US Bank Backs Aussie Miner Universal Coal
South Africa-focused miner Universal Coal is set to cheer investors
with a double dose of good news.
The ASX-listed company is close to securing a 12 million Australian
dollar (US$12.4 million) loan facility with U.S. bank Susquehanna
that will give it ammunition to advance its Kangala and
Berenice-Cygnus coal assets, a person familiar with the matter told
Deal Journal Australia.
The financing agreement, which could be announced as soon as today,
comes as Universal Coal finalizes a contract with South Africa’s
state-run power generator Eskom to supply thermal coal from its
Kangala project, located around 65 kilometers from Johannesburg,
the person said.
Universal Coal is among a handful of ASX-listed mining companies
racing to develop projects in South Africa to take advantage of
Asian and European demand for steelmaking and thermal coal, as well
as rising consumption by domestic power plants. In a statement
March 12, Zyl said it has begun talks with global mining houses and
commodity traders prepared to help fund the development of its
Kangwane and Mbila coal projects in South Africa in exchange for
offtake rights.
South Africa’s advantages include port and rail infrastructure that
is relatively under-utilized compared with rival coal suppliers
such as Australia, and a shorter period of time to secure
permitting to build a mine. But investors also need to shoulder
substantial risk, including rising mining costs and an ongoing
debate within South Africa’s ruling African National Congress party
about the possible nationalization of the mining industry.
The person said Lititz, Pa.-based Susquehanna approached Universal
Coal about financing earlier this year, and the A$12 million
facility is due to be drawn down in May.
Under the terms of the deal, Susquehanna will be able to convert
the debt into equity in phases when key milestones are hit,
starting from 2013. This strike price is at around a 30% premium to
Universal Coal’s closing price of 20.5 Australian cents a share on
the ASX Thursday before trading was halted in the stock.
The milestones include the finalization of Universal Coal’s
agreement to supply around 2.2 million tons of thermal coal to
Eskom annually, the turning of the first soil at Kangala and
initial coal production from Kangala, the person said.
To reduce the overhang on Universal Coal’s stock, Susquehanna will
be limited to converting only a small percentage of the loan into
equity every month, and it has agreed not to acquire more than
19.9% of the shares on issue, the person added.
Kangala will cost an estimated A$60 million dollars to develop and
has an initial mine life of 8 years. The supply agreement with
Eskom, likely to be struck at a fixed price with adjustments for
inflation, covers the entire life of the mine.
Universal Coal also owns two adjacent properties to Kangala that
could be developed to extend the mine life beyond 8 years, or
increase production. Eskom will likely have the right of first
refusal to take that additional coal.
Developing Kangala will enable Universal Coal to earn revenue while
it advances the larger Berenice-Cygnus project, located in Limpopo
province on South Africa’s border with Mozambique.
Berenice-Cygnus has a gross resource of at least 1.3 billion tons
of soft coking coal suitable for blending. It is 30 kilometers from
a railway siding linked to the ports of Maputo in Mozambique and
South Africa’s Richards Bay, the world’s largest coal terminal.
On March 1, Universal Coal began the second phase of a drilling
campaign at Berenice-Cygnus aiming to sink 100 holes over a
two-month period to define the resource better. The company will
increase its interest in Berenice-Cygnus to 50% at the end of the
drilling campaign, which will also unlock the right to acquire a
further 24.5% from its black empowerment partner.
Universal Coal chairman Tony Harwood said previously that
Berenice-Cygnus has the potential to become a mining operation
capable of producing between 10 million and 15 million tons of
coking coal by 2015.
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