26 September 2019

Savannah Resources Plc

Interim Results

Savannah Resources plc (AIM: SAV, FWB: SAV and SWB: SAV) ('Savannah' or the 'Company'), the AIM quoted resource development company, is pleased to announce its interim financial results for the six months ended 30 June 2019.

Highlights:

·      Portugal:

o  100% ownership of the Mina do Barroso lithium project ('Mina do Barroso' or the 'Project') achieved through the acquisition of the outstanding 25% stake in June 2019 in an all share deal

o  Option over the Aldeia Mining Lease application blocks exercised, increasing the Project's footprint by over 50%

o  Mineral Resource at the Mina do Barroso increased by a further 37% to 27Mt with the additional Exploration Target increased by 25% to 11-19Mt, underpinning the Project's status as the most significant conventional lithium deposit in Western Europe

o  Suitability of Mina do Barroso's feldspar, quartz and a bulk tail product for use in a range of glass and ceramic applications confirmed by test work. Marketing studies imply higher co-product prices could be achieved than were assumed in 2018 Scoping Study

o  Commercial interest in the Project growing with discussions advanced with diverse groups of finance providers and potential strategic / offtake partners

o  Multiple workstreams associated with the Definitive Feasibility Study ("DFS") and the Environmental Impact Assessment ("EIA") progressed during the period

o  EIA to be submitted for approval in Q4 2019

o  Fully funded DFS to be completed in Q2 2020 to allow inclusion of additional deposits discovered and expanded metallurgical test work programme

·      Mozambique:

o  Mining Leases 9735C and 9229C on the Mutamba heavy mineral sands project conditionally awarded (subject to fulfilment of customary requirements) in September 2019 with the Mining Lease application for block 9228C in the final stage of approval

·      Oman:

o  Public Authority of Mining confirmed its intention to award the Mining Leases applied for on the Mahab 4 and Maqail South high-grade copper projects

o  Strategic review of Oman projects continuing

·      Corporate:

o  CSR programmes have continued as planned in Portugal and Mozambique

o  Investments in intangible assets and exploration reached £2.68m vs. £2.49m in H1 2018, reflecting the continuing pace of the project appraisal work on the Mina do Barroso project

o  Cash position at 30 June £3.1m, proforma cash position at 16 September £6.8m following the share placement and letters of intent for subscriptions totalling £5m in September 2019

To view the press release with the illustrative charts, please use the following link: http://www.rns-pdf.londonstockexchange.com/rns/7059N_1-2019-9-25.pdf

CHAIRMAN'S STATEMENT

Your company has made significant progress during 2019 in developing its lithium project at Mina do Barroso and has the technical and, following the recent fundraise, financial capacity to finalise the DFS and EIA, which are necessary preconditions to the commencement of mining. Additionally, the Mutamba Joint Venture was awarded two mining licences over the Mutamba heavy mineral sands project (subject to the fulfilment of customary conditions) with a third mining licence understood to be in the final stages of approval, and the Omani Public Authority of Mining has recently confirmed its intention to award the Mining Leases applied for on the Mahab 4 and Maqail South high-grade copper projects.

The multiple external pressures currently being exerted on some of world's major economies and global capital markets has meant that the first nine months of 2019 has been a challenging time for industrial commodity players, particularly for those like Savannah in the development phase. While macro trends are beyond the Company's control, Savannah considers its best means of managing risk is to remain well capitalised and to deliver on its stated goal of focusing on its exposure to the positive market dynamics forecast for lithium through the Mina do Barroso project. Market dynamics for mineral sands are also currently positive and we continue to regard Mutamba as a significantly valuable asset for your company. Hence, our priorities remain to finance, construct and operate the Mina do Barroso lithium project, progress the Pre-Feasibility Study on the Mutamba mineral sands project and complete our strategic review on our Oman copper projects.

Mina do Barroso, Portugal

In our 2018 annual report published in May, I confirmed that Mina do Barroso is now our flagship project. This premier ranking has been driven by the combination of the evaluation success we have enjoyed at the Project to date, the potential for further expansion of the Mineral Resource and the mine life, and the increasing need for sustainable sources of lithium supply to feed the rapidly growing market for lithium ion batteries, particularly in Europe.

Bearing these factors in mind, the acquisitions of the outstanding 25% stake in Mina do Barroso and the adjacent Aldeia Mining Lease Application Blocks represented major milestones. These acquisitions have given Savannah and its shareholders greater exposure to Western Europe's most significant spodumene lithium project and provided management with much enhanced optionality for future transactions and financing related to the Project.

In parallel with these transactions, good progress was also made on the completion of the EIA and the associated DFS for the Project, and these remain the critical deliverables in addition to milestones such as licencing and financing. Headline developments during the period and into Q3 2019 included a further 37% increase in the Project's Mineral Resource to 27Mt incorporating maiden Mineral Resource Estimates for the Pinheiro deposit and the first target drilled on Aldeia Block A; production of battery grade spodumene concentrate from two of the three potential metallurgical processing routes being evaluated; and confirmation of the suitability of both separate and combined quartz and feldspar products from the Project for commercial applications in the glass and ceramics industries.

However, as explained in the recent placing announcement, there remains more work to do to complete the DFS. This has been brought about by the discovery and subsequent delineation of new orebodies which has meant that drilling campaigns have been extended, mine designs have needed to be reworked and pit sequencing plans revised. Our metallurgical test work programme has also been expanded. This is not only to include samples from the newly discovered deposits but also to comprehensively evaluate all ore types which will be treated at the project in the light of the processing challenges reported by the first wave of new spodumene producers in Australia over the past year. Savannah regards a rigorous approach to the DFS as vital to the future success of the Project.

This additional but very necessary work means that delivery of the DFS is now expected to occur in Q2 2020 against our previous target of early 2019 when we successfully raised £12.5m cash in mid-2018. These funds were designed to fund the Company's operations through early 2019, however, with spending discipline, actual expenditures were some 17% less than the use of funds forecast despite the four extra months covered, the one-off costs associated with the acquisition of the remaining 25% of Mina do Barroso and the costs of acquiring and evaluating the Aldeia tenements. 

It is worth highlighting what we have achieved:

Mineral Resources:

·      Over 18,500m of diamond and RC drilling completed since June 2018 (total on project since 2017 - 30,870m): ✓ 150% total metres drilled since June 2018

·      Resources increased: ✓ 93% to 27Mt containing 286kt Li₂O (707kt LCE)

·      Orebodies increased: ✓ from 3 to 5

·      Average grade maintained above 1%: ✓ 1.06% Li₂O

·      Low iron content confirmed: ✓ 0.8% average

·      Measured & Indicated Resources increased: ✓ 114% to 15Mt (55% of total resource)

·      Maiden co-product resource declared: ✓ 14.4Mt at Grandao

·      Lithium Exploration Target increased: ✓ c. 50% (mid-point) to 11-19Mt at 1.0-1.2% Li₂O

Pit scheduling:

·      Pit sequencing analysed and confirmed: ✓ Pinheiro, Grandao, Reservatorio, NOA, Aldeia (27Mt total resource at present vs. 14.4Mt in the Scoping Study model)

·      Mining rate increase: ✓ Expected 15% increase to 1.5Mtpa - helped by the Mineral Resource increase

·      Life of Mine: ✓ Dependent on final reserve estimate, but the initial life of mine should be greater than 11-year Scoping study model having regard to the Mineral Resource increases

Metallurgical Testing:

·      Lithium: Large quantity of representative material tested: ✓ 3.8 tonnes

·      Targeted recovery rate achieved: ✓ 80%

·      Battery grade concentrate produced: ✓

·      Test work allowing selection of optimum flowsheet: ✓

·      Co-products: Test work confirms suitability for commercial apps: ✓

Processing Plant:

·      Alternative process plant sites on C-100 area studied: ✓ Site selected

·      Access road route alternatives identified and reviewed: ✓ Route selected

·      Total capex estimate should be maintained: ✓ USD$109m excluding contingencies from the scoping study

Commercial:

·      Lithium counterparty engagement: ✓ in contact with dozens of groups and as advised to the market these include OEMs, large European industrial groups, battery cell manufacturers and lithium refinery groups

·      Multiple term-sheets and MoUs under negotiation: ✓ 

·      Co-products: Engagement with major ceramics groups: ✓ with higher prices and product quality confirmed

·      EU funding: ✓ applications made

·      Engagement and ongoing discussions with banks and debt providers: ✓

With the lengthened DFS period and the expanded scope of the work required extra funding was required. We raised £5.0m cash to ensure that the enlarged study programme is funded to completion. We continue to closely monitor costs and expenses.

Coincidental to our challenges with the DFS and those of other lithium project developers and new producers, the sector has also been impacted by a decline in the underlying prices of the various lithium raw materials (spodumene, lithium hydroxide, lithium carbonate). As one would expect, these declines have fed through into reduced equity market valuations for lithium companies, but we firmly believe we will see a reversal of the recent lithium price downturn, which is driven by a modest build-up of raw material inventories as a result of delays to lithium conversion plant expansions in Asia, and a reduction in electric vehicle subsidies in the Chinese market. We take comfort from the fact that significant growth in electric vehicles sales continued in H1 2019 ( 42% vs. H1 2018) and that medium and long term sales forecasts remain compelling for lithium and lithium battery demand with sales of around 10m vehicles expected in 2025 and around 28m in 2030, equating to approximately one-third of all light vehicles currently sold.

Market commentators such as Roskill continue to forecast that these growth projections for electric vehicles and lithium battery demand will challenge lithium suppliers, leading to a growing market deficit in refined lithium during the 2020s and a recovery in prices from next year. Assuming these forecasts prove to be correct, our target of starting production at Mina do Barroso in H2 2021 could see the Project coming on-line at an ideal time to benefit from this improving market backdrop.

Based on the growing commercial interest we have seen in Mina do Barroso this year, it is clear that downstream lithium participants remain concerned about raw material supply in the medium to longer term, despite the current build-up of inventory. As a result, we have been able to advance our discussions with a number of potential offtake partners ranging from established lithium processors to large scale end users such as Auto industry OEMs, as well as new market participants.

Political interest in the Project has also increased as appreciation has grown for the strategic role that Mina do Barroso could play in anchoring a new lithium industry in Europe, and Portugal in particular. Our team is regularly engaged with the Portuguese administration up to and including Ministerial level, and we have also strengthened our relationships with various EU agencies regarding funding and other forms of support for the Project.

Plans around the financing package for the Project have also been advanced. Work to date on the capital cost continues to indicate that the estimate from the Scoping Study of US$109m (excluding contingency) to US$124.6m (including contingency) remains a realistic range and management believes that this quantum of capital can be secured through a combination of project finance debt, EU/Government funding, offtake-related/partner financing and royalty financing. Hence the Group is confident that further finance for the Project will not be required from existing shareholders and the equity capital markets. Discussions with project finance banks, private equity groups, Government/EU agencies, potential offtake partners, royalty providers, commodity traders and other strategic investors have all been progressed and are continuing.

With the revised DFS timetable now in place and fully funded, we expect to produce regular news flow from the Project as we conclude on the major inputs to the study, complete the EIA and progress our discussions around offtake and financing.

Mineral Sands Projects, Mozambique

In September 2019 a significant milestone was reached on the Mutamba mineral sands project with the Minister of Mineral Resources and Energy in Mozambique awarded two of the three Mining Leases applied for in 2018. With two Leases approved and the outstanding 9228C Lease application reported to be in the final stage of award, we believe the status of this world class mineral sands project, which we are evaluating in partnership with Rio Tinto, has been significantly advanced.

The opportunity presented by Mutamba has also benefited from the improved market dynamics seen in the mineral sands market over the last 12 months. Market commentators such as TZMI have forecast for some time that prices for the key titanium minerals, rutile and ilmenite, as well as for the zircon contained in the sands would increase as existing inventories were consumed and not replaced at a sufficient rate in the face of demand growing in line with global GDP trends. Based on recent comments from existing mineral sands producers, these forecast market dynamics are now playing out. Consumption is expected to continue to grow in-line with the global economy and hence new sources of supply, such as Mutamba, should be required to meet the increased demand as existing operations become depleted and close.

Following formalisation of the leases, Savannah, as the project operator, will continue its preparations for the Pre-Feasibility Study on Mutamba. Completing that study would see our stake in the project rise from the current 20% to 35%.

Copper Projects, Oman

In our 2018 annual report we announced that we would be undertaking a strategic review of our assets in Oman given the delays we had experienced with licence approvals and the diminished status the projects had in our portfolio due to the superior opportunity presented by the Mina do Barroso lithium project.

While the strategic review is continuing, we were heartened by the advice received in August from the Public Authority for Mining in Oman ("PAM") that it intends to grant the mining licences over the Mahab 4 and Maqail South copper deposits which were applied for in 2016. Following the approvals received from a series of government authorities and a rigorous review of the applications by PAM, formal award should take place once licencing fees have been officially set under the new Mining Law which was introduced in March 2019. As with our Mozambique joint venture, we believe that award of these Licences will eliminate one of the main risks of our joint venture projects in Oman, helping us to reach a well-informed conclusion on the best option for our shareholders regarding the projects.

Corporate Social Responsibility (CSR)

Savannah remains fully committed to the CSR programmes which we presented in detail for the first time in our 2018 annual report.

In Portugal we have continued to engage with the communities living around the Project, with the level of interaction expected to increase as finalised information on the Project becomes available, especially from the EIA. A monthly newsletter is issued to local residents, who are also able to discuss the Project with our staff at the new Community Information Centre we opened in April of this year. Our latest community meeting held on 14 August was again well attended. We have also recently appointed a Head of Communication & Community Affairs to help with the full range of stakeholders.

In Mozambique, the new Jangamo Training Centre that Savannah and Rio Tinto created in partnership with the German NGO, GIZ, graduated its first group of 42 technicians. The Centre is tasked with helping to match labour demands with skills development in the Inhambane Province and offers training courses in electrical maintenance, carpentry, plumbing and construction. Savannah and Rio Tinto also worked with GIZ on the provision of approximately 7,000 coconut tree seedlings to the Government of Jangamo district and the Institute of Employment and Vocational Training.

Financial Summary

Savannah is reporting a loss for the period of £1.97m (30 June 2018: £1.17m) (31 December 2018: £3.07m), reflecting the rapid pace of our project developments, primarily around Mina do Barroso. Net assets have increased to £23.76m (30 June 2018: £14.59m) (31 December 2018: £25.42m) due to the increase in exploration activity during the period, predominantly associated with the lithium project in Portugal.

No funds were raised during the reporting period with cash at 30 June 2019 reported at £3.08m following the £14.6m raised in total during 2018. £3.76m was subsequently raised in September 2019 with additional intended commitments of £1.24m from Savannah's major shareholder Al Marjan Limited and another PDMR to ensure that ongoing commitments, including the completion of the DFS on the Mina do Barroso project following the extension to the study's timetable are well funded.

Outlook

We view the recent volatility in the lithium sector as symptomatic of the changes in its supply and demand dynamics over the short term. We believe that the outlook for lithium prices remains positive in the medium and long term with demand driven by ever tightening emissions legislation, the public's growing concern regarding climate change and the reducing cost of ownership of Electric Vehicles. The Mina do Barroso project gives Savannah great exposure to this burgeoning industry and we remain firmly focused on delivery of the DFS on the project in Q2 2020. The table above shows the global refined lithium market dynamics and spodumene price forecast.

Figure: Global Refined lithium market dynamics & spodumene price forecast

Following the mining licence awards in Mozambique, we will continue with our preparations for the recommencement of the Pre-Feasibility Study on Mutamba. We will also continue to evaluate the options available to us for value creation around our Oman projects. Given that developments are expected across the portfolio, future meaningful news flow should be generated on a regular basis.

Our efforts would not be possible without the financial support provided by our shareholders. On behalf of the Company I would like to extend my sincere thanks to all our shareholders for their ongoing support and welcome new investors who participated in the September 2019 placing. Particular thanks goes to the Al Marjan Group which remains the Company's largest shareholder, after its £1.2m commitment to the September financing. We were also very pleased to receive further investment from our existing institutional shareholders and to attract additional UK and European institutional investment. This has increased the proportion of our Company held by funds to around 17%. While the placing price of 2p must have been very disappointing to our retail investors in particular, the £5 million raised combined with our existing reserves gives us the cash necessary to complete the DFS and EIA studies on Mina do Barroso and maintain activities on our other projects.

I would also like to add my personal thanks to Savannah's management and staff for their continuing efforts to generate significant value in the Company by progressing our projects towards key milestones.

We look forward to delivering on the next commercial milestones in the coming months.

Matthew King

Chairman

Date: 25 September 2019

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 30 JUNE 2019

The notes form part of this Interim Financial Report.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 30 JUNE 2019

The interim financial report was approved by the Board of Directors on 25 September 2019 and was signed on its behalf by:

………………………………………………..

D S Archer

Chief Executive Officer

Company number: 07307107

The notes form part of this Interim Financial Report.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED 30 JUNE 2019

The notes form part of this Interim Financial Report.