29 Sep Half Yearly Report
RNS Number : 4746A
Xtract Resources plc
29 September 2015
Xtract Resources Plc
(“Xtract” or “the Company”)
Operations Update and Interim Results
Xtract Resources Plc (AIM: XTR), the gold and copper mining and development company with projects in South America and South Africa, announces an update of operations and projects and its unaudited interim results for the six months ended 30 June 2015.
Outlook to date
· Turn-around to profitability at our Chepica mine has served as a catalyst to raise £9.15 million to (a) complete our Manica gold project acquisition and mitigate the Company’s single project risk, (b) strengthen our balance sheet during the weak commodity cycle and (c) create more mining flexibility at Chepica
· Manica represents a conditional acquisition of a significant near term production asset with an almost completed Bankable Feasibility Study (“BFS”) at less than US$6.25 per ounce of resource in the ground
· The acquisition increases the Company’s mineral resource more than 30 fold (from 30koz of total resource to over 980koz of total resource)
· Manica, when in full production, will increase the Company’s current gold production profile 8 fold (from 8koz per annum to 65koz per annum), and has the potential to be a major revenue contributor and transform the Company to an emerging mid-tier gold producer within 18 months
· New development haulage started in September at Chepica which will increase mining flexibility and ensure safe production after major earthquake made the old access haulage unsafe
· Drilling programme underway at Chepica mine that is focused on extending the life of mine (“LOM”) and confirming new increased resource
· Drilling of Carolusberg and O’Kiep Copper tailings project completed and we are awaiting results
Interim Results Highlights
· Net loss reduced by 19.72% to £0.79m (H1 14: £1.00m)
· Operating expenses remains constant at £0.93m (H1 14: £0.94m)
· Strong balance sheet with cash of £2.96m (FY 14: £0.16m) and no debt
· Net assets increased 272% to £5.98m (FY 14: £1.60m)
· Strengthened the balance sheet and completed three Placings in H1 raising:
– £1.75m at 0.15p in March, which enabled underground development work to accelerate at Chepica
– £3.0m at 0.25p in May
– £4.4m at 0.30p in June for Manica acquisition
· Repaid outstanding balance of loan agreement with YA Global Masters in May
· Renegotiated the earn-in option agreement on Chepica, with payment schedule deferred until October 2015
· Development work at Chepica led to several discoveries of new gold bearing reefs including the Salvadori prospect in March and May and at the Colin prospect in June
· Increased milling capacity at Chepica from 6,000t/month to 10,000t/month in April
· Gold grades increased ten fold, to over 400g/t in April, as ore from Salvadori II is processed
· On and off reef development was increased in June, with three major areas anticipated to be ready for stoping by October
· Ongoing drilling programme anticipated to extend LOM significantly, with a resource update expected during October
· Returned to profitability in June
· Completed £4.4m placing in June and signed agreement to conditionally acquire the Manica gold project in Mozambique, which is expected to deliver 50k oz of gold production from January 2017
· Signed an agreement with an option to acquire O’Kiep sulphide copper tailings project in South Africa in March, securing 33.8Mt of sulphide copper tailings material on surface. Improved payment terms renegotiated in May
· Signed a heads of agreement to evaluate the Concordia project copper dumps in April, comprising 182,000t of copper oxide
Post half year end
· Due to major earthquake activity (Santiago, 250km north of the mine, was affected by a magnitude 8.3 earthquake), the main access haulage at the Chepica Main prospect was submitted to major stress
· Management decided that the haulage was unsafe and could not be used or re-supported and, as a result, plans to re-develop a new haulage to access the ore-body from a different position
· The result will be that the main areas ready for stoping will only be accessed within the next three months
· Despite this, the mine will remain cash positive through on reef development and commencement of stoping one month earlier than planned at the Colin prospect and is expected to generate a profit of US$150k for Q3 2015 (previous forecast was US$1.2m) and US$650k for Q4 2015 (as opposed to US$1.2m profit for Q4 2015)
· We remain committed to a policy of safe production
Jan Nelson, CEO, commented “In less than two years we have strategically re-focused the company, acquired a mine that we turned cash positive within 8 months from acquisition and built a strong management team. We are now well positioned for the next stage of development with the conditional acquisition of Manica to increase our gold output 8 fold within 18 months. Further major upside is also anticipated from our copper projects, now that drilling is complete and we await the results. Further drilling is underway at Chepica and the BFS remains on track at Manica with major optimization due. I look forward to providing further updates on our progress for the remainder of 2015.”
“The impact of the earthquake is of course extremely disappointing, however safety is a major priority and we will not produce if we can not do so safely. We have an exemplary safety record at the mine, we have had no accidents or fatalities since we took operational control. Despite the impact the mine is still expected to make a net profit of US$650k in Q4 and the new access haulage will ensure we can continue to produce safely and therefore sustainably.
Jan Nelson, went on to say: “We have reduced the net loss to the company by keeping operating expenses flat in spite of significant capital deployed at our Chepica Mine to increase off reef development and milling capacity in preparation of major stoping operations. We have strengthened our balance sheet and more than three fold increased the net assets of the company. In addition the Company has also developed a project pipe-line that mitigates the single asset risk and will ensure sustainable continued growth.”
|Xtract Resources Plc||Jan Nelson, CEO
|+44 (0)20 3416 6471
|Cenkos Securities plc||Derrick Lee
|+44 (0)131 220 6939|
|Beaufort Securities||Jon Belliss||+44 (0)207 382 8300|
|St James’s Corporate Services||Phil Dexter
|+44 (0)20 7796 8647
+44 (0)7798 634398
|Gable Communications||Justine James
|+44 (0)20 7193 7463
+44 (0) 7525 324431
CHIEF EXECUTIVE OFFICER’S REVIEW
Chepica Gold and Copper project, Chile
Development at Chepica gained good momentum in the first half of 2015, with a key focus for the operations team being to grow the mining operations, to continue exploring the tenements around the mine and to work strategically in order to create mining flexibility, thereby aiming to achieve consistent production rates.
At the start of the year, we navigated our way through severely faulted ground conditions. We implemented new blasting and support practices and engaged a specialist development contractor and these steps enabled development to be reestablished on reef, resulting in the mine scaling up from milling 2,500 tonnes in January to 3,500 tonnes in February. With these improvements in place the mine was transitioned to contract mining, leading to improved efficiencies and lower operating costs.
Over the next few months, development work accelerated, which led to several discoveries of new gold bearing reefs including two at the Salvadori prospect, one in March and one in May, and the Colin prospect in June.
Production continued to build steadily and in April the milling capacity at Chepica was increased to 10,000 t/month following the installation and commissioning of a new ball mill and the upgrade of the two existing mills.
In April, gold grades increased ten-fold, to over 400g/t, as ore from Salvadori II was processed.
We were pleased to renegotiate the earn-in option agreement on Chepica, with payment schedule deferred until October 2015.
On and off reef development was increased in June, with three major areas anticipated to be ready for stoping by October.
Ongoing drilling programme anticipated to extend LOM significantly, with a resource update expected within the next month.
O’Kiep and Concordia Copper Tailings Projects, South Africa
In March, we signed a Deed of Assignment with Mineral Technologies International (“MTI”) for an option to acquire the O’Kiep sulphide copper tailings project in the Northern Cape province of South Africa. The Deed of Assignment was renegotiated in May resulting in a reduced cash payment of US$2.875m, saving 19% of the total consideration due. The terms included the issue of 69,752,768 new ordinary shares of 0.01p to the value of c.US$375,000.
O’Kiep is a 33.8Mt sulphide copper tailings project has an average grade of 0.23% copper. Drilling has been completed on the dumps and we are awaiting the assay results.
In April, we signed a Heads of Agreement to acquire our second Copper tailings project, the Concordia project copper dumps, comprising 182,000t of copper oxide, with an average copper grade of 0.54%. The Company is currently reviewing the viability of this project.
Manica Gold Project, Mozambique
In June, we signed agreement to conditionally acquire the Manica gold project in Mozambique from Auroch Minerals NL, an ASX listed company. The total consideration initially agreed was US$12.5 million, in cash and shares, although the payment structure was renegotiated in September this year reducing the number of new ordinary shares to be issued by the Company and therefore the dilution for our shareholders.
The project is expected to deliver 50koz of gold production by Q1 2015, at a cash cost of US$650/oz and has excellent infrastructure. The project has a JORC Compliant resource of 900koz (9.5Mt @3.01g/t in situ and the ore body will be mined from surface as an open pit for the first five years. After seven years, we anticipate that mining will move underground.
Colin Bird and Jan Nelson first started exploration on this project as part of Pan African’s development programme, and we believe this is one of the few high grade, low cost, low risk open pitable gold opportunities in Africa.
The mine has already been granted a mining license and will be Mozambique’s first commercial gold operation, which gives Xtract a great first mover advantage.
The BFS should be completed within Q2 of 2016. Auroch is currently awaiting shareholder approval for the sale of the asset and the result of their shareholders’ vote is expected within the next four weeks. However, Auroch has secured 45% irrevocable undertakings to Xtract in this regard.
In the first six months of 2015, Xtract has raised a total of £9.15 million through three Placings:
· In March, the Company raised £1.75m at 0.15p which enabled underground development work to accelerate at Chepica.
· In May, a second fund raising was completed raising £3.0m at 0.25p, which enabled Xtract to make progress with its acquisition strategy as well as for ongoing development at Chepica. In addition, Xtract was able to repay the outstanding balance of its loan agreement with YA Global Masters.
· The third placing was completed in June, raising £4.4m at 0.30p, which was raised as part of the consideration to acquire 100% of Manica acquisition.
We have been very encouraged by our shareholder support in the first half of the year. In a relatively short time we have built a robust portfolio of assets that will enable us to take Xtract forward as a gold and copper mining company.
Due to major earthquake activity on 17 September 2015 (Santiago, 250km north of the mine, was affected by a magnitude 8.3 earthquake) the main access haulage at the Chepica Main prospect was submitted to major stress. Management has since taken the decision that the haulage was unsafe and could not be used or re-supported and, as a result, plans to re-develop a new haulage to access the ore-body from a different position. The result will be that the main areas ready for stoping will now only be accessed in the next three months. Despite this the mine will remain cash positive and is expected to generate a profit of US$150k for Q3 2015 (previous forecast was US$1.2m) and US$650k for Q4 2015 (as opposed to US$1.2m profit for Q4 2015). The net effect is negligible on the Company’s balance sheet as no cash has to be allocated to the mine to fund the redevelopment costs from cash in hand. However, management estimates that the Group will generate US$1.5m less profit for Q3 and Q4.
The impact of the earthquake is disappointing but we will not produce if we cannot do so safely. We have an exemplary safety record at the mine (we have had no accidents or fatalities since we took operational control). Despite the impact of the earthquake, the mine is still expected to make a net profit of US$650k in Q4 and the new access haulage will ensure that we can continue to produce safely and therefore sustainably.
In less than two years we have strategically re-focused the Company, acquired a mine that we turned cash positive within 8 months from acquisition and have built a strong management team. We are now well positioned with the conditional acquisition of Manica to increase our gold output 16 fold within 18 months at a time when all the turmoil in the world indicates to us that gold remains one of the safest investment havens. We are therefore well placed to realize significant value for shareholders just from our gold assets moving forward and the continued improvement in our results over a short period of time demonstrates our capabilities. Furthermore, major upside could be gained from our copper projects. Drilling is complete on the copper tailings, more drilling is underway at Chepica and the BFS remains on track at Manica with major optimization due. We look forward to providing further updates before year end.
Going forward, the management team will continue to focus on:
· Completion of the BFS at Manica
· Commencement of gold production at Manica on alluvial deposits within 6 months
· Secure project finance for the Manica project
· Continue to ramp up production profile at Chepica
· Complete the evaluation of Carolusberg, O’Kiep and Concordia projects
I would like to thank our team, our shareholders and the Board and we look forward to reporting positive operational progress within the next six months.
We remain committed to safe production.
On behalf of the Board
Chief Executive Officer
29 September 2015
Xtract Resources PLC
The full results are available on our Financials page.