Tungsten West plc has started “major” cost cutting alongside up to a £9 million fundraise to meet “contractual liabilities” and pay for “significant annual expenditure” at its Hemerdon tin-tungsten mine in Devon.
NEW DEBT
The company aims to raise a minimum of £5m and up to £6.95m through a placing, not underwritten, of convertible loan notes (CLNs) and up to a further £2m via an open offer.
The move follows Tungsten West’s failure in 2022 to meet conditions precedent for a royalty sale and senior loan facility, following a rise in inflation affecting operating and capital expenditure.
The company revised its development plans for Hemerdon while continuing discussions with “multiple mining specialist lenders” with new debt term sheets.
More funds are needed for both the initial project and the Phase 2 upgrade, scheduled after 24 months of production.
“As such, the company now envisages a c.£25 million debt facility and a c.£35-40 million equity raise in the future to bring the project into production, which covers both Phase 1 and 2 capex, working capital and contingencies,” said the company in a statement.
Tungsten West also needs to fund the planning and permitting process.
OPEN OFFER
The open offer, one for every 2.7 ordinary shares held, will be at an issue price of 3 pence per new ordinary share with up to 66,666,666 new ordinary shares offered to existing shareholders.
The proposed issue price represents a discount of 72.1% to the closing middle market price of 10.75 pence per ordinary share on 31 March 2023, and a 77.5% discount to the volume weighted average price during the 90 trading days prior to 31 March 2023 of 13.34 pence per ordinary share.
The new ordinary shares issued would represent approximately 27% of Tungsten West’s enlarged issued ordinary share capital.
CLNs
The maximum total CLNs that may be issued is £6,950,000 in two tranches.
The initial part is up to £3,975,000 of which existing shareholder Lansdowne (9.41%) has signed a binding term sheet to subscribe for a maximum of £2m.
The second tranche of up to £2,975,000 also sees Lansdowne subscribe for a maximum of £1m.
At the beginning of March 2023, Tungsten West held available cash reserves of £6 million which, combined with the minimum fundraising amount (before expenses) from the placing, should fund the business for at least six months.
Following the fundraise, executive vice chairman and co-founder Mark Thompson will step down.
URGENCY
If the minimum amount is not reached, the company said it would need to “urgently seek additional funding and there is no guarantee that such funding would be available”.
“The funds raised from the placing will not be sufficient to see the company through to cash generation.
“The intention of this placing is to fund the business through the planning and permitting process and completion of the required project funding.”
COST CUTTING
Tungsten West additionally aims to cut costs which includes a review of operating costs, staffing, capital expenditure and sale of surplus assets.
“To allow the maximum time to finalise the full project funding process, a major programme of cost reduction will be implemented.
“The project design, earthworks and civil engineering work already underway will be largely completed so that the site is ready for the more capital-intensive construction works once full project funding is completed.
“Other project construction activities will cease until the exact design requirements necessary for obtaining the mineral processing facility are clarified.”
Additional revenues can come from selling residual concentrate at the site and part processed inventory to be processed for saleable tungsten and tin for more than £1 million.
CONFIDENT
Chairman David Cather said that volatile energy prices and a more conservative lending had led to some “tough decisions” being made.
“Over the coming months, the company will be required to implement a number of cost saving initiatives to ensure success at Hemerdon but I remain confident in the project and believe we now have the team to help it deliver its potential.”