Condor Blanco Mines moves ahead with €10 million coal, iron ore funding
Condor Blanco Mines (ASX: CDB)
is moving ahead to securing funding of €10 million to progress mining
of its Marianas magnetite tailings Project in Chile as well as its
proposed acquisition of South African hard coking coal projects.
A desk top review of The Duel hard coking coal project in the Limpopo province of South Africa is nearing completion.
Condor
has entered into a HOA with Hong Kong company Signet Coking Coal
Limited that will see it have the right to acquire a majority stake of
up to 50.3% in The Duel and Tshipise 2 projects held by Signet’s South
African subsidiaries and the Universal Annex Project held by Exotic Coal
Exploration Proprietary Limited.
The acquisition is subject to 60 days technical due diligence and upcoming shareholder approval.
Review of The Duel project
The
review of The Duel is being undertaken by an independent third party
and will confirm geological information on the project.
It is
proceeding in parallel with drafting of a definitive agreement that
could lead to Condor’s acquisition of a majority position in Signet and
its Soutpansberg Coalfield Projects in northern South Africa.
The
four projects that make up Soutpansberg Coalfield of South Africa
consist of five Prospecting Rights (PR) made up of a minimum of six
farms each, most of which are contiguous.
The HOA provides for a
performance triggered option by Condor to progressively acquire
additional equity in the four projects that comprise Signet, with short
term emphasis on the highly prospective The Duel and Tshipise 2
projects.
Use of €10 million for JORC drilling
A
drilling program is planned for The Duel to JORC the resource as well
as a definitive feasibility study (DFS) program for The Duel is expected
to be funded by Condor with costs expected to range from €10 million.
The drilling and resource definition program will be run in parallel and are expected to be completed by November 2014.
Condor
will then be able to continue with acquisition of additional interest
in Signet subject to the terms of the Definitive Agreement.
Independent Geologist's Report
South African geologist PC Meyers has provided a "highly encouraging" initial Project Exploration Report on The Duel.
In
the report it is stated: “Signet Coking Coal International Ltd, hold
potentially multiple HCC projects within the southern and northern
Tshipise sectors of the Soutpansberg Coalfield (DUEL and TSHIPISE 2
Projects).
"With the confirmation of the coking coal analysis
from THE DUEL project, tied with the addition of the large amount of
publicly released information from Coal of Africa Limited (Makhado, Makhado Extension (farms Grey and Telema) and Mount
Stuart projects), the presence of premium hard coking coal in this
particular sector is at its highest level.”
The report
concludes: “The DUEL project could easily supply the majority of South
Africa’s (current) imported hard coking coal quota (between 3 to
4mtpa).”
Coal Quality
Further initial
data from the Coking Coal Quality Analysis carried out on The Duel coal
collected from the previous drilling has revealed multiple fractions
that would be classed as Hard Coking Coal, exhibiting excellent
characteristics.
Potential Ash products were then calculated
from the washability data. By way of comparison, The Duel coal compares
favourably through testing at The Duel against other global Hard Coking
Coal projects.
Coal Products
Based
on available data, The Duel project could produce two products, one a
primary high-grade coking coal and the other a secondary high-grade
thermal coal.
The ability to produce a high-grade thermal coal
as a middling product heavily reduces operating costs and expenditure,
increasing the primary product margin.
The coal washability has
shown exceptionally high yields compared to rival projects within the
coalfield and other various coking coal indicators, such as the maximum
fluidity, highlight this coal as potentially rivalling any other African
or comparative global coking coals.
Black Economic Empowerment
In
South Africa, every company holding rights under the Mineral and
Petroleum Resources Development Act (MPRD Act) is required to have a
minimum of 26% Black Economic Empowerment (BEE) shareholding.
Both of Signet’s South African subsidiaries, Subiflex Proprietary
Limited and Exotic Coal Exploration Proprietary Limited, comply with the
requirements of the MPRD Act in that BEE shareholders hold 26% of the
issued share capital of both companies.
Significantly, the BEE
shareholders of both subsidiary companies are members of the royal
families in the regions where the rights have been granted. The
involvement of these local landowners provides a strong BEE supporter
who will usefully assist in the approvals and permitting of the projects
over time.
€10m Debt Facility
The
facility is a five year limited recourse loan of €10m to allow
completion of undertakings under the Signet HOA as well as to develop
the Marianas Magnetite Tailings Project in Copiapo, Chile.
The
loan documents provide for an approximately 15% average interest rate
for the term of the loan with the ability to repay it earlier at
Condor’s discretion.
Condor said it has sought a debt facility as
it believes any form of equity participation in the Signet HCC projects
would lead to lower valuations of the project compared to what will be
obtained once the DFS is completed.
Condor also wishes to
quickly progress with these important opportunities that would otherwise
be severely limited due to challenging conditions in Australian and
global small caps equity markets.
Condor chairman, Dr Paul Crosio, commented:
“By funding the Marianas and Signet Hard Coking Coal initiatives
through debt we can maintain our company structure as well as preserve
the ability to capitalise on the re-evaluation of The Duel and other
Signet assets once we have completed DFS.
"It is our intention to make it a priority to repay this debt through a trade sale or joint venture on The Duel project when we believe the optimal value of the project has been realised.
If
we went to the equity market at this stage there would inevitably be
minimal or no allowance for this future upside potential of Signet.
Similarly, with cash in the bank, our position on Marianas is improved
and we can take a more aggressive position on joint venture operator
negotiations or, if required, even operate it in our own capacity.”
Analysis
The acquisition of the South African coal projects ups the ante considerably for Condor Blanco in terms of company profile as well as a potential "game changer" in terms of market cap. The funding facility to progress Marianas iron ore tailings project into production in Chile provides potential for cash flows to climb given the low cost, likely high IRR of the project.
The South African coal projects appear to be highly prospective with a stated strategy to either bring in a JV partner or to add value before a trade sale - which is prudent as well as another share price driver.
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