REG - Tungsten West PLC - Restructuring exercise and Board Changes
03/04/2023 07:15
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RNS Number : 0506V Tungsten West PLC 03 April 2023
Tungsten West Plc
("Tungsten West", the "Company" or the "Group")
Restructuring exercise and Board Changes
Conditional Convertible Loan Note issue to raise minimum of £5 million
interim financing
Open Offer for up to an additional £2 million
Tungsten West (AIM:TUN), the mining company focussed on restarting production
at the Hemerdon tungsten and tin mine ("Hemerdon" or the "Project") in Devon
in the UK, announces that it is undertaking a restructuring exercise and
interim fundraising (the "Fundraising") to enable it to focus on satisfying
the conditions for completing the remaining funding required to complete the
Project and take Hemerdon into production.
Overview
· Fundraising underway in order to raise a minimum of £5 million
and up to £6.95 million through a placing of Convertible Loan Note (the
"CLNs" or "Notes") (the "Placing") and up to a further £2 million via an Open
Offer (the "Open Offer")
· Review of funding options ongoing with a view to maximise value
for the Company's shareholders and other stakeholders:
o Cost cutting programme initiated including a review of operating costs,
capital expenditure, and sale of surplus assets
o Residual concentrate at site to be sold and part processed inventory to be
processed for saleable tungsten and tin
· Active engagement with financial and strategic partners with
regards to full Project funding
· Following completion of the Fundraising, Mark Thompson will step
down from the Board and the Company is in the process of strengthening its
Board with the recruitment of additional non-executive Directors with
complementary skills and experience
· The Project team will focus on its work with the Environment
Agency to secure the Mineral Processing Facility permit
· Updated feasibility study announced on 16 January 2023 positions
Tungsten West to become the largest tungsten producer in the Western World
David Cather, Chairman of Tungsten West, commented:
"It is our objective and focus to bring Hemerdon back into production, and
this interim fundraise will help us achieve this goal.
The proceeds of the Fundraising will increase the Company's cash balance and
allow it to progress necessary Project workstreams whilst it continues to work
towards full Project funding. However, due to the increased risk surrounding
volatile energy prices and a more conservative lending approach, some tough
decisions have had to be made in order to ensure deliverability. 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."
The Fundraising
As announced on 13 March 2023, the recently appointed CEO, Neil Gawthorpe, is
currently undertaking a review of the funding and strategic options available
to the Company ("Review"), and the Board will consider the options available
to maximise value for the Company's shareholders and other stakeholders.
Such options could include, but are not limited to, cutting the costs of
operations, deferring capital expenditure, selling surplus assets, raising
additional funding from specialist debt providers or strategic investors, or
by raising further equity.
In parallel with the options described above, to seek to protect the financial
position of the Company in the event the Review does not achieve a
satisfactory conclusion and a fully funded Project, the Board will also
consider the option to put the Project into a care and maintenance programme
as a last resort.
In order to fund the business during the Review, the Company intends to raise
a minimum of £5 million (the "Minimum Funding Amount") and up to £6.95
million by way of a placing by VSA Capital and Hannam & Partners of CLNs
to new and existing investors. The Placing will not be underwritten, but the
Board has received substantial support from certain major shareholders and
therefore the Directors believe the Minimum Funding Amount sought is expected
to be reached. Lansdowne, an existing 9.41% shareholder in the Company, has
signed a binding term sheet to subscribe for in aggregate £3 million CLNs, on
behalf of itself and certain funds managed by it. Discussions with other
shareholders and investors in connection with the Fundraising are at an
advanced stage with the intention of seeking additional commitments for the
Minimum Funding Amount as soon as possible.
The Board recognises and is grateful for the support that it has received from
shareholders and, conditional on the Placing raising the Minimum Funding
Amount, intends to offer all qualifying shareholders the opportunity to
participate in the Open Offer. The Open Offer will raise up to £2 million
(assuming full take up of the Open Offer) at an issue price of 3 pence per new
Ordinary Share (the "Issue Price"). Pursuant to the Open Offer, up to
66,666,666 new Ordinary Shares (the "Open Offer Shares") will be offered to
existing shareholders at the Issue Price on the basis of:
1 Open Offer Share for every 2.7 Ordinary Shares held
The Open Offer will be in addition to and separate from the funds raised
pursuant to the Placing. The Open Offer will not be underwritten, and any
demand not taken up by qualifying shareholders may be offered in whole or in
part to other interested investors. Any interested party should contact VSA
Capital or Hannam & Partners at the contact details set out below. The
proposed Issue Price represents a discount of 72.1 per cent. to the closing
middle market price of 10.75 pence per Ordinary Share on 31 March 2023, being
the last practicable date prior to the announcement of the Fundraising, and a
discount of 77.5 per cent. to the volume weighted average price during the 90
trading days prior to 31 March 2023 of 13.34 pence per Ordinary Share.
Assuming the Open Offer Shares are taken-up in full, the new Ordinary Shares
issued would represent approximately 27.0 per cent. of the Company's enlarged
issued ordinary share capital following Admission on a standalone basis
without taking account of future potential shares issued upon conversion under
the CLN.
Information on the CLNs
The constitution and issue of the CLNs remains conditional on:
· Finalisation of the terms of the CLNs and preparation of the
related transaction documentation
· The Directors of the Company approving the terms of, and the
transactions conditions contemplated by, the note purchase agreement
· The Company granting security to secure the repayment of
principal and interest due on the CLNs to the note purchasers
· Shareholders approving resolutions at a general meeting of the
Company ("General Meeting")
Accordingly, there can be no guarantee that the CLNs will be issued or the
Fundraise will be successful. In such circumstances the Company would
urgently need to seek additional funding and there is no certainty that such
funding would be available.
The maximum aggregate amount of CLNs that may be issued is £6,950,000 with:
(a) an initial up to £3,975,000 to be issued following
the satisfaction of certain conditions precedent ("First Tranche"), of which
Lansdowne has committed to subscribe for a maximum of £2,000,000 on behalf of
funds managed by it; and
(b) an additional tranche of up to £2,975,000 (the
"Second Tranche") to be issued with the consent of the purchasers of the First
Tranche of Notes (the "Note Purchasers"), such consent expected to be issued
following material progress in relation to permitting, funding and governance
in relation to the Company and the Project, of which Lansdowne will has
committed to subscribe for a maximum of £1,000,000 on behalf of funds managed
by it.
Until the CLNs are redeemed or converted in accordance with the note purchase
agreement, the CLNs carry a payment in kind ("PIK") coupon of 20 per cent. per
annum, compounding every six months with such interest rounded to the end of
the relevant six month period, which will accrue on the outstanding principal
amount and will be payable on maturity or converted on a conversion (as
applicable). The CLNs will have a term of 364 days from the date of
utilisation of the First Tranche (the "Maturity Date"). The Notes will be
secured on a first priority basis (subject to the security sharing
arrangements described below). The First Tranche issuance shall be
conditional on first ranking security being granted and perfected in favour of
the Note Purchasers over certain equipment.
The Second Tranche issuance shall be conditional on additional first ranking
security/security sharing to be agreed with the Company.
The CLNs shall be redeemable in full or in part at the Note Purchaser's
election at the redemption price of two times the par value of the Notes upon
the sale of all or substantially all of the issued share capital or a change
of control of the Company.
The CLNs may be converted at the Note Purchaser's election if the Company (or
any or its subsidiaries) undertakes any equity raise at which time a simple
majority of the Note Purchasers can elect to immediately convert the Notes in
full or in part (on a pro rated basis) (i) into new ordinary shares of the
Company at the Conversion Price (as defined below), or (ii) into another
instrument on terms mutually agreed by the Company and Note Purchasers. The
new ordinary shares are to be admitted to trading on AIM no later than five
business days from the date of the conversion. The Notes shall convert into
ordinary shares of the Issuer at the lesser of: (a) 3 pence per share; or
(b) if applicable, a 50% discount to the offer price of any equity raise (the
"Conversion Price").
On the Maturity Date a simple majority of the Note Purchasers can elect to
immediately convert the Notes in full or in part (on a pro rated basis) into
(i) new ordinary shares of the Company at the Conversion Price, or (ii)
another instrument on terms mutually agreed by the Company and the Note
Purchasers. If no such election is made the Notes will convert on the Maturity
Date in full into new ordinary shares of the Company at the Conversion Price.
Pursuant to the terms of the CLN, a holder of a simple majority of the Notes
shall have the option to nominate (i) an observer to attend meetings of the
board of Directors of the Company (the "Board"); and (ii) one non-executive
Director to the Board subject to Nomad approval. The note purchase agreement
shall contain customary LMA (Loan Market Association) covenants and customary
representations and warranties (further details are set out in the Appendix).
Assuming the Fundraising is successful, on full conversion of the CLNs at the
Conversion Price of 3 pence per share, the new ordinary shares that would be
issued together would represent approximately 65.8 per cent. of the
Company's enlarged issued ordinary share capital with accumulated PIK interest
and assuming a full subscription of the Open Offer.
The total amount that the Company could raise under the Fundraising is £8.95
million (before expenses), assuming that the CLN and Open Offer are fully
subscribed.
Each of the Directors that hold Ordinary Shares has confirmed their intention
to vote in favour of the Resolutions in respect of their respective entire
holdings of Existing Ordinary Shares representing, in aggregate, approximately
5.5 per cent. of the Existing Ordinary Shares.
The Board considers the Fundraising to be in the best interests of the Company
and its shareholders as a whole. The Directors intend to unanimously
recommend that shareholders vote in favour of the Resolutions to be proposed
at the General Meeting, notice of which will be included with the Circular to
shareholders.
Use of Proceeds
Assuming the Minimum Funding Amount is reached in the Placing, the gross
proceeds receivable by the Company pursuant to Placing will be up to
£6,950,000 , before expenses. The maximum gross proceeds receivable by the
Company pursuant to the Open Offer (assuming take-up in full of the Open Offer
by qualifying shareholders) will be approximately £2,000,000, before
expenses.
These proceeds will be used to fund the business during the Review. It should
be noted that the Company intends to meet certain contractual liabilities for
deferred consideration and has some significant annual expenditure arising in
the six months to September 2023.
The Group also has to continue funding the activities relating to planning and
permitting on which both funding and licences to operate depend.
Funding Review - Background to Fundraising
The Company was admitted to AIM in October 2021 and prior to the event, a
Royalty Sale and Senior Loan facility were entered into. Drawdown was
subject to meeting various conditions precedent. As previously announced,
further to the severe inflationary increases in both operating expenditure
("OPEX") and capital expenditure ("CAPEX"), it became clear that the
conditions precedent relating to the CAPEX and OPEX budget would not be
satisfied. The Company made the decision to pause the Project and re-optimise
to reduce both initial CAPEX and ongoing OPEX, whilst maintaining forecast
production rates. This updated feasibility study was announced on 16 January
2023.
With an updated development plan, discussions have been ongoing with multiple
mining specialist lenders which have provided the Company with updated debt
term sheets. The Company expects these term sheets to be approved by the
lenders' investment committees in the coming weeks, although they remain
subject to due diligence and final documentation. Due to the increased risk
surrounding volatile energy prices and a more conservative approach, both the
Board and lenders have concluded that having less debt than previously
envisaged is appropriate. This has led to a requirement for further equity
capital to fund 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.
Since the previous pause, the Company has been working on the basis that the
funding, permitting and construction could run in parallel, and it has now
become apparent following lender feedback that this is not the case due to
design changes potentially required to achieve permitting. As such, it is
necessary to prioritise the process of obtaining all necessary permits
required for funding.
As part of the Review, the Company will also actively engage with financial
and strategic partners which are expected to be able to bring in additional
funding and expertise to help the Company fund and build the Project. These
discussions are already underway and the proceeds from the Fundraising will
allow this process to continue and include other interested parties.
At the beginning of March 2023, the Company had 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. The Board
is confident this will allow sufficient time to conclude the permitting
process and complete the full Project funding.
In the event that the commitments to the Placing are less than the Minimum
Funding Amount the General Meeting will not occur and the Fundraising will not
complete. In such circumstances, the Company would then 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 Reduction Programme
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.
Staffing requirements will be reviewed, focusing on maintaining the value of
the business.
Uncommitted project CAPEX will be deferred until full Project funding is in
place. This will result in a target commissioning in eight to nine months
from full Project funding.
Management is undertaking a detailed review of operating costs and non-capital
activities, re-aligning operational readiness works with the new Project
schedule and eliminating any surplus expenditure.
The Company is undertaking a programme to liquidate inventory and any surplus
assets left by the previous operator. Approximately 1,200 tonnes of low-grade,
11% concentrate is being exported in March and April 2023. This contains
11,500 mtu of WO(3), with forecast average payability of 28%.
Additionally, the Company has an inventory of part processed material which
has already been crushed and separated. Interim production operations will be
run in the processing plant for a limited period in March and April 2023 to
commission re-built and upgraded parts of the mineral processing facility.
This should yield approximately 40 tonnes of saleable tungsten and tin
concentrate.
Management is forecasting in excess of £1 million in revenue from these two
processes.
Project Update and Outlook
New Board Leadership
As announced on 13 March 2023, Neil Gawthorpe was appointed as CEO. Neil
joins the senior executive team at a crucial time and his initial focus will
be to lead the Review to ensure the delivery of the Project. On completion
of the Placing, Mark Thompson will step down from the Board as Executive Vice
Chairman.
The Board is well advanced in the process of identifying additional suitable
industry experienced non-executive Directors to enhance the Board's
capabilities going forward and align the Board with the Company's strategic
requirements as it moves to fund Hemerdon into production.
Project and Permitting Update
The Board believes that the Company's updated feasibility study, announced on
16 January 2023, positions Tungsten West to become the largest tungsten
producer in the Western World. The Project has a post-tax Net Present Value
("NPV") (5%)of £297 million (base case) with an Internal Rate of Return
("IRR") of 25% and an upside case post-tax NPV(5%) of £415 million with an
IRR of 32%. £19 million of CAPEX has already been spent and there is
remaining Project CAPEX, including EPCM fees, of £27 million as of 28
February 2023. Following two years of production at a target ore throughput
of 2.6 million tonnes per annum, a further £10 million of CAPEX will be
required to upgrade the secondary crushing, ore sorting and DMS circuit to
increase capacity to 3.5 million tonnes per annum.
The Company has made significant progress on bulk earthworks and civil
engineering to prepare the Project for when full Project funding has been
secured. In addition to this enabling work, the Company has also received
deliveries of steel rebar and components for the conveyor systems and, as
previously advised, has procured all long-lead items of equipment.
Pending completion of the full Project funding package, the Company will take
steps to reduce project CAPEX and ongoing OPEX to minimise cash burn until
funds have been secured. In the meantime, the core Project team will focus
on its work with the Environment Agency to secure the permit required for
operating the Mineral Processing Facility. The Company will also continue to
work closely with the Devon County Council to secure and maintain the planning
permissions required to commence operations.
The General Meeting
The Directors do not currently have sufficient shareholder authorities to
allot and issue Ordinary Shares (i) in connection with the Open Offer, and
(ii) pursuant to any conversion of CLNs ("CLN Shares"). Accordingly, if the
Minimum Funding Amount is obtained, the Board will seek the approval of
shareholders at the General Meeting to authorise the allotment and issuance of
the CLN Shares together with the disapplication of statutory pre-emption
rights in connection with the issue of any CLN Shares. This dis-application of
statutory pre-emption rights require the passing of a special resolution. To
be passed, the resolution will require 75% of the votes cast by shareholders
(in person or by proxy) at the General Meeting. Subject to discussion with
the Panel, there may also need to be a resolution to waive any requirement for
the Note Purchasers to make a mandatory offer for the Company under Rule 9 of
the Takeover Code upon any conversion of the CLNs. Therefore, the Placing and
the Open Offer are conditional, inter alia, on the passing of the resolutions
proposed at the General Meeting.
This announcement contains inside information for the purposes of Article 7 of
Regulation 596/2014 as amended by the Market Abuse (Amendment) (EU Exit)
Regulations 2019.
For further information, please contact:
Enquiries
Tungsten West Strand Hanson
Neil Gawthorpe/ Nigel Widdowson (Nominated Adviser and Financial Adviser)
Tel: +44 (0) 1752 278500 James Spinney / James Dance / Abigail Wennington
Tel: +44 (0) 207 409 3494
BlytheRay
(Financial PR) VSA Capital Limited
Tim Blythe / Megan Ray (Financial Adviser and Joint Broker)
Tel: +44(0) 20 7138 3204 Andrew Raca / Andrew Monk
Email: tungstenwest@blytheray.com (mailto:tungstenwest@blytheray.com) +44 (0)20 3005 5000
Hannam & Partners
(Joint Broker)
Andrew Chubb / Matt Hasson / Jay Ashfield
+44 (0)20 7907 8500
Follow us on twitter @TungstenWest
Appendix
Further details on the CLN are set out below
Covenants: Covenant package based on applicable LMA precedent (subject to negotiated
grace periods and exemptions) and in addition to also include that each
Obligor shall not (in each case other than with the consent of the Note
Purchasers):
(a) acquire or dispose of companies or enter into any JV agreements that
require the issue of equity;
(b) significantly deviate from budgeted capital and research and development
expenditures;
(c) issue any shares or grant rights to subscribe for or to convert any
security into shares;
(d) incur any other indebtedness not subordinated to the Notes (subject to
limited exceptions for permitted indebtedness);
(e) create or permit to subsist any mortgage, charge, pledge, lien or other
form of encumbrance or security interest upon any of its assets (subject to
limited exceptions for permitted security); and
(f) make any loans or provide any guarantees (subject to limited
exemptions in ordinary course of business, that already exist or are
intra-group between Obligors).
Additional Undertakings: Until the Notes have been redeemed in full:
(a) the Obligors shall not pay any executive bonus to any director of the
Issuer or any of its subsidiaries;
(b) the Issuer shall not significantly deviate from budgeted capital and
research and development expenditures; and
(c) the Issuer shall not (other than with the consent of a simple majority
of the Note Purchasers) make any non-payroll payments above a de minimis
threshold.
Representations and Warranties: (#_ftn1) The Note Purchase Agreement will contain the following representations and
warranties regarding the Obligors:
(a) status, enforceability and power and authority;
(b) no insolvency;
(c) tax;
(d) no default;
(e) compliance with laws and sanctions;
(f) misleading information;
(g) financial statements;
(h) no proceedings;
(i) security and financial indebtedness; and
(j) title to and ownership of assets.
Events of Default: The Note Purchase Agreement will contain the following events of default
regarding the Obligors:
(a) non-payment;
(b) non-delivery of shares when required to be delivered;
(c) breach of obligations;
(d) misrepresentation;
(e) cross-default;
(f) insolvency;
(g) insolvency proceedings and creditors' process;
(h) unlawfulness and invalidity;
(i) repudiation;
(j) litigation; and
(k) material adverse change.
Ends
(#_ftnref1)
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