London-listed Ormonde has announced that it will sell its interest in the Barruecopardo joint venture (JV), after the tungsten project, in Salamanca, Spain, encountered “significant” setbacks during its ramp up.

The company entered into a conditional sale and purchase agreement for the disposal of its 30% interest in Barruecopardo JV to Oaktree Capital Management for a total net cash consideration of €6-million.

Oaktree is the 70% majority owner and 100% debt provider of the JV.

The share price of Ireland-headquartered Ormonde dropped by 65.40% to 0.86p a share by 13:15 in London.

"While the disposal of Ormonde's interest in the Barruecopardo mine will be a disappointment for many shareholders, the mine has encountered significant setbacks during its ramp-up operations,” Ormonde chairperson and interim MD Mike Donoghue said in a statement on Wednesday.

The company explained that low initial ore grades and delays to accessing the main orebody had resulted in overall mine production and related revenues being substantially lower than the 2012 feasibility study forecast for the current stage of ramp-up, which, when coupled with accelerated waste mining and the related increase in mining costs, had led to additional funding requirements for the mine.

In October, additional debt financing of €10-million was announced, with initial draws on this facility increasing debt levels in the Barruecopardo JV to €58.8-million.

A proposed 2020 budget for the mine's continued operations, based on updated mine plans, foresees a further cash shortfall by the end of February or during March 2020, and an additional funding requirement, which is currently estimated to be in the region of €12-million to €15-million.

The new funding requirement is set against a backdrop of weak tungsten prices, with benchmark prices of ammonium paratungstate currently quoted at $235 a metric tonne unit (mtu) to $245/mtu, compared with the $350/mtu price used in the 2012 feasibility study.

Ormonde shareholders have to approve the disposal at an extraordinary general meeting, to be held on February 12.

“The Ormonde board of directors considers a cash exit from the company's minority interest at this time to be in the best interest of Ormonde shareholders under current circumstances and intends to unanimously recommend the disposal to shareholders.”

Ormonde cautioned that, should the disposal not take place, the Spanish company operating the JV could become in default under the terms of its debt financing by Oaktree.