Coal Fe obtains shareholder approval for acquisition of W. Sumatra assets

By Romel S. Gurky

ASX-listed Coal Fe Resources Limited announced Monday it has obtained shareholders? approval for the acquisition of two mining assets in West Sumatra.

The company reiterated in a statement that it would acquire a 90 percent stake in PT Mineral Sukses Makmur (MSM), which owns iron ore concession in Solok Regency for US$2.5 million plus $5 per ton royalty, and 70 percent stake in PT Tunggal Putra Nusantara (TPN) in Palin Regency for $250,000 plus $5 per ton in royalty.

The last date for completion of this acquisition is 7 business days (in Jakarta, Indonesia) after 20 December 2014, if all the conditions have been satisfied to allow completion to occur, the statement said.

The statement provided the following brief details about the two West Sumatra mining assets and the planned transaction.

The MSM iron ore concession is approximately 74 hectares with current production coming from a 3 hectare area, with further drilling required to define additional mineralization on the remaining area. MSM currently holds all valid export permits, producing licenses and a smelter permit, which allows MSM to produce and export product.

There is limited information available about past production however based on the company?s due diligence enquiries, the company is satisfied that MSM currently produces 62 percent Fe product, which is currently supplied to Krakatau Steel, a leading Indonesian steel company at a price of U S$80/MT.

The mined iron ore is transported by road truck to stockpiles located 40 kilometers south of the mine site where it is crushed and there is a small smelter located there also.

From there the iron ore is road trucked approximately 40 kilometers to another stockpile close to Taluk Beyer Port, Padang. It is then loaded at the port onto a barge and shipped CFR West Java for Krakatau Steel.

The last date for completion of this acquisition is 7 business days (in Jakarta, Indonesia) after 20 December 2014, if all the conditions have been satisfied to allow completion to occur

Meanwhile, TPN is the sole owner of a high calorie anthracite coal concession in Palin, West Sumatra.

The concession is approximately 100 hectares with production sourced from an area of 70 hectares, and is located approximately 10 kilometers from a jetty for barging. There is limited information available about past production however based on the company?s due diligence enquiries, the company is satisfied that the concession ceased production due to TPN having insufficient working capital to maintain the ongoing running of the mine.

The concession is close to infrastructure and has a current contract with a leading Indonesian cement factory which provides for the purchase of the product at a premium to current market prices.

The company in its capacity as a majority shareholder in TPN intends to procure that TPN installs a wash process to improve the economics of the project. This will involve some expenditure by TPN.

However it is anticipated that the proceeds of resumed production will adequately justify TPN incurring this expenditure.

Coal Fe is currently in negotiations with potential offtake parties for this premium product. The coal previously produced and sold is a highly desirable anthracite coal with product specifications as follows:
Calorific Value (kcal / kg): 7,200 K Cal/Kg (air dried basis)
Total Moisture (%): 4.96 (air dried basis)
Ash (%): 8.43 (air dried basis)
Total Sulphur: 2.21 (air dried basis)

Following acquisition of a 70 percent shareholding in TPN by Coal Fe, it is intended that operations will recommence with a view to being in production within 2-6 months of shareholder approval. All production and export permits are in place.

Coal Fe will acquire a 70 percent shareholding in TPN for consideration comprising cash payments for past development costs and current exploration license fees, totaling Rp1.5 billion, which equates to approximately US$150,000. This payment was reduced from Rp 2.5 billion under the terms of the original agreement executed in May 2014. Coal Fe has agreed to pay an additional Rp 1 billion after completion of the acquisition of the shareholdings if the company?s survey shows that the coal reserve exceeds 150,000 metric tons in the mining area which is the subject of Production Operation Mining Business Licence issued by the Regent of Pesisir Selatan on 4 November 2009 number 516/477/Kpts/BPT-PS/2009 (IUP Operasi Produksi), owned by TPN.

In addition the company has agreed that TPN will pay a royalty comprising $5 per metric ton to one of the TPN Sellers, Mr Julis by procuring that TPN will enter into a royalty agreement at completion.

The material terms of the royalty agreement to be entered into on the completion date are as follows:
? TPN is under no obligation to explore, develop or mine the royalty area and retains sole discretion over its activities in that regard;
? The payment of royalty shall be made within 30 days as of the disbursement of Letter of Credit of the coal sale price acceptance.
? TPN has a right of first refusal should the royalty holder wish to assign its royalty rights and any encumbrance granted by the royalty holder over the royalty right is not effective until the party with the benefit of the encumbrance such as a lender, has agreed that its encumbrance will be subject to the royalty agreement terms; and
? Confidentiality provisions apply

Editing by Reiner Simanjuntak