with a further US$3.8m received on 3 January 2018 against inventory shipped to port, compared to US$6.3m at June 2017. The Group generated US$3.0m of operating cash flow after an increase in inventory of US$5.5m. Inventory was higher than at June year end, firstly, because stock at Walvis Bay waiting to be shipped was 542 tonnes higher than at June and, secondly, there was nearly 90,000 tonnes of additional ore inventory as at December to allow for any mining disruption caused by the wet season. The Group invested US$7.0m on property plant and equipment, principally on constructing the heap leach pads and US$0.5m on acquisition costs of Kitumba and CARN most of which is a refundable deposit on the former. The Group received US$3m on the uncommitted US$10m loan (leaving US$7m undrawn) from Orion Mine Finance (Master) Fund I LP ("Orion") and the working capital loan, also with Orion, reduced by US$1.5m giving a net increase in loans of US$1.5m.

The Group renegotiated its loans with Orion on 31 August 2017, 30 October 2017 and 31 December 2017. Under the latest revision of the financing agreement over US$20m of repayments are due by 31 March 2018 and it is unlikely that the Group will generate sufficient surplus cash to meet the revised loan repayments schedule and the Group's and parent company's ability to continue as a going concern will be dependent on Orion's continued support, of which there is no certainty. The directors believe that with the support of Orion to defer loan repayments, Tschudi can generate sufficient surplus funds for the Group and parent company to remain as a going concern (see note 1d. for more information).

Corporate Summary

Kitumba

On 12 December 2017, Weatherly announced that it had entered into a binding agreement to purchase 100% of the Kitumba copper project in Zambia from ASX-listed Intrepid. One of the conditions precedent for Weatherly's acquisition of the Kitumba Project was Intrepid shareholder approval and this was obtained on 2 February 2018. The remaining conditions precedent for completion of the acquisition are regulatory approval from the Zambian Ministry of Mines and Minerals Development and from the Zambian Competition and Consumer Protection Commission.

The key terms of the transaction are consideration of AU$4.75m in cash upon completion, plus deferred consideration of AU$ 0.5m upon a "Decision to Mine" and a further AU$0.5m upon achieving "Commercial Production". Weatherly has obtained a waiver from Orion to use part of the uncommitted US$10m loan announced on 28 July 2017 to fund the transaction to the extent that the Company is unable to fund it through operating cash flows.

Previous development plans for Kitumba were based on large scale and high capital cost development of the entire resource from the outset, and also included a decision to follow a relatively complex processing route using Pressure Oxidation to oxidise the sulphide minerals so that all of the contained copper could be leached and electro-won on site to produce copper cathode only.

 Weatherly intends to pursue a two-phase development approach focussed initially on a Phase 1 development zone of higher-confidence and higher-grade mineralisation within the overall resource at Kitumba. The underground mine plan will be revised to focus on this Phase 1 development area, with capital expenditure reduced to suit a Phase 1 mining production rate of 0.75 to 1.0 Mtpa of ore.

 Further, Weatherly intends to evaluate a lower risk and lower cost processing route utilising a combination of flotation and atmospheric leaching plus solvent-extraction and electro-winning to produce both copper concentrates and copper cathode.

To assist with this work, Weatherly engaged The MSA Group ("MSA") to provide an updated JORC-compliant Mineral Resource Estimate using a 2% Cu cut-off grade. MSA have completed that work and the Measured & Indicated Mineral Resource estimate at a 2% Cu cut-off grade comprises 9.5Mt at 3.6% Cu, containing 342,000 tonnes of copper, with 5.3Mt at 4.04% Cu classified as Measured, and 4.2Mt at 3.05% Cu classified as Indicated.

Weatherly believes that the change to a phased development approach focussed initially on high-confidence high-grade ore and the changed processing route will together significantly improve the financial metrics of Kitumba, and will allow a fast-track to financing and production.

Berg Aukas

On 5 February 2018, Weatherly announced that it had entered into a binding agreement to buy Hong Kong East China Non-Ferrous Mineral Resources Co Ltd's ("ECE") 65% of CARN, to increase the Group's interest in CARN from 25% to 90%. CARN is a private Namibian company which owns 100% of the high-grade Berg Aukas underground zinc-lead-vanadium project near Grootfontein. Weatherly will purchase all of ECE's shares in CARN for a cash consideration of US$600,000, which is still subject to regulatory approval in Namibia. Following such approval being granted the full consideration will become immediately payable to ECE. The Company expects to fund the transaction through operating cash flow but in the event that it cannot, Weatherly has obtained a waiver from Orion Mine Finance to use part of the uncommitted US$10m loan announced on 28 July 2017 to fund the transaction.

In 2014, China Africa Minerals plc published a PFS for Berg Aukas which indicated the following key parameters.

· JORC-compliant Mineral Resource Estimate of 1.23Mt @ 15.47% Zn, 3.84% Pb and 0.33% V2O5 (Indicated classification) using a cut-off grade of 3.0% Zn

· JORC-compliant Ore Reserve Estimate of 1.7Mt @ 11.16% Zn, 2.76% Pb and 0.23% V2O5 (Probable classification) at a 5% Zn equivalent cut-off included within the resource

· Post-Tax NPV10 of US$29m

· Post-Tax IRR of 25%

The 2014 PFS was based on assumed prices of US$2,000/tonne for zinc and lead. Vanadium, present in the mineral descloisite, has a limited market and so the PFS assumed no credit was received for the vanadium content.

Prices for all three of these commodities have improved markedly since that time, and Weatherly has initiated an update of the PFS to examine the impact of these improved prices and updated capital and operating cost estimates on the Project's key financial metrics.

 Directorate Change

On 6 February 2018, Edwin Bennett, a director of the Company, and appointee of Orion, tendered his resignation. The Company thanks Mr Bennett for his contribution to its leadership over the past two years.

For further information please contact:

Weatherly International Plc +44 (0)1707 800 774

Craig Thomas, CEO

Kevin Ellis, CFO & Company Secretary

Strand Hanson Limited +44 (0) 20 7409 3494

(Nominated Adviser & Broker) 

Rory Murphy / James Dance / Jack Botros

About Weatherly

Weatherly is an AIM listed copper mining company operating in Namibia in southern Africa. Its principal assets are the Tschudi Mine and the Otjihase Project. The Tschudi Mine is an operating open pit mine producing refined copper cathode on site. The key assets of the Otjihase Project are the Otjihase underground copper mine and concentrator and the Matchless West underground copper mine. The Otjihase Project assets are currently under care & maintenance while in the Project Development stage. Weatherly also owns 25% of China Africa Resources Namibia (CARN), a private Namibian company which owns the high-grade Berg Aukas underground zinc-lead-vanadium project. On 5 February 2018 it announced that it had signed an agreement to purchase a further 65% of CARN subject to regulatory approval. On 12 December 2017, Weatherly announced that it had entered into an agreement to purchase the Kitumba copper development project in Zambia. The transaction has subsequently been approved by the vendors shareholders and is only subject to regulatory approval. 

Condensed consolidated income statement

for the period from 1 July to 31 December 2017

Condensed consolidated statement of comprehensive income

for the period from 1 July to 31 December 2017

Condensed consolidated statement of financial position

as at 31 December 2017

Condensed consolidated statement of changes in equity

for the period from 1 July to 31 December 2017

Condensed consolidated cash flow statement

for the period from 1 July to 31 December 2017

Notes to the condensed consolidated financial statements

for the period 1 July to 31 December 2017

1. a. Basis of preparation

These interim condensed consolidated financial statements are for the six months ended 31 December 2017. They do not include all of the information required for full annual financial statements, and should be read in conjunction with the consolidated financial statements of the Group for the year ended 30 June 2017. The information included in these interim condensed consolidated financial statements in respect of the year ended 30 June 2017 does not constitute all the information required for annual statutory accounts at that date.

These financial statements have been prepared under the historical cost convention, except for revaluation of certain properties and financial instruments.

The annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. These condensed consolidated interim financial statements (the interim financial statements) have been prepared in accordance with the accounting policies adopted in the last annual financial statements for the year to 30 June 2017.

The accounting policies have been applied consistently throughout the Group for the purposes of preparation of these condensed consolidated interim financial statements.

b. Restatement

In the 30 June 2017 financial statements, legal and other borrowing costs associated with the borrowings from Orion Mine Finance (Master) Fund I LP ("Orion") were included in loans in line with IAS 39. Prior to that, they had been classified under trade and other receivables and the 31 December 2016 results have been restated increasing receivables and decreasing loans by US$2.9 for consistency. There is no impact to net assets or profit and loss.

In the 30 June 2017 financial statements, the costs of care and maintenance were classified as administration costs but were classified as cost of sales in the 31 December 2016 interims. The interims has been restated for consistency increasing administration expenses and decreasing cost of sales by US$1.5m respectively. There is no impact to net assets or profit and loss.

c. Nature of operations and general information

Weatherly International plc and its subsidiaries' ("the Group") principal activities include the mining and sale of copper cathode and copper concentrate.

Weatherly International plc is the Group's ultimate parent company. It is incorporated and domiciled in the United Kingdom. The address of Weatherly International plc's registered office, which is also its principal place of business, is Orion House, Bessemer Road, Welwyn Garden City AL7 1HH. The Company's ordinary shares are admitted to trading on the AIM market of the London Stock Exchange.

Weatherly International's consolidated interim financial statements are presented in United States dollars (US$), which is also the functional currency of the parent company.

These consolidated condensed interim financial statements have been approved for issue by the Board of Directors on 16 March 2018.

The financial information for the period ended 31 December 2017 set out in this interim report does not constitute statutory accounts as defined by the Companies Act 2006. The Group's statutory financial statements for the year ended 30 June 2017 have been filed with the Registrar of Companies.

d. Going Concern

The Group incurred a loss before tax of US$5.9m during the 6 month period ended 31 December 2017 and, at that date, had net current liabilities of US$116.2m. Orion, Weatherly's largest shareholder and lender, have confirmed it has agreed to defer the repayments on Tranche B, C and D of its loan until 31 March 2018. The first payment of Tranche B was originally due on 30 November 2015 with payments due quarterly thereafter. Tranche C was repayable on 31 August 2016 and Tranche D on 9 November 2016. Over US$20m of repayments are due by 31 March 2018 and it is unlikely that the Group will generate sufficient surplus cash to meet the revised loan repayments schedule and the Group's and parent company's ability to continue as a going concern will be dependent on Orion's continued support, of which there is no certainty.

The directors believe that with the support of Orion to defer loan repayments, Tschudi can generate sufficient surplus funds for the Group and parent company to remain as a going concern. However there are a number of uncertainties around the assumptions that have a potentially negative impact on the Group's ability to deliver the forecast cash flows.

These are:

· That Tschudi is able to maintain nameplate production levels of 1,400t of copper cathode a month throughout the period. The risks of not achieving this revolve around not being able to mine and process sufficient ore tonnes to achieve this output as well as the leach time and metallurgical recovery rates remaining in line with the bankable feasibility study (BFS) as different types of ore are mined into.

· The Group has experienced open pit groundwater inflows higher than the BFS which continue to increase as pit mining proceeds to deeper elevations. The flow rates are being managed adequately to ensure a reliable supply of ore for stacking but at deeper or different areas of the mine production could be disrupted.

· The Group has experienced lower leach rates than were anticipated in the BFS and has compensated for this by exposing ore faster in the pit and stacking higher volumes of copper metal in ore, which together result in a higher C1 cost in the short to medium term. The Company continues to extend the heap leach pad area to provide additional time for the leaching of copper. Investigations continue into how leach rates can be improved under modified operating conditions and the subsequent effect on ultimate recoveries with the assistance of independent consultants, Jo & Loyola Consultores de Procesos. However, it is expected to take to the end of the financial year before any firm conclusions can be drawn.

· Copper price fluctuations not having a further material adverse effect on the Group's profitability.

· As the Group's revenue streams are converted from US dollars to Namibia dollars exchange rate fluctuations could have a material adverse effect on the Group's profitability.

· The timing of income is uncertain. Sales are dependent on the date the Group's only customer, Orion, accepts title by shipping the copper cathode.

· The Group recovers VAT receipts in Namibia, the timing of repayment are outside the Group's control.

The ongoing need for Orion's support along with the above conditions indicate the existence of a material uncertainty which casts significant doubt about the Group's and parent company's ability to continue as a going concern and, therefore, that it may be unable to realise its assets and discharge its liabilities in the normal course of business. The Group continues to positively engage with Orion on the subject as evidenced by the subsequent events in note 9. The Group and parent company financial statements do not include the adjustments that would result if the Group and parent company were unable to continue as a going concern.

2. Segmental reporting

Business segments

In identifying its operating segments, management generally follows the physical location of its mines.

The activities undertaken by the Tschudi segment include the sale of copper cathode from the Tschudi mine. The activities undertaken by the Otjihase Project segment include the sale of copper concentrate from Otjihase and Matchless mines, both of which are currently on care and maintenance. The revenues of Otjihase and Matchless are indistinguishable as the ore coming from both mines passes through the same concentrator and the two mines are viewed as one operating unit.

Each of these operating segments is managed separately as each of these service lines requires different technologies and other resources as well as marketing approaches.

The measurement policies the group uses for segment reporting under IFRS 8 are the same as those used in its financial statements.

The Group's operations are located in Namibia and the UK. The operating segments are located in Namibia, while the corporate function is carried out in London.

Segment information about these businesses is presented below.