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 WO₃, 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

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Appendix

Further details on the CLN are set out below

Ends