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Cradle Arc Plc: THE INVESTMENT CASE

Cradle Arc eying production expansion after ramp-up completes at Mowana

Cradle Arc is ramping up copper production at its Mowana project, and further expansion is on the cards
Cradle Arc eying production expansion after ramp-up completes at Mowana
INVESTMENT OVERVIEW: CRA The Big Picture
On the move at Mowana

The London market has a new copper producer.

Cradle Arc Resources PLC (LON:CRA) made its debut on AIM on January 24 and has immediately hit the market with a couple of positive updates.

READ: Cradle Arc to push ahead with process enhancements at Mowana copper mine

The key though, is the existing production as chief executive Kevin van Wouw explains.

“We spent last year putting the mine into production,” he says.

“It’s now owner operated, and early in February the last piece of equipment will be delivered. That puts us in a position where we can reach nameplate capacity.”

That’s currently set at 12,000 tonnes of copper in concentrate per year, although plans are already well advance to push that on up to at least 20,000 tonnes in due course.

That profile of rising production, particularly when set against the backdrop of a strong copper market, proved an enticing prospect for London investors last year, when Cradle Arc was marketing.

Once the company had completed its reversal of the Mowana asset into what was then called Alecto, it was able to go out for £3.25mln in pre-IPO money, securing a further £2.4mln on admission.

WATCH: Cradle Arc PLC back on AIM and fired up over Mowana potential

Cradle Arc is thus a straightforward enough proposition: a well-capitalised copper producer with plans to increase output and a clear idea of how to do so.

“We will get Wardell Armstrong to do a new block model resource to confirm the life of mine,” says van Wouw.

Already a key component is in.

Cradle Arc reported on 31 January that a study by the well-known mining consultant SGS has confirmed the viability of using dense media separation techniques to separate ore from waste at Mowana.

The impact is likely to be significant and could, as part of the feasibility study, boost the net present value of Mowana from the current US$87mln to upwards of US$245mln.

Part of that value uplift would come from confirmation of the viability of increasing output to as much as 22,000 tonnes per year, and there would be corresponding economies of scale.

At this stage, it’s estimated that the application of the dense media separation option to the expanded operation would result in an internal rate of return (IRR) of 55%.

To formalise those estimates, the technical information gleaned from the SGS study will now be plugged into the work Wardell is undertaking.

Copper outlook positive

But at this stage, Van Wouw puts the overall cost of putting the second phase into production at around US$20mln.

In the meantime, the outlook for copper continues to be positive.

Van Wouw is bullish in the short-to-medium term in the context of the general infrastructure spend in emerging markets. He also points out that although there has been steady upward momentum for some time, there are no signs yet of a bubble developing.

It all sets a useful context for Cradle Arc to initiate expansion, and Botswana’s continuing political stability provides the perfect backdrop.

One route will be through the Makala project, which lies 70 kilometres away from Mowana. “There is a historic resource that grades 1.8% copper and one ounce of silver per tonne,” says van Wouw.

Extra upside will come too, from the company’s gold activities in Zambia, where it has a contract to design, build and operate a gold mine called Matala.

That’s currently in the midst of being funded, so watch this space.

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