Armadale Capital Plc / Index: AIM / Epic: ACP / Sector: Investment Company

23 May 2022

Armadale Capital Plc

('Armadale' or 'the Company')

Final Results and Notice of AGM

Armadale Capital plc (LON: ACP), the AIM quoted investment group focused on natural resource projects in Africa, is pleased to announce its final results for the year ended 31 December 2021 ('Final Results' or 'Annual Report'). The Company also announces that its Annual General Meeting ('AGM') will be held at Suite 2, 23 Railway Road. Subiaco, Western Australia 2016 on 20 June 2022 at 17.00 AWST (10:00 BST).  A notice of AGM, together with printed copies of the Company's full Annual Report for the year ended 31 December 2021, will be posted to shareholders. Copies will also be available to view on the Company's website: www.armadalecapitalplc.com.

Strategic Report

Operational and Corporate Highlights for Period Ending 31 December 2021

Significant progress made in delivering key accretive milestones in advancing the Mahenge Liandu Graphite Project in Tanzania

1.    In January 2021, the Company reported on the CSIRO (Australia's Commonwealth Scientific and Industrial Research Organisation) test work which confirmed natural flake graphite from Mahenge graphite project as a premium quality product with the exceptionally high purity and characteristics required for use in lithium-ion batteries.

2.    In March 2021, the Environmental and Social Impact Assessment ('ESIA') was formally granted by National Environment Management Council ('NEMC') of Tanzania.

3.    In September 2021, the Company announced the formal confirmation and receipt of the Mining Licence (ML/007744/2020) for the Mahenge Graphite Project from the Tanzanian Ministry of Energy and Minerals.  The Mining Licence provides the Company with exclusive development and mining rights over the graphite resources within the 8.54km² Mining Licence and is a major de-risking milestone for investors. The mining licence was granted for an initial 10-year term which can be extended.  Should it be extended, it would cover the initial 15-year mine life utilising only 25% of the estimated Resource.

4.    1st phase of Front-End Engineering Design Studies undertaken by Chinese EPCM Xinhai Mineral EPC completed with positive results received confirming a premium quality high purity graphite concentrate, also suitable for the battery anode market and can be produced from Mahenge using conventional plant as outlined in the Company's existing Definitive Feasibility Study.  This included metallurgical a test work programme which further confirmed the efficacy of the Company's intended process flow sheet and helped ratify project economics.

5.    The main focus going forward is gaining project development finance and binding off take agreements to bring the project to production.

6.   In December 2021, the Company appointed Mr. Greg Entwhistle as Project Director. Over the past five years, Mr Entwistle has specialised in the emerging graphite sector in East Africa consulting to several groups that are advancing projects towards production. Mr. Entwhistle brings considerable skills and experience to expedite progress of the Group's Mahenge Graphite project towards commissioning production. 

Post Period End

1.    In February 2022 the Company applied for three incremental exploration licences which are prospective for graphite mineralisation and materially enhance the Mahenge Liandu Project's exploration potential.

2.    Ongoing review of quoted portfolio, where the Directors believe there are opportunities for capital gains.

3.    Continue to actively review other exciting investment opportunities.

During the year under review, Armadale continued to operate as a diversified investing group focused on natural resource projects in Africa. To this end, its portfolio is divided into two groups:

·    actively managed investments where the Company has majority ownership of the investment; and

·    passively managed investments where the Company has a minority investment, typically in a quoted company, and does not have management control.

Currently, the Company's key actively managed investment is the Mahenge Liandu Graphite Project in Tanzania.  At present, the Company is actively marketing the Project to potential industry partners and end users (offtakers) of graphite products.  The Company is also pursuing a range of potential options relating to development finance for the project.

PASSIVELY MANAGED INVESTMENTS

Mine Restoration Investments Limited ('MRI'), South Africa

The shares in MRI are being carried at Nil market value (2020: Nil) as MRI shares were suspended from trading on the Johannesburg Stock Exchange. The MRI shares continued to be suspended throughout the year.

Quoted Portfolio

The Company has a small portfolio of quoted investments, valued at £150,000 on 16 May 2022, principally in resource companies where the Directors believe there are opportunities for capital gain. The Company continues to keep its portfolio under review. The Company's strategy with its quoted portfolio is to gain exposure in projects that have the potential to create short to medium term returns for the Company as well as diversify the Company's exposure to a broader range of commodities while being able to enter and exit the position with minimal cost and time.

SUSTAINABLE DEVELOPMENT

The Company is committed to sustainable development and conducting its business ethically. Given that the Company invests in the mining industry, one of its key focuses is on maintaining a high level of health and safety, environmental responsibility, and support for the communities close to its investments.

CORPORATE INFORMATION

Principal Risks and Uncertainties

There are known risks associated with the mineral industry, especially in Africa. The Board regularly reviews the risks to which the Group is exposed and endeavours to minimise them as far as possible. The following summary, which is not exhaustive, outlines some of the risks and uncertainties currently facing the Group:

·    Although reducing throughout the year under review, the COVID-19 pandemic continues to have risks for the Group in terms of its ability to travel to and from its projects and ability for key personnel to access its projects.  As previously reported, the impact of the COVID-19

pandemic on the project is so far minimal as the Company's site activities were substantially completed in 2019.

·    Through the Mahenge Liandu Graphite Project the Group is very exposed to graphite. Graphite is a relatively new commodity whose market is being driven by demand in renewable energy. The Company believes it is thus vulnerable to changing global energy policies.

·    The impact of Brexit on companies operating in the UK is still being monitored. Thus far Brexit has not impacted the Group's ability to raise funds.

·    The exploration for and development of mineral resources involves technical risks, infrastructure risks and logistical challenges, which even a combination of careful evaluation and knowledge may not eliminate.

·    There can be no assurance that the Group's project will be fully developed in accordance with current plans.

·    Future development work and subsequent financial returns arising may be adversely affected by factors outside the control of the Group.

·    The availability and access to future funding within the global economic environment.

·    The Group operates in multiple national jurisdictions and is therefore vulnerable to changes in government policies which are outside its control. The mining regulation changes in Tanzania are still being evaluated, however they seem to have minimal impact on investment in graphite mining. The Group continues to monitor the implementation of the changes to evaluate and mitigate sovereign risks.

·    The Group is exposed to gold as the holder of a royalty on gold production from its previously held gold project. The Group's potential future royalty stream will be affected by fluctuations in the prevailing market price of gold and to variations of the US dollar in which gold sales will be denominated.

Some of the mitigation strategies the Group applies in its present stage of development include, among others:

·    Proactive management to reducing fixed costs.

·    Rationalisation of all capital expenditures.

·    Maintaining strong relationships with government (employing local staff and partial government ownership), which improves the Group's position as a preferred small mining partner.

·    Engagement with local communities to ensure our activities provide value to the communities where we operate.

·    Alternative and continued funding activities with a number of options to secure future funding to continue as a going concern.

The Directors regularly monitor such risks and will take actions as appropriate to mitigate them. The Group manages its risks by seeking to ensure that it complies with the terms of its agreements, and through the application of appropriate policies and procedures, and via the recruitment and retention of a team of skilled and experienced professionals.

Key Performance Indicators

The Group's current key performance indicators ('KPIs') are the performance of its underlying investments, measured in terms of the development of the specific projects they relate to, the increase in capital value since investment and the earnings generated for the Group from the investment. The Directors consider that it is still too early in the investment cycle of any of the investments held, for meaningful KPIs to be given.

Success is also measured through the identification and investment in suitable additional opportunities that fit the Group's investment objectives.

Section 172 Statement

Section 172(1): A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to -

Section 172(1) (b) the interests of the company's employees,

Company's Comment: While the Company is largely staffed by contractor employees (rather than direct employees of the Company), the directors consider that continuing active work on the Mahenge Liandu Graphite Project to be in the best interest of such staff to utilise their skills and develop their local communities. The board seeks regular feedback from its key stakeholders (including staff and advisers) to ensure that the corporate culture of the Company remains highly ethical in terms of our Company's values and behaviours.

Section 172(1) (c) the need to foster the company's business relationships with suppliers, customers and others,

Company's Comment: The directors ensure that suppliers are available and meeting commitments and there is good communication with staff as a key requirement for high levels of engagement. This is done by periodic and ad-hoc briefings and discussions.

Reasons to engage shareholders are to meet regulatory requirements and understand shareholder sentiments on the business, its prospects and performance of management.

This is done by regulatory news releases, keeping the investor relations section of the website up to date, annual and half-year reports and presentations and AGM.

Section 172(1) (d) the impact of the company's operations on the community and the environment,

Company's Comment: The Company's activities impact communities in the places where we operate and elsewhere. The Company engages communities with employment / business development arrangements within guidelines. Through preparation and compliance with environmental and social management plans, which include the regulatory requirements for the Company on its Mahenge Liandu Graphite Project, the directors ensure that wherever possible its activities have a positive impact on the community and avoid adverse environmental impacts.

The Company has engaged the services of a local manager in Liandu who provides information to the community about our intended project activities and is responsible for managing local affairs and feedback to the Company.

Section 172(1) (e) the desirability of the company maintaining a reputation for high standards of business conduct, and

Company's Comment: The directors consider standards of business conduct in all dealings of the Company. The members of the board have a collective responsibility and obligation to promote the interests of the Company and are collectively responsible for defining standards of business conduct which includes corporate governance arrangements. The board provides strategic leadership for the Company and operates within the scope of our corporate governance framework and sets the strategic goals for the Company.

Section 172(1) (f) the need to act fairly as between members of the company.

Company's Comment: The board takes feedback from a wide range of shareholders (large and small) and endeavours at every opportunity to pro-actively engage with all shareholders (via regular news reporting-RNS) and engage with any specific shareholders in response to particular queries they may have from time to time. The board considers that its key decisions during the year have impacted equally on all members of the Company.

Board

In March 2021, Ms Amne Suedi and Mr Steve Mahede resigned from the Board as non-executive Directors and the Company wishes them well in the future.  The Board is actively considering potential replacements for former Board members with a focus on a potential appointment of a UK based Board member.

Financial Results

For the year ended 31 December 2021 the Group did not earn any revenues as its business related solely to the making of investments in non-revenue producing resource projects and companies.

The Group made a loss after tax of £0.333 million (2020: £0.196 million) for the year ended 31 December 2021.  Expenditure on the Mahenge Liandu project during the year amounted to £0.272 million (2020: £0.662 million), which was capitalised as additional exploration and evaluation assets. 

Funds raised during the year amounted in total to £1,279,000 of which £850,000 came from a placing of shares and £429,000 came from the exercise of warrants and options. Other share issues during the year were in respect of loan note conversions.

At 31 December 2021, the Group had cash of £886,000 (2020: £252,000 ) and no debt finance (2020: loan notes of £577,000 ).  At 16 May 2022, following the exercise of further warrants, the Group had cash of £1,942,000.

Outlook

The year under review shows that Mahenge Liandu continues to represent an exciting opportunity for the Group. As identified in the going concern note to the Directors' Report, the Company's ability to achieve its strategy with respect to the project is dependent on the further fundraising.  The Directors continue to keep other investment opportunities, in line with the Group's investment objectives, under review, which the board believe could deliver significant value to shareholders.

Nicholas Johansen

Director

20 May 2022

Consolidated Statement of Comprehensive Income

Consolidated Statement of Financial Position

Consolidated Statement of Changes in Equity

Consolidated Statement of Cash Flows

The information contained within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulations (EU No. 596/2014) which is part of UK law by virtue of the European Union (Withdrawal) Act 2018. Upon the publication of this announcement, this inside information is now considered to be in the public domain.

**ENDS**

Notes

Armadale's wholly-owned Mahenge Liandu Graphite Project is located in a highly prospective region, with a high-grade JORC compliant indicated and inferred mineral resource estimate announced February 2018 - 59.5Mt at 9.8% TGC. This includes 11.5Mt @ 10.5% Measured 32.Mt Indicted at 9.6% and 15.9Mt at 9.8% TGC, making it one of the largest high-grade resources in Tanzania.

The work to date has demonstrated the Project's potential as a commercially viable deposit, with significant tonnage, high-grade coarse flake and near surface mineralisation (implying a low strip ratio) contained within one contiguous ore body.

The Company's updated Definitive Feasibility Study (June 2020) confirmed Mahenge as a long-life low-cost graphite project with a US$430m NPV and IRR of 91% based on a two-stage expansion strategy comprising:

·      Stage One - processing plant and infrastructure at a nominal design basis rate of 0.4-0.5 Mt/pa to produce a nominal 60,000t/pa graphite concentrate in the first three years of production

·      Stage Two - a second 0.5 Mt/y plant and associated additional infrastructure doubling throughput to 1 Mt/y from Year 5 of operation

The DFS shows that Armadale can be a significant low-cost supplier to the graphite industry with the potential to generate pre-tax cashflows of US$985m over an initial 15 year mine-life and scope for further improvement as this utilises just 25% of the current resource, which remains open in multiple directions.

Projected timeline to first production is expected to be approximately 10-12 months from the start of construction and the capital cost estimate for Stage 1 is US$39.7m, which includes a contingency of U$S4.1m or 15% of total direct capital cost, with a 1.6 year payback for Stage 1 (after tax) based on an average sales price of US$1,112/t. Stage 2 expansion is expected to be funded from cashflow.

More information can be found on the website www.armadalecapitalplc.com.