This announcement contains inside information
Ormonde Mining plc
('Ormonde' or'the Company')
Barruecopardo Tungsten Project - Full land access achieved, Project timelines reoptimised
The Board of Ormonde is pleased to provide the following update on the Barruecopardo Project in Salamanca, Spain ('Barruecopardo' or the 'Project'). This update follows recent announcements regarding the compulsory land acquisition process and Project construction schedule which the Project company, Saloro SLU ('Saloro'), has been advancing.
HIGHLIGHTS
· Following receipt, in June 2016, of the Declaration of Urgent Occupation ('Declaration') relating to all land blocks which Saloro had requested to be included in a compulsory purchase process, and which are necessary for Saloro to develop the Project, the subsequent procedural steps required to complete the process have now been finalised.
· As a result, Saloro is now the legal owner of these land blocks, and as such now has full rights to access and utilise all of the lands necessary to develop the Project. Ownership of these remaining lands has been achieved well ahead of forecast.
· In response to the current subdued tungsten market and revised assessments as to the optimum timing of first production, the Project JV partners have agreed to readjust the construction schedule for the Project such that commissioning now commences in mid-2018.
· Saloro has agreed amendments to the Project's debt facility agreement (which remains undrawn) to reflect the new schedule, ensuring continued compliance with the agreement, and continued availability of the requisite capital.
· The Project JV partners have also agreed to defer an equal portion of their respective management and monitoring Fees. As a result the annual management fee payable to Ormonde will reduce from €1 million to €750k with reinstatement of the full fee and the accrued amounts being made upon the Project achieving two consecutive quarters of positive cash flow.
Steve Nicol, Ormonde's Managing Director, commented:
'The completion of the final procedural steps required to obtain ownership of the remaining lands required to enable development of the Project is a significant milestone for the Project and removes land risk from the development schedule.
The Company, together with its Project JV partner, recognizes the importance to the Company's shareholders, and to Project stakeholders, of ensuring that the Project comes online into a strengthening tungsten price environment, thus not exposing the Project to undue risk during the important commissioning and start-up phase. Therefore, whilst on the ground the implementation of the construction schedule continues, this schedule has been adjusted to see commencement of commissioning of the mine now occurring in mid-2018. We will continue to assess this during Project build as conditions dictate.'
Detail
Declaration of Urgent Occupation
As reported by the Company in late June 2016, Saloro received notice of a positive vote in favour of the Declaration by the Regional Government of Castilla y Leon. This Declaration allows for access to and use of the remaining lands which Saloro had requested to compulsorily purchase, before a final determination is made in relation to the sale value.
As announced at that time, three procedural steps remained to be completed prior to ownership of the land blocks passing to Saloro. These included a public meeting with parties interested in the process, the placement, by Saloro, of financial bonds equal to the estimated value of the lands to be compulsory purchased, and the subsequent issue of the Final Acts of Occupation for the lands concerned by the Salamanca Provincial Industry Department.
As these procedural steps have now been completed, Saloro is now the legal owner of these lands, and has full rights to access and occupy all lands necessary to develop the Project.
Certain appeals have been commenced against the Administration in relation to the completed process concerning the administrative resolutions entailed in the expropriation. These appeals are not lodged against Ormonde or Saloro although Saloro has been included in the appeal process as an interested party. Saloro's lawyers do not consider these appeals to represent a material risk to the Project.
Construction Schedule
In early June 2016, the Project JV partners approved a construction schedule for the Project which targeted commissioning of the Barruecopardo mine in late 2017.
The Project JV partners, with a focus on reducing Project start-up risk and optimising Project valuation, and against a backdrop of a subdued tungsten market, have now agreed to adjust this construction schedule such that commissioning will now occur in mid-2018. This date will continue to be assessed by the Project JV partners as the Project build moves forward.
Saloro has correspondingly agreed certain amendments to the debt facility agreement in place (and undrawn) for the Project so as to ensure continued compliance with this agreement.
Management Fee
Under the terms of the Oaktree Financing package for the Project (announced in April 2015) Ormonde receives an annual management fee of €1.0 million for services provided to the Barruecopardo Project under a management services agreement.
In the interests of reducing cash drain on the Project during the extended period to production, the Project JV partners have recently agreed to defer an equal portion of their respective management and monitoring fees from January 2017.
As a result the annual management fee payable to Ormonde will reduce from €1 million to €750k. Reinstatement of the full fee and payment of the deferred amounts will be made upon the Project delivering two consecutive quarters of positive cash flow.
This reduced fee will continue to cover Ormonde's current working capital requirements.
Metal Prices
APT prices have gradually been moving in an upwards direction since touching a low of $162 per metric tonne unit ('mtu') in January 2016 following a period which saw significant commodity price reductions associated with a general weakening of the commodity markets. In the case of tungsten this trend was increased as a result of a significant drop-off in usage of tungsten in the energy sector, particularly relating to a significant reduction in US oil related drilling activity. However more recently there has been a reversal of this trend with rig count increasing steadily.
Currently the APT price is $193mtu which represents a ~20% increase since their January 2016 lows. While the medium to longer term outlook remains positive, with substantial price increases forecasted, the short to medium term price outlook remains more modest.
A glossary explaining technical terms contained in this announcement can be found at www.ormondemining.com/en/investors/technical_glossary.For moreinformation please visit www.ormondemining.com.
Enquiries to:
Ormonde Mining plc
Steve Nicol, Managing Director Tel: +353 (0)1 8253570
Capital M Consultants
Simon Rothschild Mob: +44 (0)7703 167065
Murray Consultants
Mark Brennock Tel: +353 (0)1 4980300 Mob: +353 (0)87 2335923
Davy Corporate Finance (Nomad / ESM Adviser, Joint Broker and Financial Adviser)
Roland French Tel: +353 (0)1 679 6363
SP Angel Corporate Finance LLP (Joint Broker)
Ewan Leggat Tel: +44 (0)20 3 470 0470