Coalcorp announces sale of mining assets

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TORONTO, Jan. 7 /CNW/ - Coalcorp Mining Inc. ("Coalcorp" or the "Corporation") (TSX-CCJ) announces that it has entered into agreements to sell the La Francia mine and related infrastructure assets (the "La Francia I Assets") and all of the issued and outstanding shares (the "Adromi Shares") of Adromi Capital Corp. ("Adromi"), the holder of the La Francia II concession, to a subsidiary of the Goldman Sachs Group ("Goldman Sachs"). The cash consideration for the La Francia I Assets is USD$100 million and the cash consideration for the Adromi Shares is USD$51 million.

As part of the La Francia I Assets, Compania Carbones del Cesar ("CDC"), the indirect wholly owned Colombian subsidiary of Coalcorp that owns the La Francia I Assets, will assign to the purchaser a coal supply agreement providing for the sale of 2.4 million metric tonnes of coal (the "Coal Contract"). At this time, the mark-to-market value of the Coal Contract based on prevailing coal prices (which are subject to fluctuation), is estimated to be approximately USD$50 million in favour of the purchaser under the Coal Contract, which amount represents an existing off-balance sheet liability of Coalcorp being assumed by the purchaser.

The disposition of the La Francia I Assets (including the assignment and novation of the Coal Contract) and the Adromi Shares is referred to in this press release as the "Proposed Transaction". Including the cash consideration for the purchase price and the current estimated value arising from the assignment of the Coal Contract, the approximate total value of the Proposed Transaction is USD$200 million.

The completion of the Proposed Transaction is subject to certain conditions, including the receipt of required Colombian regulatory and environmental approvals, approval by the shareholders of Coalcorp, Coalcorp making offers to repurchase the Corporation's outstanding USD$115 million 12% senior secured notes (the "Senior Notes") in accordance with their terms (as more fully described below) and the satisfaction of certain other closing conditions.

The Proposed Transaction follows the strategic alternatives review process that was announced by Coalcorp on August 14, 2009 to consider and evaluate various strategic alternatives involving Coalcorp and/or its affiliates, including but not limited to, the possible sale of the La Francia mine and associated infrastructure assets and other potential corporate transactions (the "Strategic Alternatives Review"). As a result of the Strategic Alternatives Review and following discussions with various interested parties and after careful consideration of different strategic and commercial proposals received by Coalcorp, Coalcorp agreed to enter into the Proposed Transaction.

As previously announced, the Board established a special committee of independent directors to oversee the Strategic Alternatives Review and make recommendations to the Board (the "Special Committee"). The Special Committee was composed of Richard Lister, Chairman, Bruce Barraclough and Charles Entrekin, each of whom was independent of Coalcorp's management and its significant shareholder.

The Special Committee has reviewed the terms of the Proposed Transaction and has received a fairness opinion from Paradigm Capital Inc. stating that the consideration received for the sale of the La Francia I Assets and the consideration received for the sale of the Adromi Shares, are both fair from a financial point of view. The Special Committee, based upon the fairness opinion and their own investigations, recommended that the Board approve the Proposed Transaction. The Board has considered the Proposed Transaction and, based upon their own investigations (including their consideration of the fairness opinion) and the recommendation of the Special Committee, has unanimously approved the Proposed Transaction. The Board believes that the Proposed Transaction is in the best interest of the Corporation and its stakeholders, including the holders of Senior Notes and its shareholders, and will be recommending that shareholders vote in favour of the Proposed Transaction.

"We believe that among the different proposals and options available to the Corporation and based on the Corporation's current financial position, the Proposed Transaction offers the best alternative, at this time, for maximising the value of the Corporation's assets upon terms and conditions acceptable to the Corporation", said Richard Lister, Chairman of the Board and Chairman of the Special Committee.

A special meeting of the Corporation's shareholders to consider and to approve the Proposed Transaction is expected to be held in early February, 2010 (the "Special Meeting") and the closing of the Proposed Transaction is expected to occur in February, once all conditions to closing are satisfied. The Proposed Transaction is subject to approval by shareholders holding not less than 66 and 2/3rds of the votes cast at the Special Meeting. A management information circular describing the background to, and terms of the Proposed Transaction will be mailed to shareholders in advance of the Special Meeting. The management information circular and agreements governing the Proposed Transaction will also be made available on the System for Electronic Document Analysis and Retrieval (SEDAR) at www.sedar.com.

The Corporation's largest shareholder, Pala Investments Holdings Limited, which holds approximately 44% of Coalcorp's outstanding shares, has entered into a support agreement with the purchaser agreeing to vote its shares in favour of the Proposed Transaction at the Special Meeting.

Under the terms of the Purchase Agreements, Coalcorp has agreed to pay a break-fee in the amount of USD$5,250,000 (representing approximately 3.5% of the purchase price), in the event that it terminates the Purchase Agreement under certain circumstances.

    
    Bridge Financing
    ----------------
    

The Corporation has also entered into a credit agreement with Goldman Sachs in the amount of USD$5 million to fund certain working capital and capital expenditure obligations of Coalcorp until the closing date of the Proposed Transaction. Any amount owing under the credit agreement will be deducted from the Purchase Price upon closing of the Proposed Transaction. If the Proposed Transaction is terminated, then the amounts owing under the credit agreement will immediately become due and payable. The credit agreement contains customary terms and conditions and will be secured by a pledge of the shares of Adromi in favour of the lender. Pending closing of the Proposed Transaction, the obligations owing to the purchaser under the Coal Contract will also be secured by the pledge of Adromi Shares.

    
    Coal Contract Amendments
    ------------------------
    

In connection with the Proposed Transaction, the terms of the Coal Contract have been amended to grant CDC access to the sea port operated by Carbosan Ltda. at Santa Marta, Colombia, commencing on January 1, 2010 to April 30, 2010, subject to extension.

    
    CMC Amendments
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Also in connection with the Proposed Transaction, the Corporation will be amending the terms of its agreement with its mining contractor, Consorcio Minero del Cesar ("CMC") (the "CMC Amendments"). Under the CMC Amendments, CMC will agree to reduce the production of waste from 1.7 million BCMs per month to 900,000 BCMs per month, which will result in overall reduced production of coal from approximately 250,000 tonnes per month to 125,000 tonnes of coal per month, to continue for the period from November, 2009 to December, 2010. Production will resume to 1.7 million BCMs per month and 250,000 tonnes per month as of January 1, 2011.

In exchange for CMC's reduction of coal production during this period, Coalcorp has agreed to pay certain standby costs, which will be reimbursed, of approximately USD$8.5 million to CMC relating to equipment lease and insurance payments and Coalcorp has agreed to make a contribution of USD$1 million for CMC to implement voluntary retirement packages for 120 of CMC's employees.

    
    Senior Notes
    ------------
    

Pursuant to the terms of the Note Indenture governing the Senior Notes, Coalcorp is required to use the net available cash from the sale of the CDC Assets to repurchase the outstanding Senior Notes at the required 102% premium (plus any accrued interest) in accordance with the terms of the Note Indenture (the "Restricted Asset Transfer Offer"). The Corporation expects the net available cash to be available for the Restricted Asset Transfer Offer to equal approximately USD$99.0 million. If more than such amount of Senior Notes tender to the Restricted Asset Transfer Offer, the Senior Notes will be purchased on a pro rata basis in accordance with the terms of the Note Indenture.

Concurrently with the Restricted Asset Transfer Offer, the Corporation has also agreed to repurchase all remaining outstanding Senior Notes for 100% of the principal amount (plus any accrued interest) (the "Remaining Note Offer"). Both the Restricted Asset Transfer Offer and Remaining Note Offer (collectively, the "Note Offers") will be conditional upon the completion of the Proposed Transaction and will be completed upon the closing of the Proposed Transaction. The terms and conditions of the Restricted Asset Transfer Offer and Remaining Note Offer will be mailed out to holders of the Senior Notes in January.

    
    Coalcorp Following Closing of the Proposed Transaction
    ------------------------------------------------------
    

Upon completion of the Proposed Transaction and after making the Note Offers and making payment in connection therewith (assuming all Senior Notes tender to the Note Offers), Coalcorp expects to have unrestricted and restricted cash proceeds of approximately USD$20 million from the purchase price, and will no longer own an operating mine or hold any mining concessions or related assets. Coalcorp will continue to hold its 60% equity interest in Carbones Colombianos del Cerrejon ("CCC") which owns the La Caypa coal mine in Colombia, and its entitlement to the remaining USD$19 million in instalment payments owing to Coalcorp in relation to the sale of its 40% equity interest in CCC in July, 2008.

Coalcorp will also continue to hold its rights and entitlements under, and will continue to pursue all of the legal actions and claims that have been commenced by Coalcorp. These include the legal action commenced by Coalcorp on September 29, 2009 against certain of the former directors and officers of Coalcorp alleging, among other things, that the defendants participated or allowed Coalcorp to participate in improper transactions that were harmful to Coalcorp and its shareholders, and which claims approximately CDN$161 million in total damages. Coalcorp intends to vigorously proceed with this action to realize and recover value for its shareholders following the Proposed Transaction, and will possess sufficient funds to enable it to do so.

The Corporation intends to remain as a publicly listed company following the Proposed Transaction, subject to continuing to meet the listing requirements of the Toronto Stock Exchange.

    
    About Coalcorp
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Coalcorp is a coal mining, exploration and development company with interests in the La Francia coal mine and related infrastructure projects and a number of coal exploration properties, all located in Colombia. Coalcorp also holds a 60% equity interest in Carbones Colombianos del Cerrejon which owns the La Caypa coal mine in Colombia. Further information can be obtained by visiting our website at www.coalcorp.ca or under the Corporation's profile at www.sedar.com.

    
    Forward Looking Statements Disclaimer
    -------------------------------------
    

There can be no assurance that the Proposed Transaction will be completed, or completed on the same terms and conditions as described in this press release.

Statements made in this news release may be forward-looking and therefore subject to various risks and uncertainties. These include, but are not limited to, statements with respect the completion of the Proposed Transaction, making the Note Offers, and description of the business of Coalcorp following the Proposed Transaction and Note Offers. Some of the forward-looking statements may be identified by words such as "expects" "will", "may", "pursuing", "intends", "plans", and similar expressions. These statements are not guarantees of future performance or actions and undue reliance should not be placed on them. Certain material factors or assumptions are applied in making forward-looking statements and actual results may differ materially from those expressed or implied in such statements. Coalcorp undertakes no obligation to update forward-looking statements if circumstances or management's plans should change except as required by applicable securities laws. Such statements speak only as of the date made.

SOURCE Coalcorp Mining Inc.

For further information: For further information: Joseph Belan, Interim Chief Executive Officer, +57-1-658-5050 Ext: 9990

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