Coalcorp gets takeover proposal

Vancouver – An unnamed party is courting Coalcorp Mining (CCJ-T) — looking to acquire the new coal producer with operations in Colombia.

While no terms have yet been released from the takeover proposal, the company says it has set up a special committee to evaluate the unsolicited proposal and report back to the board of directors.

Coalcorp owns and operates the La Francia and Caypa open pit coal mines in northeastern Colombia along with planned port facilities at Barranquilla and Propuerto (14.17% interest) that are in development stage.

In the latest quarterly production report (ending September 30, 2007) its mines output 563,000 tonnes of thermal-grade coal. Coalcorp cites ongoing above-average stripping ratios — of 9.2-to-1 and 10.3-to-1 at La Francia and Caypa respectively for high operating costs of about $39 per tonne. Transport and handling added another $5 per tonne. The company realized an average sale price of $40 per tonne for its coal over the quarter.

For fiscal 2008 Coalcorp projects coal production of about 3.3 million tonnes as it gets a handle on strip ratios.

At La Francia, recoverable reserves of 26.75 million tonnes of high volatile, bituminous coal have been tabled. Over 146 million tonnes of measured and indicated resource have also been estimated on the deposit.

A recently completed feasibility study reviewing development of Pit C-D at La Francia projects estimated annual coal production of 3.5 million tonnes over a 17-year mine life.

Caypa, which has been in production since 1993, has 8.76 million tonnes of recoverable coal reserves — also classified as high volatile, bituminous along with a further 12.8 million tonnes of measured and indicated resource.

Additionally, the new producer has a portfolio of exploration-stage coal projects in the country and is partnered with BHP Billiton (BHP-N, BLT-L, BHP-A) that can earn 50% in the properties.

Coalcorp also holds an 8.43% interest in a consortium of coal producers that have a 30-year operations contract for the northern railway in Colombia. The stake cost US$7.5 million plus a one-time access fee of US$14 million and guarantees transport capacity of up to 3.5 million tonnes per year. The company pays US$2.14 per tonne in transportation tariffs, about 70% below current market pricing.

In late-2007 Coalcorp implemented a shareholder rights plan triggered upon acquisition of 20% of the company under a non-solicited, non-permitted takeover bid. The rights plan would see one right issued for each common share outstanding with each right entitling its holder (other than the takeover bid party) to purchase additional shares at a 50% discount to market price.

Thermal coal prices have experienced a recent global surge with 2008 contracts forecast to come in around the US$90 per tonne range, up from US$70 per tonne in 2007. Longer-term outlook also remains bullish with estimates of about US$110 per tonne by 2010.

Shares of Coalcorp rallied 12% in February 1st trading on news of a potential takeover bidder closing up 27 to $2.47 apiece. Based on its 89.7-million shares outstanding the company posts a market capitalization of about $221 million.