Alcyone to raise $5.4m via rights issue

Alcyone Resources has announced plans for a $5.4 million capital raising via a rights issue to fund development at its key Twin Hills silver project in Queensland.

In a statement to the Australian Securities Exchange, Alcyone said the entitlement offer will be made on the basis of 1 new Alcyone ordinary share for every 5 existing Alcyone ordinary shares.

The offer will be fully underwritten by Cygnet Capital, with $2 million sub-underwritten by the company's chairman Charles Morgan.

Alcyone's managing director Andrew King, said the entitlement offer would provide all shareholders with the opportunity to participate in this milestone capital raising as the company makes the transition to production.

"In order to achieve our timetable and be in a position to take advantage of current high silver prices, we needed to move quickly to secure some critical capital equipment items," Mr King said.

"This raising will enable us to do that while maintaining our exploration and development momentum in other areas."

"I would like to take this opportunity to thank our Chairman, Charles Morgan, for his vote of confidence in our assets and management team," Mr King continued.

See company statement below:

Alcyone Resources Limited (ASX: AYN; 'Alcyone' or 'the Company') is pleased to announce a 1-for-5 fully underwritten non-renounceable pro-rata entitlement offer to raise $5.42 million before costs to fund further exploration, key pre-development activities and the acquisition of long-lead items for its Twin Hills Silver Project, part of its 100%-owned Texas Silver and Polymetallic Project in south-east Queensland.

The proceeds of the entitlement offer - which will be fully underwritten by Cygnet Capital with $2 million sub-underwritten by the Company's Chairman, Mr Charles Morgan - will enable Alcyone to secure several critical path items required to ensure a seamless transition to commercial silver production at Twin Hills next year. Specifically, the proceeds will be used to:

order key long-lead items required to upgrade the processing facility and support the resumption of commercial silver production, including a Quad Rolls Crusher, which has been confirmed as the preferred crushing option for a the upgraded processing facility;

fast track parts of the expanded Merrill Crowe Circuit to assist with silver recovery from the previously announced program of trial re-irrigation of the existing silver-rich heaps, targetted to commence before the end of the 2010 calendar year, and expected to generate early cash flow from the Project next year;

commencement of other pre-development and infrastructure activities required to resume commercial operations, including detailed design and preliminary civil works;

complete the re-estimation and upgrade of the Mineral Resource for the Twin Hills and Mt Gunyan deposits following the successful drilling campaign undertaken during 2010. This is expected to be completed before the end of the 2010 calendar year;

fund further drilling and geophysics exploration activities at priority regional exploration targets such as Hornet, where the Company has reported high-grade copper intersections and Silver Spur, which is emerging as an exciting base metals opportunity; and

provide general working capital.

Entitlements Issue

The entitlement offer will be made on the basis of 1 new Alcyone ordinary share for every 5 existing Alcyone ordinary shares held at the record date. The entitlement offer price will be 3.5 cents.

The entitlement offer will be fully underwritten by Cygnet Capital and sub-underwritten to $2 million by the Company's Chairman and existing shareholder, Mr Charles Morgan. Melbourne and Perth-based broking firm Cygnet Capital is Lead Manager.

A prospectus in relation to the Issue is currently being expedited. Key dates and a detailed timetable will be finalised as part of that prospectus and will be announced accordingly.

Economic Review Update

Alcyone has completed key aspects of its economic review as part of a wide-scale re-evaluation of the Twin Hills Mine initiated following the acquisition of the project from former owner, Macmin Silver, in November 2009.

This review indicates that the Project is well placed to generate strong operating margins based on a forecast annual ore processing rate of 1Mtpa, from the Twin Hills Resource. The economic model forecasts an average head grade of approximately 80g/t Ag based on the current JORC Mineral Resources, as detailed in Appendix 1, and assumes an average recovery of 69%. This is considered to be conservative based on the extensive metallurgical testwork undertaken by the Company.

At this production rate, the operation would generate average annual silver production of between 1.5 and 2Moz (with fluctuations from year to year typical of a heap leach project) and have forecast unit cash operating costs of approximately A$13.50/oz.

At current silver prices of A$27/oz, this would translate into a robust operating margin of approximately A$13/oz, enabling the Project to generate strong cash flows.

The total plant capital estimate for re-commissioning the Twin Hills Project is approximately $13 million, comprising around $10 million for the process plant upgrade, ~$2 million for inventory, spares, first fill and commissioning and ~$1 million for remedial works.

The in house economic study, based on independent metallurgical, processing design and mining studies, is considered to have an order of accuracy in the range of +/- 20%. The detailed design work to be undertaken as part of the development and construction phase will further refine these cost estimates.

Alcyone is currently at an advanced stage of discussions with debt providers to determine the optimal structure for raising the balance of the funds required to commence full-scale commercial production.

The amount of final capital required is still to be determined, after taking into account the proceeds of the entitlement offer as well as the cash forecast to be generated by the trial re-irrigation program. Alcyone remains on track to achieve a seamless ramp-up towards commercial silver production during the first half of 2011.

Alcyone's Managing Director, Mr Andrew King, said the entitlement offer would provide all shareholders with the opportunity to participate in this milestone capital raising as the Company makes the transition to production.

"In order to achieve our timetable and be in a position to take advantage of current high silver prices, we needed to move quickly to secure some critical capital equipment items," Mr King said. "This raising will enable us to do that while maintaining our exploration and development momentum in other areas."

"I would like to take this opportunity to thank our Chairman, Charles Morgan, for his vote of confidence in our assets and management team," Mr King continued.