Coalcorp provides shareholders with key reasons to support proposed
transaction and updates and supplements information from information circular
As announced on
SHAREHOLDERS SHOULD VOTE "FOR" THE PROPOSED TRANSACTION
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Management and the Board encourage shareholders to carefully consider the facts in evaluating the Proposed Transaction.
The facts are as follows:
- The difference between the value of the Proposed Transaction (in
excess of US$200 million) and the valuation in Coalcorp's most
recent 43-101 technical report is as a result of a significant
increase in transportation costs (from US$14/tonne to US
$21.50/tonne from 2011 onwards and $28.00/tonne in 2010),
substantially lower 2010 coal production and lower realized coal
prices (see below for further explanation).
- Without access to a sea port, there is no future for Coalcorp's
business in Colombia.
- If the Proposed Transaction is not completed, the funds to be
received under the previously announced Settlement Agreement (as
defined below) will not be sufficient to meet the Company's
financial needs in the short or long term. The lack of port
access, future capital expenditures and ongoing expenses with the
mining contractor means the Company will run out of cash in the
near future even with the funds from the Settlement Agreement.
- The Company conducted an extensive six-month strategic sale
process which yielded no offers for greater value. Since the
Proposed Transaction was announced almost one month ago, no
alternative proposals or even expressions of interest have
materialized.
- The Board has no basis to believe that Goldman Sachs will increase
its offer under any circumstances. Shareholders should not expect
any increase in the value of the Proposed Transaction whatsoever.
- If the Proposed Transaction is not approved, the Company will
likely have no alternative but to file for bankruptcy or seek
creditor protection. The Company believes that after satisfaction
of creditors' claims there would likely be no proceeds remaining
for shareholders.
- Two independent and respected advisory services, RiskMetrics Group
and Glass Lewis & Co., have recommended that all shareholders vote
in favour of the Proposed Transaction.
These facts are discussed in more detail below.
The Proposed Transaction reflects FAIR VALUE for Coalcorp:
- The difference between the value of the Proposed Transaction (in
excess of US$200 million) and Coalcorp's most recent 43-101
technical report (US$374 million under a contractor mining
scenario based on an 8% discount rate and long-term net coal
prices of US$66.00 per tonne) presented in August 2009 is
principally attributable to:
- A different logistics chain resulting in a significant increase
in transportation costs (from US$14/tonne to US$28/tonne in
2010 and US$21.50/tonne from 2011 onwards), substantially lower
2010 coal production and realized coal prices (from US$71/tonne
to US$58/tonne) and the addition of corporate overhead costs.
- The 43-101 technical report was based on a logistics chain that
involved transporting coal by train from the mine site directly
to a port in Santa Marta. Coalcorp could not secure direct
train loading access to one of the ports in the Santa Marta
region, so Goldman Sachs will have to utilize an alternative
transportation plan. The alternative transportation plan
involves trucking coal to a port for 2010 costing approximately
$28/mt and a strategy that includes railing and trucking coal
to a port for 2011 onwards costing approximately $21.50/mt.
- The Proposed Transaction follows a six-month extensive strategic
process involving contact with all logical potential strategic
buyers. The value of the Proposed Transaction is in excess of US
$200 million (taking into account the US$50 million in liabilities
being assumed by the Purchaser).
- The Proposed Transaction was negotiated completely at arms-length,
unanimously supported and recommended by a Special Committee of
independent directors and supported by a 44% shareholder who is
receiving no other benefits from the Proposed Transaction than
those received by shareholders and note holders of Coalcorp. This
shareholder is also a holder of Senior Notes and may tender its
Senior Notes pursuant to the Offers for Notes (as described in the
Circular).
- As a result of the Settlement Agreement (as defined below) and
upon satisfaction of all the conditions under the Settlement
Agreement by February 8, 2010, all of the approximately US$20
million in proceeds from the Proposed Transaction (including the
US$10 million which previously was to be restricted and placed
into a trust to fund certain indemnity obligations of Coalcorp in
favour of Joseph Belan as described in the Circular) will be
immediately available for use by the Company, subject to the
Company's obligations under the Purchase Agreements, including its
obligation to maintain certain funds in an indemnification escrow
account under the terms of the Proposed Transaction until November
30, 2010.
- Paradigm Capital Inc. has delivered a fairness opinion dated as of
January 5, 2010, addressed to the Special Committee of independent
directors, concluding that, based upon and subject to the
assumptions, limitations and other considerations set forth in
such fairness opinion, the consideration to be received by
Coalcorp's subsidiaries, Compania Carbones del Cesar S.A. for the
La Francia I assets and the consideration to be received by Pianta
Ltd. for the shares in Adromi Capital Corp., are fair, from a
financial point of view.
The Proposed Transaction is SUPERIOR TO ANY OTHER ALTERNATIVE:
- Without access to a sea port, there is no future for Coalcorp's
business in Colombia.
- If the Proposed Transaction is not completed, the funds to be
received under the Settlement Agreement will not be sufficient to
meet the Company's financial needs in the short or long term. The
lack of port access, required capital expenditures and ongoing
expenses with the mining contractor means the Company will run out
of cash in the near future even with the funds from the Settlement
Agreement.
- The Company received two other non-binding offers from strategic
buyers, but such offers represented significantly less value and
certainty than the Proposed Transaction. One of the offers was for
cash consideration of US$150 million, but was highly conditional
and subject to an unacceptably long due diligence period, as well
as other unacceptable conditions. The other offer was for US$160
million, but unlike the Proposed Transaction, did not include a
commitment from the participant to assume the substantial
liabilities under certain existing coal contracts and liabilities
under other obligations of Coalcorp. Although the second offer had
a higher notional value attached to the La Francia I and II mining
assets, it represented a materially lower total transaction value
compared to the minimum US$201 million represented by the Proposed
Transaction (factoring in certain liabilities that would not have
been assumed and would have remained with the Company under the
terms of those offers).
- Coalcorp received another indication of interest from an
unidentified third party offering to purchase the Company for US
$0.50 per share. Coalcorp pursued this indication of interest with
the intermediary that presented it to the Company, but this never
led to any further discussion or any contact by the interested
party whose identity was never disclosed to the Company. The
Company believes that this indication of interest was not
credible, and it has not resurfaced since early December.
- Even though the Proposed Transaction allows for superior proposals
to acquire the La Francia assets, and the transaction was
announced on January 7th (almost a month ago), there have been no
expressions of interest from any other parties.
- The Proposed Transaction provides Coalcorp with necessary bridge
financing. Goldman Sachs has committed up to US$5 million in
bridge financing to fund operations of the Company during the
months of January and February, 2010, of which US$2 million
already has been disbursed to the Company. In addition, the
remaining US$3 million available to the Company through this
bridge financing is conditioned upon a vote of the shareholders in
favour of the Proposed Transaction at the Special Meeting. Without
this bridge financing from Goldman Sachs, Coalcorp could not
operate during the interim period until closing.
- Two independent and respected advisory services, RiskMetrics Group
and Glass Lewis & Co., have recommended that all shareholders vote
in favour of the Proposed Transaction.
If the Proposed Transaction is not completed, Coalcorp has NO
ALTERNATIVES:
- There is currently an Event of Default under the Senior Notes
which Coalcorp was unable to cure.
- The bridge financing will become due and payable and Coalcorp will
not have sufficient funds to repay it.
- Coalcorp will not have sufficient funds to continue its current
operations (even with the funds from the Settlement Agreement),
including satisfying the required payments under its existing
Mining Contractor Agreement.
- Coalcorp will have no port access to deliver coal and generate
revenue.
- Coalcorp will likely have no alternative but to seek bankruptcy or
creditors protection.
If Coalcorp enters Bankruptcy or Insolvency Proceedings, SHAREHOLDERS
WILL LOSE:
- Coalcorp has undertaken an extensive auction process and there
have been no other offers since the announcement of the Proposed
Transaction. If a bankruptcy or insolvency process is undertaken,
Coalcorp believes the assets will be sold at a significantly lower
value than the Proposed Transaction.
- Coalcorp assets are located in various jurisdictions including
Colombia and Panama. A bankruptcy or insolvency proceeding will be
extremely costly, complicated and difficult to coordinate, which
will result in a lower value for Coalcorp's assets.
- Under Colombian laws there is a risk that the Colombian Mining
Ministry may terminate Coalcorp's La Francia I and II concessions
if a bankruptcy or insolvency proceedings are initiated, which
would eliminate all value for Coalcorp.
- Other stakeholders will continue to have priority over
shareholders in bankruptcy or insolvency proceedings. Given the
potential liabilities under the existing coal contracts, the
Contractor agreement and the Senior Notes, the Company believes
there will be no value for shareholders in a bankruptcy or
insolvency proceeding.
Updates to Circular - Coalcorp Following Proposed Transaction
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The following are certain updates to the information and descriptions
contained in the Circular based on developments to date.
Settlement of Outstanding Litigation
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As an update to the Circular and as announced by Coalcorp on
As part of the Settlement Agreement, Xira has agreed to pay US$34 million payable as follows: (i) US$7 million on
Under the Settlement Agreement, the parties agreed to the following: (i) on
Pending delivery of the agreements, releases and payment on
Summary of Position of Coalcorp Following the Proposed Transaction
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As described in the Circular, following consummation of the Proposed Transaction (assuming a mid-February consummation), the Offers for Notes (as described in the Circular and assuming all Senior Notes tender to the Offers for Notes) and the transactions contemplated by the Settlement Agreement, Coalcorp will have approximately US$55.5 million constituted as follows:
- accounts receivable net of accounts payable of approximately US
$1.5 million;
- cash proceeds of approximately US$20 million (including the US$10
million which previously was to be restricted and placed into a
trust to fund certain indemnity obligations of Coalcorp in favour
of Joseph Belan), all of which will be immediately available for
use by the Company, subject to the Company's obligations under the
Purchase Agreements, including its obligation to maintain certain
funds in an indemnification escrow account for the benefit of
Goldman Sachs until November 30, 2010; and
- entitlement to the settlement payments under the Settlement
Agreement in the aggregate amount of US$34 million payable as
follows: (i) US$7 million on February 8, 2010, (ii) US$17 million
on March 15, 2010, (iii) US$8 million on September 15, 2010 and
(iv) US$2 million on January 31, 2011.
As a result of the Settlement Agreement, and upon satisfaction of all the conditions under the Settlement Agreement by
If Xira makes the payments on
If the Proposed Transaction is completed, Coalcorp will have three exploration properties being: a concession in Otanche, Boyaca (total 1,972 hectares); a concession in Codassi, Cesar (4,460 hectares); and a concession in La Loma, Cesar (5,915 hectares) which was just recently awarded to Coalcorp. No exploration work has been undertaken by Coalcorp on these properties and, at this time, there is no plan to undertake any work on these properties. Coalcorp believes there is little value to these properties at this time. Other than those concessions, Coalcorp will have no other mining rights or exploration properties. Further, Coalcorp has previously withdrawn from the Puerto Nuevo Project as a result of its significant expense and the fact that the company considers that it will have more flexibility and protection as a potential user than it would as a minority shareholder.
Contingent Liabilities
----------------------
As result of the Settlement Agreement and upon satisfaction of all the
conditions under the Settlement Agreement by February 8, 2010, Coalcorp will
thereafter no longer be subject to the following claims, actions, threatened
actions, arbitrations and proceedings as set out below:
- Notice of Derivative Legal Action;
- Statements of Claim from Terminated Employees;
- Counterclaim by Xira;
- Claim under Libel and Slander Act;
- Application under the BCBCA;
- Blue Pacific Royalty; and
- Directors' and Officers' Indemnities.
Following completion of the Proposed Transaction, the Company will
continue to be subject to the AES Dispute (as defined in the Circular) and its
potential exposure and liability under the Missed First Quarter 2009 Shipment
under Coal Sale Contract (as defined in the Circular).
Business of Coalcorp Following the Proposed Transaction
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As described in the Circular, following the completion of the Proposed Transaction, the Board will meet to carefully consider the going-forward business plans for the Company and its future as a publicly listed mining company. The Board has currently not made any decisions in these regards. The Board may decide, using the proceeds from the Proposed Transaction and the Settlement Agreement, to redeploy its assets to pursue other investment or other potential opportunities in the mining or materials sector and continue on with a business for Coalcorp to realize value for Coalcorp shareholders. However, whether Coalcorp will proceed with this or any other option has not been determined. Any final determinations will be made by the Board following completion of the Proposed Transaction.
Other Supplementary Information to Circular
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TSX Listing
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It is Coalcorp's intention to remain a publicly listed company whether or not the Proposed Transaction is completed. As a result of the Company's current weakened financial position, the TSX has advised the Company that it may be subject to a delisting review to determine if the Company meets the minimum listing requirements.
If the Proposed Transaction is completed, the Company will be subject to a formal delisting review by the TSX and will be provided with up to 120 days from the closing of the Proposed Transaction in order to meet TSX's original listing requirements in order to remain listed on the TSX, failing which, within the timeframes permitted by the TSX, the shares of the Company may be delisted from the TSX. As described in the Circular and above, following the completion of the Proposed Transaction, the Board will meet to consider the business plans for Coalcorp and its future as a publicly listed mining company. The Board has currently not made any decisions in this regard. If the Company determines not to continue as an operating mining company and is unable to demonstrate that it meets TSX's original listing requirements under any other listing category, there is a risk that the Company will be found not to meet the TSX's original listing requirements and may be delisted from the TSX.
If the Proposed Transaction is not completed, the Company may be delisted for failure to meet the minimum listing requirements.
If the Company is delisted, there will be no public market through which the Company's shares may be sold and traded and shareholders may not be able to dispose of their shares. This can be expected to affect the liquidity of the shares, the pricing of the shares, the transparency and availability of trading prices, and the extent of the Company's regulation. If the TSX delists the Company, there can be no assurance that the Company will obtain the listing of its shares on any other Canadian or other stock exchange.
Dissent Rights and Risk of Non-Payment in Event of Insolvency
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As described in the Circular, registered shareholders as of
Following the exercise of such rights to dissent under the BCBCA, and upon either (i) agreement between the Company and a dissenting shareholder of the payout value of the dissenter's shares, or (ii) the determination by a court of the payout value of the dissenter's shares, the Company must either promptly pay the amount to the dissenter or send a notice to the dissenter stating that the Company is unable to lawfully pay the dissenter for its shares as the Company is insolvent or that the payment would render the Company insolvent.
The Company does not expect to be 'insolvent' following the Proposed Transaction as that term is defined under the BCBCA.
Risk of Full Cease Trade Order
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On
As announced in the Company's bi-weekly Default Status Reports issued pursuant to National Policy 12-203: Cease Trade Orders for Continuous Disclosure Defaults ("NP 12-203"), the OSC, in its discretion, may determine at a later time that it would be appropriate to issue a general issuer cease trade order affecting all of the Company's securities. If the Company does not file its first and second quarter financials in a timely manner and continues to be delayed in the filing of its financial statements and MD&A for subsequent financial periods, there is the risk that the Company will no longer be eligible for management cease trade orders in lieu of full cease trade orders under NP 12-203, and, at a certain point, the Company will be subject to a full cease trade order as a result of its defaults under securities legislation.
Update on Filing of Financial Statements
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Status of Q1 and Q2 Financials
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As announced on
The Company announces that it will be delayed in the filing of its Q2 Financials beyond the filing deadline of
Reasons for Delay in Release of Q1 and Q2 Financials
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As described in the Circular, during the period from November, 2008 through to March, 2009, the Company was subject to a complete transition in the senior management and constitution of the board as a result of various resignations, departures and terminations that occurred during this period. By December, 2008, the Company was under new senior management, which included the appointment of an Interim Chief Executive Officer, Joseph Belan, and a new Chief Financial Officer,
As a result of the foregoing transition in management, the subsequent resignation of the Chief Financial Officer of the Company (the Company continues without a Chief Financial Officer) and further difficulties experienced in gaining access to its server to obtain required data and information, the Company became significantly delayed in the filing its second quarter interim financial statements and related MD&A for the three and six-month periods ended
About Coalcorp
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Coalcorp is currently 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
Forward Looking Statements Disclaimer
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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. Further, there can be no assurance that the terms of the Settlement Agreement will be satisfied, payments made and the releases of the litigation provided by any of the parties. 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 and description of the business of Coalcorp following the Proposed Transaction. 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.
For further information: Juan Carlos Gomez, Interim Chief Executive Officer, +57 - 1 - 658 - 5050 Ext: 9990; SHAREHOLDER INFORMATION, Laurel Hill Advisory Group, 1-800-503-9439
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