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Condor Blanco Mines moves ahead with €10 million coal, iron ore funding

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Condor Blanco Mines (ASX: CDB) is moving ahead to securing funding of €10 million to progress mining of its Marianas magnetite tailings Project in Chile as well as its proposed acquisition of South African hard coking coal projects.

A desk top review of The Duel hard coking coal project in the Limpopo province of South Africa is nearing completion.

Condor has entered into a HOA with Hong Kong company Signet Coking Coal Limited that will see it have the right to acquire a majority stake of up to 50.3% in The Duel and Tshipise 2 projects held by Signet’s South African subsidiaries and the Universal Annex Project held by Exotic Coal Exploration Proprietary Limited. 

The acquisition is subject to 60 days technical due diligence and upcoming shareholder approval.


Review of The Duel project


The review of The Duel is being undertaken by an independent third party and will confirm geological information on the project. 

It is proceeding in parallel with drafting of a definitive agreement that could lead to Condor’s acquisition of a majority position in Signet and its Soutpansberg Coalfield Projects in northern South Africa.

The four projects that make up Soutpansberg Coalfield of South Africa consist of five Prospecting Rights (PR) made up of a minimum of six farms each, most of which are contiguous. 

The HOA provides for a performance triggered option by Condor to progressively acquire additional equity in the four projects that comprise Signet, with short term emphasis on the highly prospective The Duel and Tshipise 2 projects.


Use of €10 million for JORC drilling

A drilling program is planned for The Duel to JORC the resource as well as a definitive feasibility study (DFS) program for The Duel is expected to be funded by Condor with costs expected to range from €10 million. 

The drilling and resource definition program will be run in parallel and are expected to be completed by November 2014. 

Condor will then be able to continue with acquisition of additional interest in Signet subject to the terms of the Definitive Agreement.


Independent Geologist's Report


South African geologist PC Meyers has provided a "highly encouraging" initial Project Exploration Report on The Duel. 

In the report it is stated: “Signet Coking Coal International Ltd, hold potentially multiple HCC projects within the southern and northern Tshipise sectors of the Soutpansberg Coalfield (DUEL and TSHIPISE 2 Projects). 

"With the confirmation of the coking coal analysis from THE DUEL project, tied with the addition of the large amount of publicly released information from Coal of Africa Limited (Makhado, Makhado Extension (farms Grey and Telema) and Mount Stuart projects), the presence of premium hard coking coal in this particular sector is at its highest level.” 

The report concludes: “The DUEL project could easily supply the majority of South Africa’s (current) imported hard coking coal quota (between 3 to 4mtpa).”


Coal Quality


Further initial data from the Coking Coal Quality Analysis carried out on The Duel coal collected from the previous drilling has revealed multiple fractions that would be classed as Hard Coking Coal, exhibiting excellent characteristics. 

Potential Ash products were then calculated from the washability data. By way of comparison, The Duel coal compares favourably through testing at The Duel against other global Hard Coking Coal projects. 


Coal Products


Based on available data, The Duel project could produce two products, one a primary high-grade coking coal and the other a secondary high-grade thermal coal. 

The ability to produce a high-grade thermal coal as a middling product heavily reduces operating costs and expenditure, increasing the primary product margin. 

The coal washability has shown exceptionally high yields compared to rival projects within the coalfield and other various coking coal indicators, such as the maximum fluidity, highlight this coal as potentially rivalling any other African or comparative global coking coals.


Black Economic Empowerment 

In South Africa, every company holding rights under the Mineral and Petroleum Resources Development Act (MPRD Act) is required to have a minimum of 26% Black Economic Empowerment (BEE) shareholding.

Both of Signet’s South African subsidiaries, Subiflex Proprietary Limited and Exotic Coal Exploration Proprietary Limited, comply with the requirements of the MPRD Act in that BEE shareholders hold 26% of the issued share capital of both companies. 

Significantly, the BEE shareholders of both subsidiary companies are members of the royal families in the regions where the rights have been granted. The involvement of these local landowners provides a strong BEE supporter who will usefully assist in the approvals and permitting of the projects over time.


€10m Debt Facility


The facility is a five year limited recourse loan of €10m to allow completion of undertakings under the Signet HOA as well as to develop the Marianas Magnetite Tailings Project in Copiapo, Chile. 

The loan documents provide for an approximately 15% average interest rate for the term of the loan with the ability to repay it earlier at Condor’s discretion.

Condor said it has sought a debt facility as it believes any form of equity participation in the Signet HCC projects would lead to lower valuations of the project compared to what will be obtained once the DFS is completed. 

Condor also wishes to quickly progress with these important opportunities that would otherwise be severely limited due to challenging conditions in Australian and global small caps equity markets.

Condor chairman, Dr Paul Crosio, commented: “By funding the Marianas and Signet Hard Coking Coal initiatives through debt we can maintain our company structure as well as preserve the ability to capitalise on the re-evaluation of The Duel and other Signet assets once we have completed DFS. 

"It is our intention to make it a priority to repay this debt through a trade sale or joint venture on The Duel projectwhen we believe the optimal value of the project has been realised. 

If we went to the equity market at this stage there would inevitably be minimal or no allowance for this future upside potential of Signet. Similarly, with cash in the bank, our position on Marianas is improved and we can take a more aggressive position on joint venture operator negotiations or, if required, even operate it in our own capacity.”

 

Analysis

The acquisition of the South African coal projects ups the ante considerably for Condor Blanco in terms of company profile as well as a potential "game changer" in terms of market cap.  The funding facility to progress Marianas iron ore tailings project into production in Chile provides potential for cash flows to climb given the low cost, likely high IRR of the project. 

The South African coal projects appear to be highly prospective with a stated strategy to either bring in a JV partner or to add value before a trade sale - which is prudent as well as another share price driver.

 

 

Proactive Investors Australia is the market leader in producing news, articles and research reports on ASX “Small and Mid-cap” stocks with distribution in Australia, UK, North America and Hong Kong / China.


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