CEB Resources, which became a shell at the end of last year, has already secured its second deal which is a coal project that should be highly cash generative when it goes into production.
CEB is acquiring up to 49% of Carbon Investment Soo, which controls the Mariola thermal coal project near Katowice in southern Poland. This is a well known coal region with associated infrastructure and there is a nearby coal fired power station. A significant coal resource has been defined by drilling but it is based on Polish standards rather than JORC.
A JORC compliant resource should be available by the middle of 2014 and production could commence in 2016. A resource of more than 100m tonnes is being targeted. The coal is shallow and in seams 2-4 metres thick so capital investment should be relatively low. An annual production target of 3m tonnes a year is anticipated and local coal sales should yield a net operating profit of $25-$35/tonne based on current coal prices and assuming the costs of production are similar to nearby coal mines. That suggest a $75m plus annual operating profit when the mine is fully up and running.
CEB will pay a maximum of £1.425m in cash and shares for its 49% stake. An initial 10% stake will cost £200,000 in cash plus 20m CEB shares. That is payable within 30 days. Within six months of the agreement a further 10% stake can be bought for £400,000 in cash plus 20m CEB shares. A JORC resource should be reported in this timescale, which will confirm the attractiveness of the investment - or if it does not the stake will probably not be acquired.
Within one year of the agreement a further 5% can be acquired for £500,000 in cash plus enough shares to give Carbon International a 19.9% stake in CEB.
CEB can choose whether or not to acquire these additional stakes but if the resource is as large as is believed and it is capable of generating any where near the profit suggested then it would be likely that the investments will be made.
After the 25% stake has been taken then the investment can be increased to 49% on commercial terms agreed between the parties.
CEB also has an exclusive option to farm-in to the Peelwood zinc copper project located in New South Wales, Australia, which is owned by ASX-listed Balamara Resources. CEB needs to spend A$1.2m in three tranches over 12 months. The first one-third spent earns 20% and is payable within 30 days of signing a deal.
CEB has around £500,000 in the bank following recent fundraisings. More cash will be required to make the additional investments but if CEB can show that Mariola has a significant resource that can be mined profitably then this should attract investors.
At 0.73p a share, CEB is valued at £1.6m.
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