Ascot Resources attracts new funds from Resource Capital Fund V
Ascot Resources (ASX: AZQ) is raising $400,000 through a term sheet with existing cornerstone investor, Resource Capital Fund V and is expanding the footprint of its Titiribi Coal Project in Colombia.
It has also successfully renegotiated key terms of the Titiribi Joint Venture Agreement, making it materially more favourable.
The company is acquiring three additional concessions north and south of the Titiribi Coal Project in Colombia that could increase coal resources.
The new concessions cover 503 hectares, representing a 250% increase in Ascot’s current land holding.
Total consideration of the acquisition is US$50,000, payment of which will be made over the coming week.
“The
acquisition of the additional concessions located along strike
represents a critical milestone in the company’s plans for the Titiribi
Project,” executive chairman Andrew Caruso said.
“The potential
for a significant and material uplift in overall mineralisation will
lift both the profile and underlying value of the Project, translating
into increased shareholder value.”
He added the revised joint
venture terms will support the and its Carbones de Titiribi Joint
Venture’s (CdTJV) ability to achieve a higher value, near-term
production solution for the Titiribi Project.
“These achievements
are a reflection of Ascot’s commitment to the Titiribi Project, and
provide affirmation of the Company’s vision to grow its Colombian coal
business.”
Ascot continues to progress negotiations with parties interested in funding and developing the Project, the finalisation of which remains a key priority.
Term Sheet
The company has entered into a
term sheet with existing cornerstone investor, Resource Capital Fund V
L.P. (RCF V), for the issue of a 17-month unsecured loan note raising
$400,000.
Funds raised under the Note will be directed towards
funding the Company’s 2014 operations and for general corporate and
working capital purposes.
The Note is to be convertible at RCF
V’s election into fully paid ordinary shares in the company at a
conversion price of $0.06 per share, which represents a 9.5% premium to
the 10 day volume weighted average price of Ascot shares prior to 13
December 2013.
Ascot has undertaken to obtain requisite
shareholder approvals to enable conversion within 3 months of the issue
of the Note, otherwise the Note becomes immediately repayable.
The Company has the ability to redeem the Note on or after 9 May 2014 by giving the requisite notice to RCF V.
The
Note carries a coupon rate of 14% per annum, payable quarterly in
arrears. At the Company’s election, interest may be paid in the form of
AZQ shares, cash or a combination of cash and shares, with any shares
issued being priced at a 5% discount to prevailing market prices.
New Concessions
The
Arrayanal, Floresta, Arbolitos and Rio Amaga concessions previously
formed part of two larger concession applications and, following recent
conversion to title, are in the process of being transferred into the
CdTJV.
The concessions are known to contain the Amaga coal formation, which is expected to be host to all the economic coal.
Effective transfer is expected to occur during the second quarter of 2014.
Analysis
of geological mapping and non-invasive geophysical exploration work
reflects potential for sizeable mineralisation in the Arrayanal
concession alone, suggesting the new areas collectively present a
significant opportunity to increase the resource estimate as well as
underlying value and investment return for the Project.
Ascot’s current base case modelling does not take into consideration any of this upside.
Following
effective transfer of the concessions, the CdTJV will seek to expedite
exploration work within Arrayanal with the goal of increasing the
existing project resource estimate and update the Pre-Feasibility Study
by the first half of 2014.
In parallel with the exploration work,
the CdTJV plans to finalise submissions necessary for mining and
environmental approvals, both of which are currently being planned and
drafted by Ascot’s team in Colombia.
Joint Venture Changes
Ascot
has successfully renegotiated key terms of the Titiribi Joint Venture
Agreement, making it materially more favourable and reflecting its
intentions to ensure it is conducive to its achieving production
objectives once final studies are completed and approvals and funding
are in place.
Major changes include:
- A US$700,000 reduction in payments due at initial commercial exploitation to US$300,000;
- Simplified JORC-linked Resource production royalty of US$0.90 per tonne;
- Removal of the JORC Reserve linked payment structure; and
-
Removal of the dilution clause which provided for the possible increase
in the JV partner’s interest, ensuring Ascot’s share of the Joint
Venture will remain at 90%.
Titiribi Coal Project
The
Titiribi coal project in Colombi is located close to existing
infrastructure, being just 2 kilometres to major highways which provides
a means to export product from Turbo or Port Buenaventura (350km and
450km from the project respectively).
It has a total Measured, Indicated and Inferred Resource of 8.1 million tonnes.
Based
on the Measured and Indicated components, the Pre-Feasibility Study
highlights the potential for a starter mine with minimum 5 year
Life-of-Mine (LOM) based on production rate of up to 400,000tpa.
This
outlined some impressive metrics including an initial start-up capital
of just US$7.8 million, with a low average cash operating cost of
US$44/t at mine gate (US$84/t FOB port).
The outcomes were based
on a blended metallurgical coking coal product with low ash, ultra-low
phosphorus, medium volatiles and Free Swell Indexes (FSIs) averaging
6.7.
Analysis
Securing the additional concessions has the potential to add to resources at Ascot Resource’s Titiribi Coal Project.
Proving this will be immediately value accretive for the company, adding as it does to underlying value of the project.
This
is reinforced by the more attractive joint venture terms that not only
makes the agreement materially more favourable – given the lower
payments, but also streamlines it with the simplified JORC-linked
Resource production royalty and removal of the dilution clause.
To
top it off, existing cornerstone investor Resource Capital Fund V, will
be providing $400,000 in funding to progress the company’s operations
and for working capital.
This highlights the attractiveness of the Titiribi Coal Project.
Share price catalysts ahead include:
- Results from planned exploration at the new Arrayanal concession;
- Updated project Resource estimate;
- Updated Pre-Feasibility Study conclusions by the first half of 2014.
