African Copper Plc
TSX : ACU
AIM : ACU

African Copper Plc

December 15, 2008 09:45 ET

African Copper-Press Release

LONDON, UNITED KINGDOM--(Marketwire - Dec. 15, 2008) - African Copper plc ("African Copper" or "the Company") (AIM:ACU)(TSX:ACU)(BOTSWANA:AFRICAN COPPER) announces today that it is proposing to seek authority from shareholders to issue up to 750,000,000 New Ordinary Shares to institutional and/or other investors, which may include certain existing institutional Shareholders of the Company, to enable the Company to meet its immediate working capital needs. In the event that all of the New Ordinary Shares were to be issued this would represent an increase of 511 per cent. in the current issued ordinary share capital of the Company. There is no minimum number of New Ordinary Shares that the Company is entitled to issue pursuant to the Placing. In the MD&A issued by the Company on 14 November 2008, the Company disclosed that to continue as a going concern the Company would require up to US$15 million (Pounds Sterling 10.1 million) in immediate working capital funding within a period of 60 days. At the date of this announcement, the Company does not have any committed funds pursuant to the Placing, and the Placing has not been underwritten. Accordingly, no assurance can be given that the necessary funds (or indeed any funds), will be raised pursuant to the Placing.

Placing Details

The issue of the New Ordinary Shares is subject to Shareholder approval and all other applicable Canadian regulatory requirements. The price at which the New Ordinary Shares will be issued, and the number of New Ordinary Shares that will be issued pursuant to the Placing, is not yet known. The minimum price at which the New Ordinary Shares will be issued is 1.0 pence per share. As at 10 December 2008 (being the last practicable date prior to the date of the Circular) the Canadian dollar equivalent of such amount was Cdn$0.02, based on the Bank of Canada's noon exchange rate. The actual price at which the New Ordinary Shares are issued will be determined by the Board by reference to the closing price of the Ordinary Shares on AIM and TSX on the date the Placing is priced, prevailing market conditions and other factors. The mid market price of an Ordinary Share on 10 December 2008, being the last practicable date prior to the date of the Circular, was 1.875 pence per share. It is also not known when the Placing will close, but, absent other sources of funding, the Placing will need to close by approximately 15 January 2009 if the Company is to continue trading as a going concern.

The maximum number of New Ordinary Shares that the Company will be able to issue pursuant to the Placing will not exceed 750,000,000 New Ordinary Shares.

The Directors may decide that either a subsidiary of the Company or the Company shall issue secured Convertible Loan Notes to institutional and/or other investors, either in addition to or instead of issuing New Ordinary Shares. In the event that the Directors decide that such Convertible Loan Notes are to be issued, they will be convertible into Ordinary Shares at a conversion price that is yet to be determined, but such conversion price shall not be less than 1.0 pence per share. The maximum number of Ordinary Shares into which such Convertible Loan Notes would be convertible together with the number of New Ordinary Shares issued shall not exceed 750,000,000 Ordinary Shares. The Company will apply for the Ordinary Shares issued on conversion of such Convertible Loan Notes to be admitted to AIM, TSX and the BSE. The Directors also reserve the power to issue the New Ordinary Shares in whole or in part for a non-cash consideration, if they believe that such issue is in the best interests of Shareholders as a whole.

Background to the Placing

Overview

African Copper is an international copper producing company focussed on exploiting base metal mining opportunities in Africa. At its Mowana Mine, total open pit proven and probable reserves have been estimated at 14.8 million tonnes grading 1.11 per cent. copper. Construction of the project began in 2006 and significant progress was made in 2007. The first copper concentrate was produced at the end of July 2008 and the first shipment occurred at the end of October 2008, which has changed African Copper from an exploration and development company to a copper producer. The Company also has a 100 per cent. interest in the Matsitama exploration concession, that covers a very large (3,800 km2) area of highly prospective mineral holdings. Additional information relating to the Company, including a technical report on the Mowana Mine by RSV entitled "National Instrument, 43101 Technical Report on the Mowana Mine, Botswana" dated 26 November 2007, can be found on the Company's website or under the Company's profile on SEDAR at www.sedar.com.

Mowana Project Development

Commissioning of the processing facility at the open-pit Mowana Mine was completed during the third quarter of 2008. Following first concentrate production at the end of July 2008, the first shipment of copper concentrate was despatched at the end of October. The delays in commissioning and shipment of copper concentrate were caused by, among other things, delays in delivery of component parts and unexpected equipment failures, in particular, of major crusher components and mill bearings. These delays have resulted in production shortfalls, as a consequence of which the Company has further revised its 2008 copper in concentrate production forecast from approximately 2,300 tonnes to approximately 1,500 tonnes.

Management continued its review of the expansion plan strategy that was described in the Company's second quarter MD&A, focusing on maximising and optimising the Mowana resources and process facilities. The planning review has taken into account the improved understanding of the Mowana deposit gained through open-pit mining, the operational flexibility presented by the size and grade of the current ore stockpiles and the exposed ore along approximately 1,500m of strike within the pit. In addition, the near-mine satellite open-pitable resources at Thakadu and the mineralisation recently identified south of the Mowana Mine have been included in the investigation. The expansion strategy included a 300 tph DMS facility required in the first quarter of 2009 rather than in 2010 as envisaged in the initial mine plan. Management was aiming to complete this revised expansion plan during the fourth quarter of 2008.

However, due to the prevailing downturn in market conditions, management decided to conserve capital and therefore postpone the finalisation of the expansion plan, including the implementation of the DMS plant, until market conditions improve.

In light of the constraints on the Company's working capital, the availability of the approximate one million tonne ore stockpile at the Mowana Mine as well as a much weaker copper price, market volatility and uncertainty, management is planning to implement an aggressive programme to reduce fixed and variable operating costs and adjust mining rates with a view to maximising operating margins and minimising capital and operating expenditures. Management believes that such programme will, subject to the Company raising a further US$15 million (Pounds Sterling 10.1 million) as explained further below, enable the Company to continue operations until such time as market conditions stabilise and the expansion plan can be completed. The new mining plan (the "Interim Plan") incorporates the elements set out below, and will require the Company to raise up to an additional US$15 million (Pounds Sterling 10.1 million). The Directors are proposing that these funds are raised pursuant to the Placing.

The elements of the Interim Plan are as follows:

1. Processing ore from the existing stocks which will allow a reduction in the short-term mining rate until the balance between the size of the stockpile and the processing rate has been corrected.

2. Accessing the highest grade ore in the exposed ore zone strike at Mowana with smaller scale interim pits. The life of these interim pits is planned to be eighteen months. Volumes will be lowered as the stripping ratio is reduced to 2:1 using existing slope angles and 15m ramp widths. This mining, which will utilise smaller mining equipment and compliment, is proposed to commence in the first quarter of 2009. A total of 1.3 million tonnes at an average grade of 1.3 per cent. copper is anticipated to be directed as mill feed from these interim pits. The interim pits are planned to be sequenced such that the south cut will be mined first to 920mL at an overall stripping ratio of 2:1. The two north pits are planned to be mined to a depth of 950mL at a proposed monthly rate of 310,000 tonnes. The northern pit is planned to be extracted at a stripping ratio of 3:1 and a smaller north-western pit at a stripping ratio of 2:1. The low grade ore mined from the interim pits will be added to the existing DMS stockpile and is available as supplementary direct feed or feed for the proposed 50 tph DMS plant (see item 4 below).

3. Reducing the mining cost per tonne by negotiating with the existing mining contractor for a temporary suspension of operations and thereafter a reduction in the configuration and size of the mining fleet to support the smaller scale interim open pits operation.

4. Purchasing or leasing a 50 tph DMS facility to run through 2009 and 2010.

5. Accessing mineral resources from satellite pits, in particular Thakadu as a low-cost mining opportunity. The outcrop exposure at Thakadu and the possible small scale of an initial box-cut design lends itself to a small scale operation with limited overheads and the full support of the Mowana infrastructure and management. The significant silver credit associated with Thakadu could also be factored into the costs associated with getting run of mine ore to the Mowana plant.

6. Increasing the recovery of copper through the dual circuit concentrator by optimising the grade recovery curve for oxide and sulphide ores and maximising economic copper concentrate produced.

7. Aggressively reducing general and administrative and exploration costs through the rationalisation of current facilities and personnel.

Processing

Overall process availability has improved in September 2008 following a series of mechanical issues related to completion of the mill during August. As of the end of October 2008 the plant was processing approximately 2,000 tonnes of ore per day and is expected to reach its nominal design capacity during the fourth quarter of 2008.

Copper concentrate deliveries commenced with the first shipment dispatched on 22 October 2008 by road, almost one month later than expected, following earlier delays from the original projected commissioning timing of June/July 2008. Continuing mechanical issues in the completion of the final commissioning of the plant by the EPCM contractor prevented the timely attainment of stable conditions and the ability to stress test the downstream float and tailings design.

Shipments are expected to accelerate as the processing facility reaches full production during the remainder of the fourth quarter of 2008.

Matsitama

The Matsitama prospecting licences cover 3,800 km2 of highly prospective mineral holdings, contiguous with the Mowana deposit discussed above.

Work completed during the first half of the year continued on the three main Cu-Zn Pb-Ag-Au structural corridors identified in the Matsitama Belt and in the ultramafic formations with Ni-PGM potential, namely: Thakadu-Mutsuku corridor, Nakalakwana Hill corridor, Lepashe Cu-Snake corridor and the Mosupe-Sebotha ultramafic formations.

Two hundred and seven Cu, Cu-Zn and Cu-Ni first priority areas of interest have been selected. This sampled area covers 2,000 km2 which represents 56 per cent. of the area covered by the Matsitama licences. An analysis of the samples in the Nakalakwana area has identified eight (8) anomalies and confirms that Nakalakwana Hill has geochemical similarities to the iron oxide copper gold deposits of Australia.

With the Thakadu-Mutsuku corridor, the Thakadu deposit represents an advanced exploration project that is now being integrated into the future mine plan to supplement Mowana Mine production. Exploration effects have therefore been focused on the unexplored geophysical and geochemical anomalies within 10 kilometres of the Thakadu deposits. Work currently in progress is focussed on completing an updated Titan-24 DCIP Geophysical report by S Bate of MGE Consulting (Pty) Ltd which is based on the forty-four diamond drill holes drilled in the Thakadu-Mutsuku and Nakalakwana corridors during 2007 and 2008. This report will provide additional targets to explore around the Thakadu deposit.

The Company expects that activities during the remainder of the fourth quarter of 2008 will focus on prospecting, mapping and fill-in soil sampling at 100m line-spacing as previous work was completed at 300 and 400m line-spacing. Final reports on the high priority prospects are expected to be completed in the quarter. In line with the market conditions and the Interim Plan (as defined above), exploration activity has been significantly curtailed and the management team is actively assessing a rationalisation of activities. Opportunities exist for joint venture associations and these are currently being investigated with interested parties.

The Outlook for Copper

Since the beginning of the third quarter of 2008, the copper market has been steadily weakening from around US$7,000/t to current levels of around US$3,200/t. This has been due to a slowdown in demand particularly from China where post-Olympic demand did not materialise, as well as general global economic conditions. Industry commentators are predicting the copper price will remain weak in the short term.

Reasons for the Placing and Use of Proceeds

As at 30 September 2008, the Company had a working capital deficit of Pounds Sterling 0.6 million. The prime contributors to this position were the delays in shipping first concentrate resulting from the commissioning delays combined with the costs of continuing to mine during this period.

The Company expects to begin receiving the proceeds of sale of copper concentrate during the fourth quarter of 2008, and it has recently exercised and sold its copper put options, which generated proceeds of Pounds Sterling 3 million (US$4.75 million). However, in order to address its additional immediate working capital requirements and to fund the Interim Plan, the Company requires approximately US$15 million (Pounds Sterling 10.1 million) in immediate working capital funding. The Company's ability to meet its obligations and continue as a going concern and to execute the Interim Plan is dependent on its ability to identify and complete such funding by approximately 15 January 2009.

The net proceeds of the Placing will be used to assist in funding the Group's working capital needs and to implement the Interim Plan as described above. The Directors consider that the funds from the Placing (assuming the Placing raises net proceeds of approximately US$15 million (Pounds Sterling 10.1 million)) together with cash expected to be generated by the Group from its operations, will be sufficient to fund the Group's commitments for the next 12 months from the date of the Placing.

In the event that Shareholders do not approve the issue of the New Ordinary Shares at the EGM or the Company is unable to procure funding of approximately US$15 million (Pounds Sterling 10.1 million) pursuant to the Placing, it is unlikely that the Company will be able (in the absence of alternative funding from other sources) to meet its obligations and continue as a going concern beyond approximately 15 January 2009 and would not be able to implement the Interim Plan.

TSX Requirements

The completion of the Placing will be subject to the requirements of the TSX and the approval of the TSX.

Section 142 of the Companies Act 1985

In preparing the MD&A, the Directors considered that as a result of current market conditions and other potential impairment indicators, it was appropriate to make a provision in respect of the carrying value of the Mowana Mine in the financial statements. The Directors have insufficient information available to them at this time, particularly related to the impact of current market conditions on possible long-term alternative mining plans at the Mowana Mine, to perform an impairment review, in accordance with the relevant international accounting standards, with the certainty required to determine the level of such impairment. However, to be prudent, on 30 September 2008 the carrying value of the Mowana Mine and the related plant and equipment was written down by 50 per cent. or Pounds Sterling 41.6 million. The Directors are carrying out a full impairment review as part of the year-end audit to determine the appropriate carrying value for financial reporting purposes.

Accordingly, following publication of the unaudited consolidated financial information for the three and nine month periods ended 30 September 2008, the net assets of the Company have reduced to less than half of its called up share capital. In accordance with section 142 of the Act, the Company is therefore required to convene an Extraordinary General Meeting for the purpose of considering whether any, and if so what, steps should be taken to deal with the situation. In this regard, the Directors are accordingly proposing the Placing.

Current Trading and Prospects

Commissioning of the processing facility at the open-pit Mowana Mine was completed during the third quarter of 2008. As at the end of October, the plant was processing approximately 2,000 tonnes of ore per day and is expected to reach its nominal design capacity during the fourth quarter of 2008. Following first concentrate production at the end of July 2008, the first shipment of copper concentrate was dispatched at the end of October. Shipments are expected to accelerate as the processing facility reaches full production during the fourth quarter of 2008. Delays in the commissioning of the processing facility, as reported earlier in the year, resulted in production shortfalls, as a consequence of which the Company has further revised its 2008 copper in concentrate production forecast from approximately 2,300 tonnes to approximately 1,500 tonnes.

For the nine months ended 30 September 2008, the Company recorded a net loss of Pounds Sterling 45,801,644 (31.51 pence per share) compared to a gain of Pounds Sterling 264,220 (0.20 pence per share) for the nine months ended 30 September 2007. The loss for the current nine month period compared to the gain for the nine months ended 30 September 2007 was primarily related to the impairment provision related to the Mowana Mine property, plant and equipment. Other factors included lower bank interest receivable and increased costs related to Botswana administration, travel, professional fees, interest, and foreign exchange and hedging losses.

Extraordinary General Meeting

A circular convening an Extraordinary General Meeting of the Company to approve the Placing is expected to be posted to shareholders shortly.

General

This announcement is for information purposes only and does not constitute an offer to issue or sell, or the solicitation of an offer to subscribe for or acquire, any securities to any person in any jurisdiction, including without limitation in the United States, Canada, Australia or Japan.

The distribution of this announcement and the Placing and/or issue of the New Ordinary Shares in certain jurisdictions may be restricted by law. No action has been taken by the Company that would permit an offer of the New Ordinary Shares or possession or distribution of this announcement or any other offering or publicity material relating to such New Ordinary Shares in any jurisdiction where action for that purpose is required. Persons into whose possession this announcement comes are required by the Company, to inform themselves about and to observe any such restrictions.

This Announcement is not an offer of securities for sale in the United States. Securities may not be offered or sold in the United States absent registration under the US Securities Act of 1933 (the "Securities Act") or an exemption therefrom. The Company has not registered and does not intend to register any of its Ordinary Shares under the Securities Act. The New Ordinary Shares will not be offered or sold in the United States.

Forward-looking statements

This announcement contains "forward-looking information". Forward-looking information includes, but is not limited to, statements concerning mineral resource estimates, information with respect to the future price of copper, results of mining operations, mining extraction and recovery rates at the Mowana Mine project, estimates of production of copper at the Mowana Mine project, the Company's expected timing for beginning to receive proceeds of sale of copper concentrate, the potential for future expansion of the Mowana Mine project, estimations of the life of the Mowana Mine project, including the estimated life of interim pits, the expected levels of ore on the stockpiles at the Mowana Mine project, the expected success of exploration activities under the open pit at the Mowana Mine project and in the Matsitama Belt, the successful implementation of the Interim Plan and its expected results, results of advanced exploration project and future use of mineral resources and mineralization at Thakadu, as well as the Company's plans respecting future activities at Thakadu, the Company's plans for the completion of a revised expansion plan at Mowana, Botswana's energy self-sufficiency, government regulation of mining operations and exploration, availability of immediate financing for the Company's operations, including completion of the Placing by 15 January 2009 or at all, and working capital requirements; expectations concerning shipments of copper concentrate, the timing of the completion of the Mowana Mine project and hand-over from EPCM teams to operational teams, expected timing for ramp up to commercial production, estimated capital costs and the impact of exchange rates and other statements which are not historical facts.

In certain cases, forward-looking information can be identified by the use of words such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases or state that certain actions events or results "may", "could", "would", "should", "might" or "will be taken", "occur" or "be achieved" and include the negative variation of such phrases.

With respect to forward-looking information contained in this announcement, the Company has made assumptions regarding, among other things, the Company's ability to generate sufficient cash flow from operations and access capital markets to meet its immediate and future funding requirements, the regulatory framework in Botswana with respect to, among other things, permits, licenses, authorizations, royalties, taxes and environmental matters, and the Company's ability to obtain qualified staff and equipment in a timely and cost-efficient manner to meet the Company's demand.

Although the Company believes that its expectations reflected in forward-looking information are reasonable, such forward-looking information involves known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company or the Company's projects in Botswana, or any of them, to be materially different from any future results, performance or achievements expressed or implied by the forward-looking information. Such factors include, risks related to failure to convert estimate mineral resources to reserves, conclusions of economic evaluations, changes in project parameters as plans continue to be refined, future prices of copper, unexpected increases in capital or operating costs, possible variations in mineral resources, grade or recovery rates, failure of equipment or processes to operate as anticipated, accidents, labour disputes and other risks of the mining industry, delays in obtaining governmental consents, permits, licences and registrations or financing or in the completion of development or construction activities, political risks arising from operating in Africa, uncertainties relating to the availability and costs of financing needed immediately and in the future, including the funds proposed to be raised in connection with the Placing, changes in equity markets, inflation, changes in exchange rates, fluctuations in commodity prices and uninsured risks, as well as those factors discussed under "Risks" in the MD&A.

Although the Company has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking information, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that forward-looking information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information. Accordingly, readers should not place undue reliance on forward-looking information. The forward-looking information contained herein, unless stated otherwise, is made as of the date of this Announcement being 15 December 2008 and the Company makes no responsibility to update them or to revise them to reflect new events or circumstances, except as required by law.

The mineral resource and mineral reserve figures referred to are estimates and no assurances can be given that the indicated levels of minerals will be produced. Such estimates are expressions of judgment based on knowledge, mining experience, analysis of drilling results and industry practices. Valid estimates made at a given time may significantly change when new information becomes available. While the Company believes that the resource and reserve estimates referred to are well established, by their nature resource and reserve estimates are imprecise and depend, to a certain extent, upon statistical inferences which may ultimately prove unreliable. If such estimates are inaccurate or are reduced in the future, this could have a material adverse impact on the Company. Due to the uncertainty that may be attached to inferred mineral resources, it cannot be assumed that all or any part of an inferred mineral resource will be upgraded to an indicated or measured mineral resource as a result of continued exploration. Mineral resources that are not mineral reserves do not have demonstrated economic viability.

Additional information about the risks and uncertainties of the Company's business is provided in its disclosure materials, including its Annual Information Form and the MD&A for the nine months ended 30 September 2008, available under the Company's profile on SEDAR at www.sedar.com.

For further information please visit: www.africancopper.com.

Contact Information

  • African Copper Plc
    Chris Fredericks
    Chief Executive Officer
    +27 (79) 516 7122
    Email: cfredericks@africancopper.com
    or
    African Copper Plc
    Brad Kipp
    Chief Financial Officer
    (647) 588-8025
    Email: bradk@africancopper.com
    or
    African Copper Plc
    Alex Buck
    Investor Relations
    +44 (0)20 7244 8053 / +44 7932 740 452
    Website: www.africancopper.com
    or
    Numis Securities Limited
    John Harrison (Nominated Advisor)
    James Black (Corporate Broker)
    +44 (0)20 7260 1000