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http://www.coalguru.com/universal_coal_closer_to_kangala_cash_flow_with_65pct_project_financing_secured/3628

Universal Coal closer to Kangala cash flow with 65pct project financing secured

Proactive Investors reported that Universal Coal has demonstrated the strength of its Kangala thermal coal project and the Eskom off take contract securing 65% project financing from South Africa FirstRand Bank.

The project finance mandate for ZAR 270 million with FirstRand Rand Merchant Bank division is noteworthy as the company had previously expected Kangala to be funded on a 50% debt and 50% equity basis.

It also includes a Master Finance Deed for future Universal projects that will allow their project financing needs to be added with greater simplicity. The 6.5 year project finance facility will be based in South African Rand given the Rand based off take agreement with Eskom.

Mr Anthony Ward Universal head of commercial and corporate affairs said "As we transition from an explorer and developer of coal projects to a producer having a proactive bank working with us at multiple levels is important and with RMB track record, we look forward to a long term relationship with the RMB Group."

He said that "The funding package being applied at a Group level will also benefit Universal in bringing our other projects in the future into production with the support of one bank with core terms agreed and in place."

Mr Henk Deist RMB head of resource finance said the strength of the company off take contract with Eskom allowed the bank to put forward a competitive finance proposition that will help it put Kangala into production quickly.

With the project finance being progressed to the mandate stage, Universal has been able to firm up its equity needs and a process is well underway for the raising of the balance of funds required.

This process is expected to be complete in line with the availability of the project finance in early November 2012. Universal remains confident given the advance stage of the securing of debt, that the now reduced equity contribution will be able to be finalized in the near term.

Universal currently holds AUD 8.5 million in cash and is still to draw AUD 5 million from the converting note held with Susquehanna Pacific. It is also advancing discussions with Hong Kong investor Ning Yat Hoi Power Origin Developments BVI for their completion of the AUD 10 million private placement agreements.

The total additional capital required to bring this project into production is about A50m at current exchange rates.

1. Kangala project

Optimization of the Bankable Feasibility Study by Stefanutti Stocks Mining Services had confirmed that saleable coal tonnages averaging 2.1 million tonnes per annum will be achieved from a planned 2.4 million tonnes per annum run-of-mine production rate over the life of the mine.

The initial pit will deliver an eight year mine life from a defined and proven reserve of 19.5 million tonnes. Adjacent properties held by Universal hold another 65Mt of Indicated and Inferred Resources with a pending update to JORC Measured status expected soon increasing the projected life of mine for Kangala to well in excess of 16 years at BFS production levels.

Kangala will be an open pit operation with a 1.7:1 stripping ratio which allows for a low average life of mine operating cost of less than AUD 13.50 per run of mine tonne. All approvals are in place and first coal is expected in late 2013.

2. Eskom Off Take agreement

About 2 million tonnes per annum of coal from Kangala will be sold to major South African power utility Eskom under an initial eight year fixed price contract that includes inflation and variable cost pass through.

This is expected to deliver annual EBITDA of AUD 15 million.

The contract may be renewed for another eight years once the resources in Universal's adjacent tenements becomes available.

Source - Proactive Investors