Cradle Arc soars following encouraging Mowana reserve estimate (CRA)

By Richard Mason


Cradle Arc (LSE:CRA) shot up by nearly 20pc to 9.5p today after reporting that the first ore reserve estimate for its 60pc-owned open pit Mowana copper mine supports plans to ramp up the site’s production. According to the forecast, Botswana-based Mowana contains reserves of 31.8Mt at 1.17pc copper for 370,800 tonnes of contained copper metal.

This estimate was made using Cradle Arc’s plans to nearly double copper in concentrate production to 21,000tpa by installing a Dense Media Separation (DMS) unit that will carry out pre-concentration. This process increases the grade of ore early in the mining process to avoid feeding low-quality material to the plant that will cost more to process than it’s worth, making way for more high-quality ore.

To reflect the potential impact of pre-concentration, Cradle Arc also updated its mineral resource estimate by transferring a portion of inferred resources into the higher confidence indicated resource category. This increase puts Mowana’s measured and indicated resources at 640,000t of contained copper, a 37pc leap on the previous resource estimate. The upgrade also extends the life of mine by an additional three years to 14 years.

Today’s ore reserve estimate gives Mowana an NPV of $272.8m, based on the average life of mine cash costs of $4,099 per tonne of copper and all-in sustaining costs of $5,038 per tonne of copper. The average life of mine production following the planned installation of DMS is expected to come in at around 21,000tpa copper, peaking at 27,000tpa in year three. Cradle Arc added that it is continuing to ramp up mining operations at Mowana, with two mining units operating full time in the open pit.

Kevin van Wouw, chief executive at Cradle Arc, said: ‘The successful completion of the Ore Reserve Estimate and upgrade of the Mineral Resource Estimate underpins the significant scale and long-term commercial value potential of Mowana.  WAI’s independent assessment further supports our recently implemented accelerated development plan announced in April 2018, which we anticipate enabling us to reach steady state production and positive cash flows more rapidly, in addition to enabling management to make the final decision regarding the implementation of the DMS upgrades as we seek to ramp-up production and ultimately strengthen the value fundamentals of Mowana.

‘Mining operations at Mowana have been ramping-up over the last six weeks, and we currently have two mining units operating full time in the open pit.  These works will support a doubling of tonnage to the existing processing plant and the planned integration of DMS will then enable the plant to produce an average of approximately 21,000 tonnes of copper per annum, and up to 27,000 tonnes of copper in year 3, over a newly extended 14-year life of mine.’

At 9.5p, Cradle Arc’s shares have risen considerably since interviewed van Wouw last month. At the time, we said its 6.9p share price looked like an attractive buying opportunity given management’s confidence in the DMS upgrades going ahead.

Van Wouw told us he expected to make the final pre-concentration decision once the business had put out its first JORC ore reserve estimate for Mowana. With today’s encouraging results in mind, it could be worth keeping an eye on Cradle Arc in the coming weeks as it prepares that final decision.

Author: Daniel Flynn

Disclosure: Daniel Flynn does not own shares in the company mentioned.


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Author: Richard Mason

This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.

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