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Cradle Arc secures US$2 million loan facility for processing facility rehabilitation at Mowana mine

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Global Mining Review,


The 60%-owned subsidiary of Cradle Arc, the African focused base and precious metals exploration and production company, Leboam Holdings (Pty) Ltd (Leboam), which is the holding company of the Mowana copper mine in Botswana has conditionally obtained a loan facility of US$2 million from Cradle Arc's largest shareholder, PenMin Botswana Proprietary Ltd (PenMin) (a company indirectly controlled by the Company's CEO, Kevin van Wouw) to establish an enhanced inventory of key spare parts and  improve and rehabilitate the current processing facilities at Mowana and thereby address the intermittent breakdowns and interruptions that are the key reason for the company's inability to meet its production targets during 3Q18. The facility is conditional on concluding the debt sale agreement with Fujax, which is expected shortly. In addition, the company provides updates in respect of its operations and the outstanding January 2017 and June 2017 convertible loan notes. 

Kevin van Wouw, CEO of Cradle Arc, commented: "During 3Q18 and subsequently, we have been constrained by intermittent equipment breakdowns and sporadic interruptions at Mowana's processing plant, which is ten years old and is being rehabilitated following a period of care and maintenance. Over this period, we have been able to identify weaknesses in the design and condition of the existing equipment and formulate a remediation plan involving the targeted application of funds raised from the Facility to repairs, the acquisition of spare parts and the installation of standby equipment/redundancy.

 

"We strongly believe that the progress we have made in our opencast mining activities within the North Pit and the North Rim Extension, combined with the proposed rehabilitation work to the processing plant, will enable the company to achieve a significant improvement in throughput and hence recovery in 4Q18 relative to its 3Q18 performance.

"As set out in the company's previous operational update of 25 September 2018, we have developed the orebody to the extent that we now have access to a large amount of transitional and supergene ore, which is anticipated to deliver improved recoveries at a reduced production cost over the remainder of the year and all of 2019. The plant improvements that we will be making over the coming weeks should result in the stabilisation of operations, improved copper recoveries, and ultimately increased production."

Operational update

Further to the company's announcement of 25 September 2018, actual production of contained copper for September 2018 was 178 t, resulting in a total of 712 t of contained copper production for 3Q18. This represents an increase of approximately 29.5%. over the total contained copper production achieved in 2Q18.

As noted previously, the company’s opencast mining activities have been focused on waste stripping to expose transitional and supergene material ultimately leading to the mining of sulphide blocks. This is anticipated to facilitate access to ore with limited stripping overhead, thereby providing the flexibility to progress to sulfide material over the course of the next year in an increasing proportion resulting in a more predictable and sustainable mining schedule.

From a processing perspective, an exercise to identify the shortfalls of the existing plant and equipment is now complete, enabling the targeted application of the funds raised from the facility to the requisite remedial action, whilst also introducing redundancy to the plant's design. The reduction in throughput experienced has been largely due to the series design of the processing equipment, making it more susceptible to sporadic breakdowns and interruptions directly related to the ramp-up process. The remedial action and installation of new redundancy, together with the acquisition of an enhanced spare part inventory, is expected to alleviate these risks.

Additionally, processing interruptions have had an adverse effect on the recoveries achieved. Improved recovery rates over the course of 4Q18 will be directly affected by the planned rehabilitation work on the processing plant offset by the expected improvement in the quality of ore to be processed as mining operations advance through the transitional zone towards the primary sulfides. As the company's underperformance in processing throughput is addressed, and the recovery degradation improved by more stable operations, the company currently expects an increase in both throughput and recovery performance.

The company's 4Q18 production guidance has been reviewed and given the risks inherent with recommissioning to commercial operation of the process plant, the company will restate its guidance only when stable operations have been achieved and greater forecasting accuracy is possible.

Loan facility

The facility is for a total principal amount of US$2 million, which can be drawn down by the company in any number of tranches, and bears interest at a rate of 13.5% per annum compounded monthly, increasing by 2%. in the event of any default. The facility has a 24 month term, is repayable monthly and can be repaid early in whole or in part without penalty and can also be extended and redrawn on a revolving basis at PenMin's discretion.

The facility agreement contains customary terms and conditions (which can be waived by PenMin at its sole discretion), warranties and undertakings for a facility of this nature and the facility is supported by a guarantee from Cradle Arc, but is subordinate to all of Leboam's other secured obligations. The company is liable for PenMin's legal costs in respect of negotiating, preparing and entering into the facility documentation and events of default include customary solvency and regulatory matters for a facility of this nature. These costs will be capitalised as part of the facility. 

 

As a source of funds for its provision of the facility, the company has been notified by PenMin that, in aggregate, a sum of US$3 million of receivables due to PenMin under its pre-existing arrangements with the company, comprising the deferred cash consideration owing to it as vendor of Cradle Arc Investments (Pty) Ltd and certain other unpaid invoices for its design, build and operate services, is now payable to Fujax Minerals and Energy Limited (Fujax) on the same terms as the pre-existing payables to PenMin in a debt sale agreement.  This transaction by PenMin with Fujax is subject to the completion of the restructuring of certain obligations by Leboam to ZCI Ltd and Messina Copper Botswana (PTY) Ltd - In Liquidation.

 

The facility is subject to the successful conclusion of the debt sale agreement with Fujax as outlined.

Read the article online at: https://www.globalminingreview.com/finance-business/09102018/cradle-arc-secures-us2-million-loan-facility-for-processing-facility-rehabilitation-at-mowana-mine/

 

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