Mercuria Energy to invest over USD 9.5 million in mining operations in Romania

Energy Industry ReviewFebruary 21, 2018Last Updated: May 14, 2018

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• Off-take offer from Mercuria Energy Trading (‘Mercuria’) for up to 100% of the copper and zinc concentrate produced at the Company’s Manaila Polymetallic Mine (‘Manaila’) and Baita Plai Polymetallic Mine (‘Baita Plai’)
• Conditional Pre-payment Finance Term Sheet with Mercuria of up to USD 9.5 million over two tranches commencing from 5 March 2018
• MOU with Sub-Sahara Goldia Investments (‘SSGI’) for early repayment of funding following repayment of the bridging loan of USD 1.68 million to be repaid 9 March 2018
• Charge over all Romanian assets to be released on 31 December 2018, or earlier, following repayment of a further USD 1.5 million to SSGI and Romanian assets re-charged to Mercuria.

Vast Resources plc, the AIM-listed mining company with operating mines in Romania and Zimbabwe, recently announce an update on the Company’s off-take and financing arrangements. This includes a binding Memorandum of Understanding ‘MOU’) to vary the existing loan and guarantee agreement with SSGI, and an offer of an off-take agreement capable of acceptance by Vast (‘Off-take Offer’) coupled with a related conditional pre-payment finance term sheet (‘Pre-payment Finance Term Sheet’) with Mercuria. Mercuria is part of Mercuria Energy Group, one of the largest integrated energy and commodity trading companies globally. The terms of the Off-take Offer are on substantially more favourable terms than those of Vast’s previous off-take partner and the arrangements overall, subject to finalisation and signing, would result in material benefits for the Company. Brandon Hill Capital acted as financial adviser to the Company in relation to the Pre-payment Finance Term Sheet with Mercuria.

Founded in 2004, Mercuria Energy is one of the largest independent commodities groups in the world. Through its various subsidiaries, the group focuses primarily on energy and has activities all along the commodity value chain that form a balanced combination of commodity flows and strategic assets.

With a strong balance sheet and net asset value of close to USD 3 billion, more than 1,000 people are operating from offices worldwide to sustain Mercuria’s extensive business reach, while leveraging their market knowledge, diversity, and experience.

In 2014, Mercuria Group completed the acquisition of the physical commodities trading businesses of JPMorgan Chase & Co. In 2016, Mercuria welcomed the strategic investment by China National Chemical Corporation (‘ChemChina’), in addition to the investment by China Materials Storage and Transportation Development (‘CMST’) into the Henry Bath warehousing business. In 2017, Mercuria Group completed the acquisition of the gas and power trading unit of Noble Americas Corp.

I am delighted to present shareholders with our proposed financing strategy and off-take partner, which I believe could provide Vast with significantly improved borrowing and off-take terms. In addition to the near-term benefits, which this pre-payment off-take financing facility should deliver to the Company, it also establishes the basis for a future working relationship with one of the most recognised and respected energy and trading companies globally, Mercuria Energy Trading. The opportunity to partner with a company with such prestige as Mercuria is a tremendous endorsement of our assets in Romania, and also our ability to unlock the inherent value of our portfolio of mines and projects for all stakeholders,” Andrew Prelea, Chief Executive (Non-Board) of Vast Resources, commented.

“On finalisation of this facility, we anticipate that the funds will enable us to deliver all of our near-term goals in Romania, specifically the expansion and optimisation of our Manaila mine, and, subject to the grant of the licence, the landmark commencement of production at our Baita Plai mine with no equity dilution to shareholders on the basis that the Company complies with the terms of the facility. The proposed funds from Mercuria will also support the accelerated repayment schedule that has been agreed with our partners at SSGI providing significant cost savings to the Company. I would like to extend my thanks to the team at SSGI for their support over the past 12 months, and I look forward to continuing our relationship as it develops over the coming months,” he also added.

Transaction with Mercuria Energy Group in brief

• An Off-take Offer from Mercuria for the period from January 2018 to December 2021 inclusive for up to 100% of the copper and zinc concentrate produced at the Company’s Manaila Polymetallic Mine and Baita Plai Polymetallic Mine in Romania on pricing terms significantly more attractive than those on Vast’s previous off-take contract. The Off-take Offer is capable of acceptance by Vast.

• Conditional up to USD 9.5 million Pre-payment Finance Term Sheet with Mercuria relating to the Off-take Offer:

– Funds to be drawn down USD 4 million on or before 5 March 2018 (‘Tranche A’) and up to USD 5.5 million on 1 July 2018 (or subsequently as required) (‘Tranche B’) subject to Vast Resources PLC meeting pre-agreed conditions.

– Drawdown conditional on the Company accepting the Off-take Offer.

– Drawdown of Tranche A is conditional, inter alia, on legal due diligence, agreement of an inter-creditor management agreement with SSGI, agreement of definitive documents, execution of security documentation and the internal approvals of Mercuria. It is also conditional on 49.9% of the Company’s 100% interest in Sinarom Mining Group SRL being pledged as security for Tranche A.

– Drawdown of Tranche A is further conditional upon a shareholders’ resolution of the Company granting authority for the Company to issue warrants sufficient at the share price at the date of signature of the final pre-payment finance agreement (the ‘Signing Date’) to convert, if exercised, into a share value of USD 4.4 million (‘Warrants’). The Warrants would be charged as additional security for Tranche A and would be exercisable in the event of default by the Company, but not otherwise, to the extent necessary to repay Tranche A. The exercise price of the Warrants for this purpose would be the value weighted average price of the Company’s shares in the ten business days preceding the conversion date. The maximum number of shares which can be issued under the Warrants will be set at the Signing Date, but based on last night’s closing share price is 526 million representing 10.27% of the Company’s existing issued share capital. The Warrants would be released from charge after repayment of Tranche A.

• Drawdown of Tranche B is subject, in addition to customary due diligence and agreement of documentation, to a technical and financial due diligence on Manaila and Baita Plai and the completion of a Baita Plai plant investment plan validating the business of that mine. Tranche B would be secured on the Romanian assets of the Company.

The Company will convene a General Meeting as soon as it can be arranged for the purpose of proposing a resolution to grant authority for the issue of the Warrants.

Variation of the existing loan and guarantee agreement with Sub-Sahara Goldia Investments

The Company has entered into a Memorandum of Understanding with SSGI which, conditional upon the Company entering into a binding off-take agreement from Manaila and a binding pre-payment agreement satisfactory to SSGI by 5 March 2018, amends the existing loan and guarantee agreement as follows:

• USD 1.68 million interim bridging loan (announced 13 September 2017) to be repaid 9 March 2018 in accordance to the current agreement.

• Accelerated repayment schedule agreed whereby the full USD 4.08 million (including loan arrangement fee) (as announced on 30 January 2017) to be repaid by 31 December 2019, 13 months early and in accordance with cash flow projections.

• Charge over 49.9% of the Company’s 100% interest in Sinarom Mining Group SRL to be released following repayment of USD 1.6 million on 9 March 2018.

• Charge over all Romanian assets to be released on 31 December 2018, or earlier, following repayment of a further USD 1.5 million in aggregate in accordance with the accelerated repayment schedule.

Vast Resources next phase of growth

The newly appointed CEO of Vast Resources, Andrew Prelea, is committed to implement a wide-ranging cost cutting and saving programme at the corporate level during the next phase of growth and to enhance the current financial model. He has set out a framework of objectives for 2018, both corporate and operational, in order to deliver real returns for the shareholders.

Looking now to our operations, 2018 will see us continuing to focus on our core assets in Romania and Zimbabwe – namely, the Manaila Polymetallic Mine and associated Carlibaba extension area and the Baita Plai Polymetallic Mine in Romania, together with the Pickstone-Peerless Gold Mine in Zimbabwe. We have comprehensive work programmes underway at all of the above interests, aimed at directly increasing production, efficiency at every asset and move towards operational profitability in Romania in the near term,” Andrew Prelea underlined.

“Expansion remains a core pillar of our strategy and new projects and opportunities in both jurisdictions will continue to be assessed. However, I would like to stress that expansion to new opportunities will be only be advanced if it can be demonstrated that it will not impact current projects or overall performance. We have valuable IP in both Zimbabwe and Romania and we intend to leverage our experience while both countries are going through exciting changes to deliver tangible value to investors. We have experienced and dedicated teams in both Zimbabwe and Romania, with strong roots and exceptional networks, and we strongly believe in the opportunities both countries present. It is our intention to undertake new projects that do not require significant capital or human resources from the parent company, and we will provide our shareholders with the opportunity to participate in early stage development.

We will also continue our discussions with institutional investors to carry the financial backing of any new projects. With this outlook for 2018, where both corporate and operational activities look set to deliver significant value to our shareholders, your board will not be resting idle. Our performance over the next 12 months will be critical in achieving these objectives and it is with this in mind that we need to ensure that our board and management are capable and aligned to deliver. We will be looking to strengthen our board with additional operational expertise in the coming months and we will be monitoring performance across all areas of the business to ensure that everyone associated with our company is providing the requisite skills and experience to ensure our ambitions are realised.”

2018 is set to be a hugely significant year for Vast, where the support of long-term shareholders is recognised and new investors join our register with the objective of growing Vast into a profitable mid-tier production company. I look forward to guiding our company into this next phase of growth and remain committed to keeping our shareholders updated on all developments,” Andrew Prelea concluded.

Vast Resources portfolio

Vast Resources plc is an AIM listed mining and resource development company focussed on the rapid advancement of high quality brownfield projects and recommencing production at previously producing mines.

With this strategy, Vast Resources commissioned the Manaila Polymetallic Mine in Romania in 2015 and is currently producing a copper concentrate, zinc concentrate and pyrite concentrate with gold and silver credits, from this operation. The Board also anticipates commissioning a second mine, the Baita Plai Polymetallic Mine in Romania, in the near term, with work under way towards obtaining the relevant permissions to start developing and ultimately commissioning the mine.

Vast Resources has a broad portfolio of additional exploration and development projects in Romania and additional interests in Southern Africa, including a controlling interest in the producing Pickstone-Peerless Gold Mine in Zimbabwe that has a JORC resource of circa 3.56 million ounces.

Manaila Polymetallic Mine

• 100% interest in the Manaila Polymetallic Mine, northern Romania

• Production commenced 14 August 2015 – four weeks after Vast assumed operating control

• Currently producing a copper concentrate, zinc concentrate and pyrite concentrate with gold and silver credits

• Total JORC Compliant Mineral Resources of:

– Open Pit: (Indicated & Inferred) of 2.6Mt at a grade of 1.0% copper (‘Cu’), 0.4% lead (‘Pb’) and 0.9% zinc (‘Zn’) at a 0.25% Cu cut-off

– Underground: (Indicated & Inferred) of 310,000t at a grade of 1.7% Cu, 0.4% Pb and 0.5% Zn at a 1.00% Cu cut-off

• Exploration Target defined for:

– Open pit: 4.45Mt-11.88Mt with grades up to 2.3% Cu, 0.5% Pb and 1.1% Zn

– Underground: 5.92Mt-15.78Mt with grades up to 2.6% Cu, 2.0% Pb and 2.6% Zn

• Phase 1, open pit, has a projected life of mine of three years at a mining rate of 10,000 tonnes per month, with significant further upside

• Phase 2 and Phase 3 operations are currently planned to be underground mines – further detailed work may reveal that an open pit mine is feasible on portions of the Phase 2 or Phase 3 ore body

Vast Resources owns a 100% interest in the Sinarom Mining Group SRL, which owns the Manaila Polymetallic Mine in Suceava County, northern Romania where economic mineralisation is primarily comprised of copper, lead and zinc. The mine is located 26 km from the town of Iacobeni, where the project’s current metallurgical complex is located. Infrastructure at the complex consists of crushing, milling and flotation circuits.

Manaila historically produced a 13% copper concentrate and a 3g/t gold concentrate, with excessive zinc content that resulted in penalties and therefore low prices per tonne of concentrate. Since taking operational control, Vast has successfully improved the quality of the copper concentrate in addition to commissioning a separate zinc concentrate line and a Knelson concentrator to produce a pyrite concentrate with gold and silver credits.

Achievements made to date include:

– Improvements to the quality of the copper concentrate through the increased recovery of the contained copper in the ore;

– Increasing the quantity of copper concentrate via a higher mass pull per tonne of ore processed;

– Removal of the high levels of zinc to avoid the contamination penalty;

– Commencement of production of a separate zinc concentrate to provide the Company with a second income stream;

– Refurbishment of all the processing facilities at Iacobeni, the metallurgical complex, now has two operational mills, three operational flotation circuits, and a test flotation circuit to evaluate processes and chemicals to improve the quality and quantity of the concentrates;

– Successful implementation of reprocessing of tailings from previous operations;

– Successful installation of a Knelson concentrator to produce a pyrite concentrate with gold and silver credits;

– Granting of a twenty-fold increase in the potential mining area through the award of a large prospecting licence area;

– Upgrade to the resources and reserves to comply with the JORC reporting standard and increasing the open-cut mine life from eighteen months to sixty months;

– Significant reduction in the monthly transportation costs through outsourcing of ore and waste haulage to a specialist transport company

Maniaila Expansion & Regional Metallurgical Complex

In tandem with optimisation initiatives at the current operating Manaila open pit, Vast is currently exploring the potential to establish a new, larger Manaila Metallurgical Complex (‘MMC’) at Manaila or at the adjacent Carlibaba Manaila Extension, which is the potential site of a future open cast mine and new metallurgical processing facility.

Results were reported in November 2017 from 2,150m drilling programme designed to confirm Carlibaba’s suitability as a second open pit mine within the Manaila licence area. Subject to an economic assessment, the drilling results supported the development of a second open pit operation at Manaila, in addition to a new metallurgical processing facility on site, which would reduce Manaila opex costs by up to 25%. It is anticipated that this would be funded using the previously announced conditional USD 9.5 million pre-payment offtake agreement with Mercuria Energy Group.

Highlights from the completed drilling programme include:

F004: 4.50m @ 1.17% copper (‘Cu’); 0.08% lead (‘Pb’); 0.21% zinc (‘Zn’); 0.18g/t gold (‘Au’) and 9.98g/t silver (‘Ag’)

F005: 12.4m @ 1.11% Cu; 0.18% Pb; 0.43% Zn; including 5.9m @ 1.97% Cu; 0.30% Pb; 0.71% Zn; 0.62g/t Au and 26.29g/t Ag

F009: 3.00m @ 2.93% Cu; 0.88% Pb; 1.95% Zn; 0.47g/t Au and 93.33g/t Ag

F012: 2.20m @ 1.17% Cu; 0.84% Pb; 1.32% Zn; 0.98g/t Au; 74.9g/t Ag

F012: 1.00m @ 2.43% Cu; 2.18% Pb; 2.10% Zn; 1.47g/t Au and 132.00g/t Ag

F013: 1.50m @ 0.93% Cu; 0.93% Pb; 0.66% Zn; 0.43g/t Au and 74.00g/t Ag

F018: 1.60m @ 1.51% Cu; 0.21% Pb; 0.44% Zn; 0.28g/t Au and 13.9g/t Ag

A JORC compliant Mineral Resource update for Carlibaba is targeted for release in H1 2018.

Vast also has two additional concessions in the Manaila region: Piciorul Zimbrului and Magura Neagra (located 19km and 47km away from Manaila respectively). Previous state exploration has identified the presence of substantial mineralisation across these licence areas and Vast has commenced appraisal activities to prove-up this mineralisation.

At Piciorul Zimbrului a total of six veins with associated copper and gold mineralisation of approximately 820m in length have been identified, whilst work at Magura Neagra indicates the possible presence of a porphyry copper type mineralising system together with mineralised veins containing gold, silver, molybdenum, lead and zinc.

Baita Plai Polymetallic Mine and Faneata Tailings Dam

Key Headlines

• Skarn deposit comprising several veins in calcareous sediments in eight distinct pipes

• 1,800,000 tonne copper-silver-zinc-lead- gold-tungsten-molybdenum ore body at 6% copper equivalent (Russian Reserves and Resources Reporting System) within the mining licence area
• Unmeasured resources in other pipes and substantial exploration upside

• Vast’s subsidiary, African Consolidated Resources SRL (AFCR), has been selected by Baita SA, the holder of the head licence at Baita Plai, to be granted the right to mine polymetallic ore under mining licence 999/1999.

• Vast is now awaiting execution of the final association licence, subject to normal due process, which includes a Ministerial Agreement, regulatory approvals from the Romania’s National Agency for Mineral Resources (NAMR) and final negotiations of terms and conditions of the association licence.

• Baita Plai will be Vast Resources’ third mine.

Vast Resources currently has an 80% interest in the well-developed polymetallic underground mine, Baita Plai, and its associated mining rights. Baita Plai is located in the Apuseni Mountains, Transylvania, an area which hosts Romania’s largest polymetallic and uranium mines. The project is 50km north-west of Romania’s largest Au-Cu mine, Rosia Montana (>10Moz Au) and 52km north-west of Rosia Poieni, which contains over one billion tonnes of porphyry copper ore.

Due to lack of capital investment and modernisation the Baita Plai mine became uneconomic and was put on care and maintenance in 2013. The mine benefits from full infrastructure including underground, surface and processing equipment and an EU registered and operational tailings facility, but the plant and equipment will require some rehabilitation.
As announced on 30 August 2017, Vast’s subsidiary, African Consolidated Resources SRL, was selected by Baita SA, the holder of the head licence, to be granted the right to mine polymetallic ore from Baita Plai. The Company now awaits the formal association licence prior to beginning mining operations.

Prior to obtaining the licence, Vast: Significantly reduced the carrying cost of the mine by installing more efficient pumps, securing direct electricity supply, and reduced the staff count; Maintained access and safety of the underground workings; Restored important underground access areas; Cleaned the milling and flotation circuits to enable assessment of the remedial work required.

Historical MoU with Remin

Key Headlines

• Opportunity to acquire up to 55 precious metal and polymetallic mines

• Wide underground ore bodies that can facilitate mass mining

• Major exploration opportunities over 100km prospective land package

• Government has recommended awaiting near-term new mining legislation to facilitate recommencement of negotiations to acquire.

Vast Resources has a Memorandum of Understanding with Remin SA, a Romanian state government company, to complete an exclusive due diligence exercise on Remin’s mining assets. Until 1997 Remin operated a chain of over 55 precious metal (gold and silver) and polymetallic (lead, zinc and copper) mines over more than 100km of strike length in the highly prospective Carpathian Mountains in northern Romania.

Three main asset classes have been identified, which would provide the basis for a staged development programme targeting five high priority projects:

• Tailings/stockpiles that can be recycled

• Open pit mining on gold-silver caps of epithermal veins