Operational Update, Proposed Loan Facility

Cradle Arc plc / EPIC: CRA.L / Market: AIM / Sector: Mining

8 October 2018

Cradle Arc plc

("Cradle Arc" or the "Company")

Operational Update, Proposed Loan Facility Obtained for Mowana Processing Plant Rehabilitation and Update re Convertible Loan Notes

Cradle Arc (AIM: CRA), the African focused base and precious metals exploration and production company, is pleased to announce that its 60 per cent. owned subsidiary, Leboam Holdings (Pty) Limited ("Leboam"), the holding company of the Mowana Copper Mine in Botswana ("Mowana" or the "Mine"), has conditionally obtained a loan facility of US$2.0 million from Cradle Arc's largest shareholder, PenMin Botswana Proprietary Limited ("PenMin") (a company indirectly controlled by the Company's CEO, Kevin van Wouw) to establish an enhanced inventory of key spare parts and improve and rehabilitate the current processing facilities at Mowana and thereby address the intermittent breakdowns and interruptions that are the key reason for the Company's inability to meet its production targets during Q3 2018 (the "Facility"). The Facility is conditional on concluding the Debt Sale Agreement with Fujax as outlined under further information below, expected shortly. In addition, the Company provides updates in respect of its operations and the outstanding January 2017 and June 2017 convertible loan notes.

Highlights

· PenMin has conditionally agreed to provide a loan facility of US$2 million to Leboam, with the following principal terms:

o Repayable monthly over a 24-month period with re-payments to be made out of the Company's free cash flow when available after operational and senior creditor obligations;

o Interest payable at a rate 13.5 per cent. per annum (compounded monthly), which is equal to or less than the cost of the Company's existing indebtedness; and

o Any funds repaid by Leboam over the term of the Facility may be subsequently redrawn by Leboam at the discretion of PenMin on the same terms.

· Proceeds from the Facility to be applied directly towards addressing the intermittent equipment breakdowns and interruptions being continually experienced at Mowana's processing plant that have adversely affected the Company's production performance resulting in actual production of contained copper for Q3 2018 totalling 712 tonnes. Total contained copper production for Q3 2018 was approximately 29.5 per cent. higher than Q2 2018.

· Specific areas to be addressed include pumping, piping, conveying and process control remediation and installation of standby equipment in parallel in areas where a breakdown has an immediate impact on production, and enhanced spare part inventory.

· The improvement and rehabilitation work on the processing plant will commence immediately and is not expected to materially interrupt existing operations.

Kevin van Wouw, CEO of Cradle Arc, commented:

"During Q3 2018 and subsequently, we have been constrained by intermittent equipment breakdowns and sporadic interruptions at Mowana's processing plant, which is ten years old and is being rehabilitated following a period of care and maintenance. Over this period, we have been able to identify weaknesses in the design and condition of the existing equipment and formulate a remediation plan involving the targeted application of funds raised from the Facility to repairs, the acquisition of spare parts and the installation of standby equipment/redundancy*.

"We strongly believe that the progress we have made in our open pit mining activities within the North Pit and the North Rim Extension, combined with the proposed rehabilitation work to the processing plant, will enable the Company to achieve a significant improvement in throughput and hence recovery in Q4 2018 relative to its Q3 performance.

"As set out in the Company's previous operational update of 25 September 2018, we have developed the orebody to the extent that we now have access to a large amount of transitional and supergene ore, which is anticipated to deliver improved recoveries at a reduced production cost over the remainder of the year and all of 2019. The plant improvements that we will be making over the coming weeks should result in the stabilisation of operations, improved copper recoveries, and ultimately increased production."

*In engineering, redundancy is the duplication of critical components or functions of a system with the intention of increasing reliability of the system, usually in the form of a backup or fail-safe, or to improve actual system performance.

FURTHER INFORMATION

Operational Update

Further to the Company's announcement of 25 September 2018, actual production of contained copper for September 2018 was 178 tonnes, resulting in a total of 712 tonnes of contained copper production for Q3 2018. This represents an increase of approximately 29.5 per cent. over the total contained copper production achieved in Q2 2018.

As noted previously, the Company's open pit mining activities have been focussed on waste stripping to expose transitional and supergene material ultimately leading to the mining of sulphide blocks. This is anticipated to facilitate access to ore with limited stripping overhead, thereby providing the flexibility to progress to sulphide material over the course of the next year in an increasing proportion resulting in a more predictable and sustainable mining schedule.

From a processing perspective, an exercise to identify the shortfalls of the existing plant and equipment is now complete, enabling the targeted application of the funds raised from the Facility to the requisite remedial action, whilst also introducing redundancy to the plant's design. The reduction in throughput experienced has been largely due to the series design of the processing equipment, making it more susceptible to sporadic breakdowns and interruptions directly related to the ramp-up process. The remedial action and installation of new redundancy, together with the acquisition of an enhanced spare part inventory, is expected to alleviate these risks.

Additionally, processing interruptions have had an adverse effect on the recoveries achieved. Improved recovery rates over the course of Q4 2018 will be directly affected by the planned rehabilitation work on the processing plant offset by the expected improvement in the quality of ore to be processed as mining operations advance through the transitional zone towards the primary sulphides. As the Company's underperformance in processing throughput is addressed, and the recovery degradation improved by more stable operations, the Company currently expects an increase in both throughput and recovery performance.

The Company's Q4 2018 production guidance has been reviewed and given the risks inherent with recommissioning to commercial operation of the process plant, the Company will restate its guidance only when stable operations have been achieved and greater forecasting accuracy is possible.

Loan Facility

The Facility is for a total principal amount of US$2 million, which can be drawn down by the Company in any number of tranches, and bears interest at a rate of 13.5 per cent. per annum compounded monthly, increasing by 2 per cent. in the event of any default. The Facility has a 24 month term, is repayable monthly and can be repaid early in whole or in part without penalty and can also be extended and redrawn on a revolving basis at PenMin's discretion. The Facility agreement contains customary terms and conditions (which can be waived by PenMin at its sole discretion), warranties and undertakings for a facility of this nature and the Facility is supported by a guarantee from Cradle Arc, but is subordinate to all of Leboam's other secured obligations. The Company is liable for PenMin's legal costs in respect of negotiating, preparing and entering into the facility documentation and events of default include customary solvency and regulatory matters for a facility of this nature. These costs will be capitalised as part of the facility.

As a source of funds for its provision of the Facility, the Company has been notified by PenMin that, in aggregate, a sum of US$3 million of receivables due to PenMin under its pre-existing arrangements with the Company, comprising the deferred cash consideration owing to it as vendor of Cradle Arc Investments (Pty) Limited and certain other unpaid invoices for its design, build and operate services, is now payable to Fujax Minerals and Energy Limited ("Fujax") on the same terms as the pre-existing payables to PenMin in a Debt Sale Agreement. This transaction by PenMin with Fujax is subject to the completion of the restructuring of certain obligations by Leboam to ZCI Limited and Messina Copper Botswana (PTY) Ltd - In Liquidation.

The Facility is subject to the successful conclusion of the Debt Sale Agreement with Fujax as outlined.

Related Party Transaction

The Company's CEO, Kevin van Wouw, is indirectly interested in approximately 41.8 per cent. of the Company's existing issued share capital via PenMin, which is a substantial shareholder and accordingly a related party. The provision of the Facility therefore constitutes a related party transaction pursuant to Rule 13 of the AIM Rules for Companies. Accordingly, the independent Directors of the Company (being all of the Directors other than Mr van Wouw), having consulted with the Company's Nominated Adviser, Strand Hanson Limited, consider that the terms of the Facility are fair and reasonable insofar as the Company's shareholders are concerned.

Update re Convertible Loan Notes

Further to the Company's announcement of 1 August 2018 that, inter alia, it had reached agreement with the holders of, in aggregate, £1.275 million principal amount of Convertible Loan Notes issued in January 2017 and June 2017, to suspend their conversion rights and redeem all of the Convertible Loan Notes for staged cash payments of, in aggregate, £1.59 million; in light of the abovementioned issues with the processing plant and in order to provide additional working capital headroom the Company has now agreed with the holders to terminate the agreement such that the original terms, including conversion rights, have been re-instated. The principal amount currently outstanding is £1,177,240.00 and the scheduled maturity date of the notes concerned is 31 December 2018.

**ENDS**

For further information on the Company, please visit www.cradlearc.com or contact:

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

About Cradle Arc

AIM-quoted Cradle Arc plc is the 60 per cent. owner of the Mowana copper mine in Botswana, an operational open pit mine and processing facility located in the north-east of the country, approximately 120 km northwest of Francistown.

The Company has an independent open pit ore reserve estimate (Proved and Probable JORC 2012) of 31.8 Mt at 1.17% Cu for 370,800 tonnes contained copper, based on a Dense Media Separation (DMS) mine plan.