IchorCoal has proposed strategic investment of R244 million (A$24.5 million) which will accelerate growth plans including the development of Universal Coal’s second operating asset, New Clydesdale colliery.
The funds raised will complete the financing for Universal Coal’s acquisition of the colliery from Exxaro Coal Mpumalanga, part-fund the development of the Roodekop project in conjunction with the New Clydesdale colliery and, in respect of any balance, to fund general working capital and implement further acquisition opportunities as they arise.
Universal Coal’s CEO, Tony Weber commented: “Despite tough market conditions for coal and raising capital, IchorCoal’s investment highlights the quality and tremendous growth potential of our assets. We are pleased to have IchorCoal as a cornerstone investor, especially given their experience and expertise within the South African and international coal markets.
“The investment represents another significant milestone for the company, and comes on the back of our first operation at Kangala achieving steady-state production and generating strong positive cash-flows further augmented by commencing export sales.
“We are now positioned to finalise the acquisition of NCC and expedite its development with Roodekop. Together with the Kangala operation, this investment is expected to elevate total group production and coal sales significantly. In addition, the recent granting of the mining right on our proposed third mine at Brakfontein and excess capacity at Kangala could lead to further significant production growth in the near term.”
Proposed strategic investment
IchorCoal is an internationally operating mineral resource company listed on XETRA and the Frankfurt Stock Exchange in Germany that specialises in investments in coal production in South Africa.
With a market capitalisation of approximately A$350 million, IchorCoal holds substantial equity positions in several coal mining companies with attributable coal resources of approximately 350 million mineable tons of coal and fully funded capacity expansion initiatives that will increase production to 6.1Mtpa within the next 2 years.
IchorCoal’s portfolio of assets include a substantial shareholding in the Eloff project immediately south of and contiguous to Universal Coal’s Kangala operation, the Welstand project, immediately south of Universal Coal’s proposed the New Clydesdale colliery Roodekop operation and the Usutu and Welgemeend Collieries in the Ermelo Coalfields. All of these projects have granted mining rights, and the development of Eloff has commenced with first coal production anticipated for Q1 2015.
Universal Coal has agreed a funding package with each of IchorCoal and major shareholder Coal Development Holding which includes a subscription agreement with IchorCoal, pursuant and subject to the approval of Universal Coal’s shareholders, which would result in IchorCoal making a strategic investment of approximately A$24.5 million.
The New Clydesdale colliery – fast track to Universal Coal’s second operation
Universal Coal entered into a binding asset sale agreement with Exxaro for the acquisition of the New Clydesdale colliery in February this year. Combining NCC with Universal Coal’s adjoining Roodekop project will enable the Company to fast track development of its second operation.
Under the Asset Sale Agreement, Universal Coal Development VIII Proprietary Limited will acquire the New Clydesdale colliery for a total consideration of ZAR170m (approximately A$17 million), subject to certain purchase price adjustments. Universal Coal, through a related group company, will guarantee the obligations of NCC Co under the Asset Sale Agreement.
NCC Co is held 49% by Universal Coal and 51% by Universal Coal’s Black Economic Empowerment partner, Ndalamo Resources.
Funds raised from the funding package with IchorCoal and CDH have been set aside for the acquisition of the New Clydesdale colliery, funding Ndalamo’s interest in the New Clydesdale colliery, recapitalisation of the existing mine at NCC, and the opening of the Roodekop open pit for processing at the New Clydesdale colliery.
The funds raised through the IchorCoal and CDH investment, together with debt funding will enable the full development of the NCC Roodekop mine complex to commence.
On the path to becoming a mid-tier coal producer
The Transaction brings Universal Coal one step closer to the realisation of becoming a mid-tier coal producer. Together with the Kangala operation, the development of NCC Roodekop is expected to significantly elevate Universal Coal’s production in the short term. The recently announced increase in processing capacity at Kangala together with the granting of the mining right at nearby Brakfontein presents a further short-term production and value growth opportunity.
Universal Coal’s transition from explorer to mid-size coal producer is gaining momentum and positions the Company to realise further acquisitions in the context of potential consolidation in the industry. The Company continues to actively pursue other value-accretion opportunities.
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