Coal Fe to acquire iron ore, coal projects in W. Sumatra

By Romel S. Gurky

ASX-listed Coal Fe Resources Ltd announced Wednesday that Conditional Sale and Purchase Agreements (CSPA) have been executed for the acquisition of majority shareholdings in two companies owning iron ore and coal projects near Padang, West Sumatra Province.

The company said in a statement that the first CSPA will see Coal Fe acquire a 65 percent interest in PT Mineral Sukses Makmur (MSM). MSM is the sole owner of a producing iron ore concession in Solok, West Sumatra, which is located approximately 80 km from Padang, West Sumatra.

The 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 the company to produce and export product. MSM currently produces 30,000 MT/Month of 62 percent Fe product. It currently supplies this product to PT Krakatau Steel, a leading Indonesian steel company, at a price of US$80/MT. Coal Fe plans to increase production to 60,000 MT/month.

The second CSPA will see Coal Fe acquire a 70 percent interest in PT Tunggal Putra Nusantara (TPN), the sole owner of a high calorie anthracite coal concession in Palin, West Sumatra which was formerly producing 30,000 MT/Month.

The concession is approximately 100 hectares with production currently being sourced from an area of 70 hectares, and is located approximately 10 kms from the jetty for barging. The concession has ceased production at present 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 purchases the product at a premium to current mar ket prices.

Coal Fe is currently in negotiations with a number of offtakers for this premium product, the company said. 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 by Coal Fe, it is intended that operations will recommence with a view to being in production within 2-6 months of shareholder approval. It is expected that the historic production of 300,000 MT per annum will be increased to 500,000 MT per annum. All production and export permits are in place.

Subject to completion of due diligence, and the obtaining of shareholder and any necessary regulatory approvals including under Indonesian mines department regulations, the key terms of the transaction are:
? Coal Fe will acquire a 65 percent interest in PT MSM for consideration comprising cash payments totaling US$6.5 million, being $1 million payable upon shareholder approval and transfer of shares, a further payment of $920,000 per month for 5 months from settlement, with a final payment of $900,000 in month 6;
? Coal Fe will acquire a 70 percent interest PT. TPN for consideration comprising cash payments for past development costs and current exploration license fees, totaling $250,000, plus a royalty of $5 per ton of coal sold;
? For introducing the project to Coal Fe, the company will issue 345 million fully paid ordinary shares at a deemed issue price of $0.01 per share to Managing Director Robert Swarbrick or his nominee. The company will seek approval at a shareholder meeting to issue the shares to Swarbrick within 1 month of the meeting, given he is a related party of the company;
? Coal Fe will also issue 20.7 million fully paid ordinary shares at a deemed issue price of $0.01 in advisory fees to advisers associated with the introduction of the two projects, following shareholders approving the issue;
? Coal Fe proposes to issue 50 million fully paid ordinary shares at an issue price of $0.01 by way of a placement to non-related party, sophisticated investors without disclosure under the Corporations Act, within 3 months of the general meeting.

Completion is subject to satisfactory of a 60 day due diligence period and the obtaining of all necessary shareholder and regulatory approvals. The terms can be extended by mutual consent, Coal Fe said

Editing by Reiner Simanjuntak