13 April 2018                     

Savannah Resources Plc

 

Financial Results for the Year Ended 31 December 2017

and

Notice of Annual General Meeting

 

Savannah Resources plc (AIM: SAV and SWB: SAV) ('Savannah', the 'Company' or the 'Group'), the AIM quoted resource development company, is pleased to announce its audited financial results for the year ended 31 December 2017. The Company also gives notice that its Annual General Meeting ('AGM') will be held on 10 May 2018 at 10:00am at The Great Room, London Executive Offices, 25 Southampton Buildings, WC2A 1AL.

 

Highlights

 

Operations

LIHTIUM IN PORTUGAL

·     Fast-tracking the advanced Mina do Barroso Lithium Project in Portugal into production - provides an opportunity to become the first significant raw lithium producer in Europe

·     Within less than a year of acquisition Savannah has established an Inferred Mineral Resource of 9.1Mt at 1.03% Li₂O containing 94,100t of Li₂O and outlined a rapid development strategy

·     Significant further upside:

o    Resource remains open along strike with an Exploration Target* of 8-12Mt at 1.0% to 1.2% Li₂O giving a total project target of 17-21Mt at 1.0-1.2% Li₂O

o    In March 2018 drill testing of the Exploration Target to the west and southwest of the main Grandao Deposit led to the discovery of new high-grade lithium mineralisation, with grades as high as 1.71% Li₂O and lengths of up to 90m, which has been named "Grandao Extended"

o    Only three of at least eight pegmatites have been drilled to date

·     Low cost development profile as proven, conventional metallurgical processes will produce a highly sought after spodumene concentrate with recoveries of at least 80% at a concentrate grade of over 6% Li₂O

·     Near surface mineralisation indicates project will benefit from a very low stripping ratio

·     Scoping study underway and due for completion Q2 2018

·     With a Mining Lease, established resource, proximal infrastructure and strong market demand, Savannah is set to make a development decision by early 2019 with mining targeted to commence late 2019

 

*Cautionary Statement: The potential quantity and grade of the Exploration Targets is conceptual in nature, there has been insufficient exploration work to estimate a mineral resource and it is uncertain if further exploration will result in defining a mineral resource.

 

COPPER IN OMAN

·     High-grade potential near term mine developments, with mining due to commence later this year

·     Licencing approvals well advanced and strong interest received from copper off-takers

·     Mines to utilise a central processing plant and tailings storage facility to minimise costs, with capacity to support multiple mine developments

 

HEAVY MINERAL SANDS IN MOZAMBIQUE

·     World-class asset with significant scale being evaluated in a joint venture with Rio Tinto

·     Following successful delivery of the Scoping Study, Savannah has increased its interest from 10% to 20% in the Mutamba Project

·     Pre-Feasibility Study now underway

·     Mining licence applications submitted and production targeted to commence in 2020, with average annual production of 456,000t of roasted ilmenite and 118,000t of non-magnetic concentrate (rutile and zircon)

 

Financials

·     Raised a total of £8.47m in 2017 including private placements to both new and existing shareholders, and, post year end, raised a further £1.52m cash as well as receipt of letters of intent for subscriptions of £0.58m in March 2018

·     Continued cornerstone support received from Al Marjan Limited

·     Operating loss of £2.84m reflects the increased tempo of operational and investing activities in 2017

·     £4.74m increase in Intangible assets and £1.18m increase in Property, plant and equipment

·     Pro-forma cash balance of approximately £2.41m following the issue of new shares and receipt of letters of intent as announced on 3 April 2018

 

 

David Archer, Savannah's Chief Executive Officer said, "There is an unprecedented rise in demand for energy metals as a result of the rapid rise of electric vehicles and new forms of energy storage. Globally, all significant hard-rock lithium mines currently supplying export markets produce spodumene concentrates.  Mina do Barroso continues to shape up as the European near-analogue to these highly successful Western Australian spodumene producers and our focus is now on advancing Mina do Barroso so that we can become the first significant spodumene lithium producer in Europe to cater to rapidly growing demand. We have already highlighted the significant potential of the project and the pace of our development approach through the establishment of a meaningful resource, and with a scoping study due for completion in Q2 2018, further drilling and metallurgical test work underway to improve our resource confidence still further, and a development on track due to be made early 2019, the coming year is set to be equally active. 

 

"Alongside Mina do Barroso, we have wider development portfolio. Our copper project in Oman is on track to commence mining later this year, offering near term cash flow potential, whilst our mineral sands project in Mozambique continues to prove its world class scale as we advance it in a joint venture with Rio Tinto. With a strong portfolio of highly strategic and complementary assets, and multiple value accretive milestones due in the coming year, we look forward to building Savannah into a leading energy metals group."

 

Availability of Annual Report and Financial Statements

Copies of the Company's full Annual Report and Financial Statements are expected to be posted to shareholders shortly and will also be made available to download today from the Company's website www.savannahresources.com.

 

Annual General Meeting

The Company's next AGM will be held at: The Great Room, London Executive Offices, 25 Southampton Buildings, WC2A 1AL, on 10 May 2018 at 10:00a.m.  A formal Notice of AGM and proxy form are expected to be posted to shareholders shortly and will be available to download today from the Company's website at www.savannahresources.com.

 

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) 596/2014.

 

For further information please visit www.savannahresources.com or contact:

 

David Archer	Savannah Resources plc	Tel: 44 20 7117 2489
David Hignell / Dugald J. Carlean (Nominated Adviser)	Northland Capital Partners Ltd	Tel: 44 20 3861 6625
Christopher Raggett / Emily Morris (Broker)	finnCap Ltd	Tel: 44 20 7220 0500
Charlotte Page / Lottie Wadham (Financial PR)	St Brides Partners Ltd	Tel: 44 20 7236 1177

 

 

About Savannah

We are a diversified resources group (AIM: SAV) with a portfolio of energy metals projects - lithium in Portugal and copper in Oman - together with the world-class Mutamba Heavy Mineral Sands Project in Mozambique, which is being developed in a consortium with the global major Rio Tinto. We are committed to serving the interests of our shareholders and to delivering outcomes that will improve the lives of our staff and the communities we work with.

 

The group is listed and regulated on AIM and the Company's ordinary shares are also available on the Börse Stuttgart (SWB) under the ticker "SAV".

 

Chairman's Statement

 

Technological change is driving new growth and innovation.  Work to find more efficient and environmentally friendly forms of power has led to the increased importance of the lithium-ion battery; which is at the core of a new wave of development in the automobile and energy storage markets.  As the name would suggest, lithium is critical to this development but other commodities, such as copper, are experiencing a similar increase in demand as, for example, battery electric vehicles ('BEVs') require three to four times as much copper as traditional internal combustion engine ('ICE') vehicles. 

 

With near-term copper and lithium production potential, Savannah is a diverse energy metals group that is well placed to capitalise on these trends.  This is supplemented with our world class heavy mineral sands project in Mozambique, which is being evaluated as part of a Consortium Agreement with the mining major Rio Tinto at a time of increasing prices for titanium feedstocks. This pipeline of projects firmly positions Savannah for growth, both in the near and in the mid to longer-term at a time of rising global growth. The International Monetary Fund ('IMF') is currently forecasting global economic growth of 3.9% in 2018, with the recent US tax policy changes likely to increase output by the USA and its trading partners.

Near-Term Production: Lithium in Portugal

The Board believes Savannah has the potential to become the first significant lithium producer in Europe thanks to its Mina do Barroso Project, located in northern Portugal. With a mining lease in place (valid until 2036, with a 20-year extension available), established infrastructure, and preliminary metallurgical test work indicating that a high-grade (over 6% Li2O), clean, low iron lithium concentrate can be produced, Mina do Barroso offers significant and very attractive near-term production potential. Savannah acquired a 75% interest in the project in May 2017, alongside nine exploration licence applications (pending approval) for areas prospective for lithium, which collectively cover an area of 1,018km2. With lithium being one of the most sought-after commodities, and demand expected to rapidly rise in line with the electric vehicle revolution, we are delighted to have had the opportunity to acquire this significant project portfolio.

 

Based on results received to date, we believe that Mina do Barroso is the closest European analogue to the very successful Australian hard-rock, open cut mine developments, which produce highly sought-after lithium spodumene concentrates for international markets. Our focus, therefore, is on expediting the development of the project in order to provide a European source of battery-grade lithium concentrates to supply the growing production volumes of EVs both in Europe and internationally. Interestingly, despite Europe being an early adopter of EV and battery storage solutions, with European manufacturers consuming approximately 24% of global battery grade lithium production, no European country currently produces battery grade lithium carbonate equivalent ('LCE') products.

 

At the end of 2017, we defined a maiden Mineral Resource at our Reservatorio deposit with an initial JORC compliant Inferred Mineral Resource of 3.2Mt at 1.0% Li₂O containing 32,000t of Li₂O.  This initial figure was for one of at least eight pegmatite deposits on the Mina do Barroso Mining Lease and one of three deposits currently being drilled.  As a result of this ongoing drill programme, in February 2018 we achieved a ~200% increase in the project's Inferred Mineral Resource Estimate to 9.1Mt at 1.03% Li₂O containing 94,100t of Li₂O using a 0.5% Li₂O cut-off grade.  This increased resource includes 5.5Mt at 1.04 Li₂O for 56,500t, which was defined at Grandao and 0.5Mt at 1.23% Li₂O for 5,600t, defined at NOA.  Alongside the known resource, an Exploration Target* of 8-12Mt at 1.0% to 1.2% Li₂O was generated for Grandao and Reservatorio, which gives the project a total target (including Mineral Resources) of 17-21Mt at 1.0-1.2% Li₂O showing the significant further upside available.

 

Further drilling is now underway targeting both down dip and strike extensions of the current resource in order to convert this exploration target into an established resource and further prove up the commercial potential of Mina do Barroso. The initial results from this drill work have been positive, with new high-grade lithium mineralisation discovered to the west and southwest of the main Grandao Deposit, creating a new target area to be known as "Grandao Extended", highlighting the significant further development potential that exists.

 

In support of commercialisation, it is significant that much of the mineralisation occurs near surface, which suggests the potential for a low stripping ratio and low cost open-cut mine development.  Metallurgical analysis confirms a lithium content of around 1.7% Li₂O with low impurities of less than 0.5% Fe₂O₃ and test work continues to confirm well proven, conventional metallurgical processes will produce a highly sought after high-grade spodumene concentrate.  Indeed, preliminary results suggest that by using a process route combining both gravity separation and flotation, a total recovery of at least 80% at a concentrate grade of over 6% Li₂O is likely to be achieved.  Further test work is underway which aims to build on the results obtained to date and Mr Noel O'Brien, a metallurgist and lithium processing expert with over 35 years' experience, has been appointed as a technical consultant to lead these efforts.

 

Our focus now is to complete a Scoping Study around a potential mine development. Hatch, the internationally recognised engineering group, was appointed in February 2018 to conduct the Scoping Study and will investigate a potential mining and concentration plant development based on the Grandao, Reservatorio and NOA spodumene deposits.  Results of the Scoping Study are expected to be available towards the end of Q2 2018 and will feed into feasibility studies. Alongside this, work has begun to modify the licencing conditions of the Mining Plan we currently have in place, to enable the extraction of additional tonnages and to build a plant specific to lithium processing.

 

*Cautionary Statement: The potential quantity and grade of the Exploration Targets is conceptual in nature, there has been insufficient exploration work to estimate a mineral resource and it is uncertain if further exploration will result in defining a mineral resource.

 

We are looking to secure offtake contracts with existing spodumene lithium converters. This will likely involve the provision of equity and, potentially, debt financing. To this end, we have recently appointed Mr. Martin Steinbild to lead the Group's discussions with the major players in the international lithium value chain including converters, producers of cathodes, battery cells and battery packs, and car manufacturers. Martin has over 25 years' experience working for majors in the industry such as Rockwood Lithium GmbH (acquired by Albemarle Corp., the leading lithium producer in the world).

 

We believe the Group should be in a position to make a decision for the development of Mina do Barroso in early 2019.  To be able to advance a project from acquisition to making a development decision within two years will undoubtedly be a significant achievement and it is something we are confident we can achieve.  The demand of lithium for electric vehicle batteries is growing remarkably, and we believe our strategic location and near-term production will make our product highly sought after.

 

Near-term Production: Copper in Oman

2018 is set to be a significant year in Oman as we plan to commence copper production, with open pit production at Maqail South and an underground development at Mahab 4.  The objective is high-grade, low cost copper production and we intend to achieve this by establishing a central processing plant and tailings storage facility ('TSF'), which could support the development of not only these two mines but other high-grade deposits in the region.

 

We are seeing strong market demand for copper thanks to its use in electric vehicles ('EV'), which is expected to result in a nine-fold increase in copper demand from 185,000 tonnes in 2017 to 1.74 million tonnes in 2027 (according to a report by consultancy IDTechEx, commissioned by the International Copper Association in June 2017).  Increasing demand for copper and the slow supply response from the mining industry has meant that we have seen strong interest from a number of potential copper offtake partners combined with a financing element.

 

Taking a closer look at the mines being developed initially, Mahab 4 and Maqail South are both located in Block 5 with a JORC complaint Mineral Resource Estimate of 1.51Mt at 2.1% copper and 0.16Mt at 3.8% copper respectively. It is our intention that run-of-mine crushed ore will be trucked to the shared processing plant, which will produce a copper concentrate for shipment to export markets. Tailings produced will then be stored within a central TSF. Our plan is that both the processing plant and TSF will be established within the adjacent Block 4 licence. The Ministry of Environment and Climate Affairs ('MECA') has approved in principle the concept for our TSF plans subject to studies and test work being presented, and having successfully completed hydrogeological baseline assessments in October 2017 we are now working on completing the Environmental Impact Assessment ('EIA') into the design of the proposed TSF and copper concentrator / processing plant.

 

Alongside this, solid progress continues to be made towards the grant of the two mining licences. Regulatory approvals have been received for all eight of the required Government permitting approvals for the Maqail South Mining Licence application, and seven for Mahab 4, with only the Ministry of Housing remaining. Positive discussions are continuing with the Ministry of Housing in respect of this, which is a pre-requisite to the Public Authority of Mining being able to assess the Group's Mining Licence applications. With a clear route to production, upcoming licencing approval and a strong copper backdrop, we continue to advance towards our target of commencing mining in 2018.  We look forward to keeping shareholders updated on progress.

 

Longer-Term Production: Mineral Sands in Mozambique

Savannah, under a Consortium Agreement with global major Rio Tinto, is advancing the Mutamba Heavy Mineral Sands Project in Mozambique. This is a significant asset which we believe, due to its size and grade quality, has world class mining potential.

 

Mutamba has a current Indicated and Inferred Mineral Resource of 4.4 billion tonnes at 3.9% Total Heavy Minerals ('THM'), which currently covers three of four target areas, being Jangamo, Dongane, Ravene and Chilubane. Significant expansion potential exists at all three of the targets for which we currently have a resource, and we have not yet even begun to test Chilubane.

Production at Mutamba is targeted to commence in 2020, with average annual production of 456,000t of roasted ilmenite and 118,000t of non-magnetic concentrate (rutile and zircon).  Based on this production profile, a scoping study completed in May 2017 showed that over an initial 30-year life of mine, revenues of US$4.23 billion and a pre-tax NPV₁₀ of US$335 million are achievable. Furthermore, Rio Tinto (or an affiliate) has agreed to enter into an offtake agreement to purchase 100% of heavy mineral production on commercial terms. These key attributes credential Mutamba as one of the most exciting significant new projects poised for production in the early 2020s.

 

In support of commencing production, in January 2018 three applications covering a total area of 417.32km² over the Jangamo, Dongane, Ravene and Chilubane deposits were submitted to the Ministry of Mineral Resources and Energy in Mozambique for mining leases. Mining Leases are generally awarded for a term of 25 years and can be renewed at the end of their terms. The Ministry has six months from the date of submission to respond to the applications. A Pre-Feasibility Study ('PFS'), into the potential development of the project began in August 2017. This PFS is targeted for completion in early 2019 and will be a major milestone for our Group as it will further define the commercial potential of Mutamba whilst also resulting in Savannah earning a 35% interest in the Mutamba Consortium.

 

With multiple value accretive milestones due in the coming year, significant global growth driving demand for titanium feedstocks, and one of the largest undeveloped mineral sands deposits in the world, we look forward to continuing to highlight the significant potential of Mutamba.

  

Corporate Update

During 2017 the Company's largest shareholder Al Marjan Ltd ('Al Marjan') continued to invest significantly in the Company (£2.73m (2016: £2.43m)). As part of the cash subscription in March 2018 the Company received a letter of intent from Al Marjan to invest a further £0.57m when the Company is not in a "close period", resulting in Al Marjan holding over 28% of the Company's issued share capital. Thus, underpinning Al Marjan's intention to remain a supportive investor going forward.  Al Marjan's representatives (Mr. Maqbool Ali Sultan the former Minister of Commerce and Industry in Oman, Mr. Imad Kamal Abdul Redha Sultan holding the roles of Non-Executive Directors of the Company, with Mr. Manohar Pundalik Shenoy and Mr. Murtadha Ahmed Sultan their respective alternates) do not receive remuneration for the material contributions that they make to the Group, which benefits from their proven operating experience both in Oman and internationally.

 

Financial Overview

As is to be expected with an active and expanding resource development group, the Group is reporting a loss for the year of £2.84m (2016: £1.76m). The loss for the year has been impacted by the lithium project in Portugal acquired in the year and the increase of the activity in the project in Mozambique. The significant driver was staff costs amounting to £1.63m (2016: £1.02m), however £0.42m (2016: £0.05m) of this related to non-cash costs, and the ratio of this compared to investment in fixed assets dropped from 70% in 2016 to 25% in 2017. Professional fees amounting to £0.62m (2016: £0.34m) included £0.13m in relation to the acquisition of the Portuguese lithium project. Other Comprehensive Income for the year amount to £0.20m loss (2016: £0.48m gain) was primarily due to the net effect of the foreign exchange gain from the retranslation of the financial statements of subsidiaries with functional currencies not denominated in the presentation currency, GBP, and the foreign exchange loss due to the revaluation of loans to subsidiaries, which have seen the translated value decrease due to the recovery of GBP against major currencies in 2017 compared with the devaluation suffered by the GBP in 2016 following the UK's referendum on membership of the EU. Net assets have increased to £13.14m (2016: £6.07m) predominantly due to the increase in the exploration activity during the year and the acquisition of the lithium project in Portugal in May 2017, reflected with additions in Exploration and Evaluation assets of £5.04m, and £1.14m additions in Property, plant and equipment (primarily relating to the erection of a pilot plant in Mozambique) as at 31 December 2017, and the increase in Cash and Cash Equivalents by £1.29m as a result of well supported capital raisings during the year.

 

The parent Company's total comprehensive loss for the financial year as set out on Note 7 was £1,886,723 (2016: £291,231). The increase in the loss for the year compared with 2016 is primarily due to the foreign exchange raised on the revaluation of loans to subsidiaries being a loss of £0.21m in 2017 and a gain of £0.86m in 2016 due to the recovery of GBP against major currencies in 2017 compared with the devaluation suffered by the GBP in 2016. Other factors impacting the increase in losses are non-cash issues of employee share options with an effect in the Company results of £0.32m (2016: £0.03m), and professional fees amounting to £0.48m (2016: £0.25m).

 

In March, July and October 2017 the Company raised a total of £8.47m cash (before expenses) through the placing of 161,423,950 new ordinary shares at a significantly increased subscription price of 5.25p per ordinary share (2016: 2.46p per ordinary share). As part of these subscriptions the Company issued 61,762,707 shares at a price of 5.25p to Al Marjan, David Archer, Matthew King and Manohar Pundalik Shenoy, resulting in Al Marjan holding a 29.39% interest of the Company's issued share capital at the reporting date.

 

As of 31 December 2017, the Group had a cash position of £2.46m. On 31 March 2018 the Company approved a cash subscription of £1.52m cash (before expenses). The Group will have a pro-forma cash balance of approximately £1.83m following the receipt of the subscription proceeds. This is expected to be increased by a further £0.58m cash from a Directors' related party (Al Marjan Ltd) and from a number of employees when the Company is not in a "close period", with letters of intent received to this effect.

 

Social Responsibility

As a resource development group, we are committed to advancing the assets we own and also to supporting the continued growth and development of the communities we work with whilst maintaining high social and environmental standards. Transparency is key to ensuring positive relations with the communities in which we work and in line with this, during late 2017, we were delighted to launch a new community section on our website to provide further information on what we are doing in each of the countries in which we operate. Alongside supporting a number of community projects and offering employment opportunities, we have developed a very active programme of engagement with the communities close to our operations in Oman, Mozambique and Portugal, and we look forward to maintaining honest, timely and transparent communication with all our stakeholders. In Mozambique, our community projects comprise of technical training, support to private agriculture and community development and clean water provision amongst other initiatives.

 

Outlook

2018 is set to be another significant year in Savannah's development. With resource upgrades and economic studies due at our lithium project in Portugal, copper mining due to commence in Oman, and economic studies set to further evaluate the commercial value of our mineral sands project in Mozambique, the remainder of the year will be highly active with milestone news flow. This is a very exciting time to be developing lithium and copper projects due to the strong pricing dynamics currently being experienced as a result of the unprecedented rise of the lithium-ion battery and the associated electric vehicle / energy storage industries.  As a diverse energy metals group, we look forward to supporting this growth and building meaningful value for our shareholders.

 

Finally, I would like to thank our Board, management, and operational teams for their consistent hard work during the period.  They, together with the continued support of our shareholders, for which I also give thanks, have enabled us to advance to this exciting point of growth. We have already announced the appointment of Martin Steinbild as Director, Lithium Business Development and anticipate making further additions to our team to match the needs of our growing group in the coming year. Alongside this we have implemented a long-term incentive scheme in order to further align management incentives with shareholder interests. I very much look forward to the year to come.

 

 

Matthew King

Chairman

 

Date: 12 April 2018