(MENAFN- ProactiveInvestors - Australia) Xceed Resources (ASX: XCD) has executed agreements governing the investment by Thebe Mining Resources (TMR) to become a cornerstone investor in the Moabsvelden thermal coal project.
The investment is for ZAR65 million (around A$7.5 million) into the Moabsvelden project company.
Ian Culbert, managing director of Xceed, commented: "We are delighted to have moved another step forward in what we are sure will be an enjoyable and rewarding partnership with TMR."
Xceed and TMR continue to work through a process whereby a further ZAR 25 million may be invested by TMR directly into Xceed.
The Moabsvelden project is a 100% open cast project with an average strip ratio of less than 2:1 and a combined 18 metre coal seam, and is located in the Witbank coal fields of South Africa, around 80 kilometres east from Johannesburg.
The project is forecast to produce 666,000 tonnes export quality product (26Mj) and 890,000 tonnes of domestic product (20Mj) per annum for over 15 years.
A positive differentiating factor for the project is that it is free of infrastructure constraints - as all coal sales priced at the mine gate.
Xceed also continues to progress project finance negotiations, and has short listed Standard Bank and Rand Merchant Bank, both South African banks, to consider providing the finance to develop the Moabsvelden thermal coal project.
Xceed said that it is continuing to work with the banks to enable them to submit final credit approved offers of project finance.
The executed agreements
The agreements that have been executed comprise a Subscription Agreement, an Escrow Agreement and a Share Repurchase Agreement pursuant to which the Moabsvelden project company.
Neosho Trading 86 (Pty) Ltd (Neosho) shall repurchase the 26% equity interest held in Neosho by the Founding Shareholders and TMR shall acquire a 30% equity interest in Neosho resulting in the dilution of Xceed's equity interest in Neosho from 74% to 70%.
The Agreements are subject to a number of conditions, including: the obtaining of credit approved finance from a bank and the granting of a mining right. TMR is working closely with Xceed and satisfactory progress is being made in relation to the satisfaction of these conditions.
TMR's investment funds of ZAR 65 million are to be placed into an escrow account and will be released to Neosho once the various conditions precedent have been satisfied.
Analysis
The formalisation of the agreement with Thebe Mining is significant for Xceed, as it brings the company another step closer to its goal of bringing Moabsvelden into production in 2013 - and importantly the project is on track to meet this target.
A major plus for Moabsvelden is that it is free of infrastructure constraints with all coal sales priced at the mine gate, with the project forecast to produce 666,000 tonnes export quality product (26Mj) and 890,000 tonnes of domestic product (20Mj) per annum for over 15 years.
The transaction values Moabsvelden at $25 million at its current stage, Xceed shareholders will own the remaining 70% ($17.5 million).
Considering that Xceed had over $6.5 million in cash at the end of September 2012, the $10 million market cap. for Xceed is slight.
(The $10 million market cap. based on the issued capital and shares due to come out of escrow in or around 2013).
Further highlighting the current share price disconnect, the Roodepoort and Bankfontein projects represent add-on exploration opportunities not currently requiring significant capital or management time. Bankfontein is only 35 kilometres from the Richards Bay coal line, in a well-established area.
Xceed is likely to receive a positive re-rating as production from Moabsvelden nears.
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