SP Angel - UK broker providing update on Tungsten West. Looks...

SP Angel - UK broker providing update on Tungsten West. Looks like a positive spin, but when the CFO resigns and staff reductions, not a good sign.

Tungsten West (TUN LN) 3.75p, Mkt cap £6.8m – Signsthat some of Hemerdon’s technical issues are being resolved while furtherfinancial disciplines are implemented

• In a series of announcements today Tungsten West has outlined progress on a range of operational, leadership, and financing issues as it works to resume production at the Hemerdon tungsten/tin project in Devon.

• The company explains that, following investigations of the low-frequency noise (LFN) issues which became apparent under the stewardship of the mine’s previous owners, it has now submitted applications for a Mineral Processing Facility (MPF) “to the Environment Agency which, once granted, will allow the plant to operate, thus facilitating the production of tungsten and tin at Hemerdon”.

• Tungsten West confirms that it “has worked closely with the Environment Agency and Devon County Council … throughout the entire permitting and noise trial process and anticipates the decision regarding the permit approval to be forthcoming within the coming months”.

• The company also explains that it has applied for modifications to the existing limits on road traffic movements of 50 trucks per day in order to facilitate the sale of “secondary aggregates, a by-product from mining which, once sold, will provide an early revenue stream and reduce the storage of barren rock and associated opex at site”.

• Tungsten West confirms that it “has actively involved the local community, local councils and regulatory bodies in the process … [of the application relating to heavy vehicle traffic] … participating in regular discussions and offering a direct line to the Company for all stakeholders”.

• We observe that issues relating to movement of heavy vehicles in rural areas can be contentious among local residents and clear and wide-ranging consultation will have been necessary to allay community concerns.

• As announced in April “spending priority has been given to activities relating to planning and permitting, environmental compliance and funding, as these are essential to the continued progress of the Project… [and] … in order to prioritise these activities, a proposed cost reduction programme will need to be implemented, including a further approximate 25% reduction in staff costs via redundancies, reduced hours and resignations”.

• Additional financial management and control initiatives include “agreeing deferred payment plans and restructuring supply agreements with a number of creditors”.

• The company also announces the resignation of director and CFO Nigel Widdowson “with immediate effect” although Tungsten West confirms that he “has agreed to remain in his operating role as CFO for the duration of his notice period, to focus on ongoing funding and project financing activities, and to ensure a smooth transition for the incoming CFO when appointed”.

• Hemerdon is clearly under financial pressure, requiring further staff reductions and bespoke arrangements with creditors and, we observe, this could be a difficult time to replace the CFO.

• Relating to other leadership matters “the Board intends to appoint Mr. Adrian Bougourd and Mr. Guy Edwards as non-executive Directors, subject to satisfactory completion of due diligence checks required for the appointment of a director of an AIM company”.

• The company also confirms that, as previously announced in May, it “expects to issue a further £2.975 million of loan notes on or around 17 August 2023”.

• The ‘Tranche B Notes, comprise “a maximum commitment of £1 million from funds managed by Lansdowne and up to £1.975 million from the other note purchasers”.

• Tungsten is already regarded as a ‘Critical’ or ‘Strategic’ Mineral by many jurisdictions including the EU, UK, US, Australia, and Japan

Conclusion: Tungsten West’s efforts to resumeproduction at Hemerdon are addressing a range of operational, technical,management and financial challenges. In the circumstances, we expect that thesearch for a new CFO will be an important priority. We are encouraged thatmeasures to mitigate the LFN problems may lead to approval of the MPF andsignal that some of the long-standing technical legacies are being resolved.