Merger agreement to create diverse asset base

IN a move to deliver significant benefits to both companies, MetroCoal and Cape Alumina have signed a Merger Implementation Agreement (MIA) to create a diversified bauxite and thermal coal business with a staged development pipeline.
Under the agreement, MetroCoal would offer 1.12 shares for every Cape Alumina share, in addition to providing Cape Alumina with a $3 million convertible note to supplement Cape Alumina working capital to accelerate work on the Pisolite Hills project, 50km northeast of Weipa in Queensland. The first $1 million would be made available on execution of the MIA, while the further $2 million would be available subject to the approval of Cape Alumina shareholders.
Pending all required approvals, the companies reportedly expects the merger to be effective by late December, creating a diversified asset base and risk profile spread across two bulk commodities to provide increased resilience and a favourable long-term outlook.
The new entity would have a profile combining near term (bauxite) and long term (coal) project developments and also benefit from an experienced leadership team; an improved cash position of $12 million to accelerate development of near-term bauxite projects; and a market capitalisation of more than $28 million.
Cape Alumina is currently evaluating one of the country’s largest underdeveloped, export-quality bauxite deposits at Pisolite Hills, which has an estimated resource of 134.6 million tonnes of in-situ bauxite.
“Overall, this resource has the potential to yield up to 7 million tonnes per annum of dry-product bauxite over a 15-year period,” Cape Alumina stated.
Studies indicated that the project could boost economic activity by $1.2 billion in net present value (NPV) terms, and create or sustain more than 1700 jobs over the mine’s 15-year life.
“The boost to the Far North Queensland economy alone would be more than $600 million in NPV terms and 1300 jobs,” the company stated.
Cape Alumina also holds the Bauxite Hills project and 1900 square kilometres of exploration tenements in western Cape York, while MetroCoal holds coal exploration tenements in the Surat Basin covering about
3500sqkm. The merged entity would hold JORC-compliant resources of 202.4mt of export grade bauxite and 2.4 billion tonnes of thermal coal.
“The immediate priority of the merged company will be to develop Cape Alumina’s bauxite assets on western Cape York, in particular the flagship Pisolite Hills mine and port project near Mapoon, to capitalise on the strong and growing global market for bauxite and to generate a positive cash flow for the company,” MetroCoal chairman Stephen Everett said.
“The new entity will continue to advance the Bundi and Columboola coal projects in the Surat Basin in line with the longer-term development opportunity for these assets.
“The long-term outlook for thermal coal remains positive with global demand forecast to increase significantly over the coming decade. The new entity’s project development pipeline enables it to benefit from both the strengthening global demand for bauxite, while maintaining its thermal coal resource in preparation for the inevitable upturn in this market.”