CanAm Coal Corp.
TSX VENTURE : COE

CanAm Coal Corp.

May 10, 2011 10:22 ET

CanAm Completes Transaction to Acquire 50% of Birmingham Coal & Coke Company, Inc. and Cahaba Contracting & Reclamation, LLC

CALGARY, ALBERTA--(Marketwire - May 10, 2011) - Further to a press release dated February 9, 2011, CanAm Coal Corp. (TSX VENTURE:COE) ("CanAm" or the "Company") is pleased to announce that CanAm and its wholly owned subsidiary, Radar USA Hold Corp. ("Radar USA"), has completed its acquisition of a 50% ownership stake (the "Transaction") in privately held coal producer and broker Birmingham Coal & Coke Company, Inc. and Cahaba Contracting & Reclamation, LLC of Birmingham, Alabama, U.S.A. (collectively also referred to as "BCC"). In addition, the Company has an option to acquire an additional 30% of BCC within 2 years from the closing of the Transaction and the remaining 20% of BCC within a 5 year time period from the closing of the Transaction.

"This transaction provides CanAm access to three operating coal mines that produce high quality thermal coal, a coal brokerage business and a stable cash flow. Additionally, the combined 70+ years of coal expertise in the Alabama coal fields will provide for further opportunity to grow our coal operations in the Appalachian coal basin. This Transaction enables CanAm to expedite one of its key strategic goals of producing 50,000 to 100,000 tons of coal per month. Combined with the production from our Powhatan mine and the additional 25,000 tons per month from BCC, we estimate exit coal sales for 2011 of between 40,000 and 50,000 tons per month." said Timothy Bergen, CEO of CanAm.

THE ACQUISITION OF BCC

  • 35 year old coal company in Alabama;
  • Family operated and privately held;
  • Produces and markets coal to industrial, utility and export markets;
  • Operates 3 mines with average annual coal production of approximately 480,000 tons;
  • Operates a coal brokerage business with average annual sales of approximately 80,000 tons;
  • Owns and controls permits and leases covering approximately 4,000 acres of land;
  • Employs approximately 85 employees;
  • Operates using the highest standards of safety and was awarded "2009 Sentinels of Safety" awards for two of its operating mines;
  • Has off-take contracts in place for the majority of its coal through 2015; and
  • Has a strong balance sheet with a current cash position, including restricted cash, of approximately US$5million. Key financial measures of the management prepared consolidated financials statements of BCC for the periods ended December 31, 2010, 2009 and 2008 are as follows:
(in US$millions)December 31, 2010December 31, 2009December 31, 2008
Balance Sheet
Current Assets12.28.811.1
Total Assets32.530.730.4
Current Liabilities12.19.510.3
Long Term Liabilities9.613.614.5
Total Liabilities21.723.124.8
Net Assets10.87.65.5
Income Statement
Revenue46.140.948.3
Cost of Sales41.736.846.3
EBITDA (1)9.28.46.0
(1) EBITDA: Earnings Before Interest, Taxes, Depreciation and Amortization is a supplemental measure that is not presented in accordance with generally accepted accounting principles (GAAP). This non-GAAP measure may not be comparable to the calculation of similarly titled measures reported by other companies and should not be considered in isolation, as an alternative to, or more meaningful than financial measures calculated and reported in accordance with GAAP.

THE TRANSACTION

Pursuant to a Purchase and Sale Agreement and an Option Agreement, the Transaction will result in Radar USA purchasing 50% of all of the issued and outstanding shares of Birmingham Coal & Coke Company, Inc. and 50% of all of the membership interests of Cahaba Contracting & Reclamation, LLC ("Shares and Interests") from its principal shareholders. In consideration for the Shares and Interests, CanAm and Radar USA has paid a cash purchase price of an aggregate of US$8,000,000 and delivered an aggregate of 12.5 million common shares in the capital of CanAm Coal Corp. The Company also has an option (the "Option") whereby Radar USA may acquire an additional 30% of the Shares and Interests within 2 years from the closing date of the Transaction and the remaining 20% of the Shares and Interests within 5 years from the closing date of the Transaction (such that if the Option were fully exercised, Radar USA would wholly own BCC). The purchase price for the remaining 50% of the Shares and Interests purchased pursuant to the Option, is based on a multiple of four times the combined average annual EBITDA of BCC from the preceding three years prior to the date of exercise of the Option, but shall be no less than US$11,500,000 in year one of the option period, US$12,000,000 in year two of the option period, US$12,500,000 in year three of the option period, US$13,000,000 in year four of the option period and US$13,500,000 in year five of the option period. The Transaction has an effective date of May 1, 2011. The Transaction is subject to final approval of the TSX Venture Exchange.

MANAGEMENT OF BCC

An Executive Committee (the "EC") has been established for the management of BCC that will be comprised of Robert A. Lewis and Thomas A. Lewis, current President and Vice President & Treasurer of BCC and Timothy Bergen and Jos De Smedt, current Chief Executive Officer and Chief Financial Officer of CanAm Coal Corp. The EC will have responsibility to establish, approve and authorize strategic plans, annual budgets, annual goals and BCC's policies and procedures including policies regarding capital expenditures. The day-to-day operations of BCC will continue to be run by Robert and Thomas Lewis, as well as Wayne Bass as Vice President of Operations. The Board of Directors of BCC will be comprised of the four EC members and one independent director, Mr. Lenn W. Morris.

Lenn Morris is the former Executive Vice President and one of the majority shareholders of Tractor & Equipment Company (T&E) of Birmingham, Alabama. For over 68 years T&E has performed as the largest Komatsu construction and mining equipment distributor in the US with over 650 employees and 23 branches in 3 Southeastern states. Prior to his career with T&E, Lenn was President of Trax Incorporated of Alabama, a subsidiary of Marubeni Trading Company, from 1995 to 1998. Mr. Morris was the founder of Morris Machinery Company in 1988 and grew the company from a small parts company to a major provider of new and used mining and construction equipment in the southeast. In 1995, after 7 years of successful operation, Morris Machinery was acquired by the Marubeni Limited Corporation of Tokyo, Japan. Lenn has over 30 years of successful management experience as a senior executive as well as engineering start up ventures and the continuing successful operations of such ventures. He is a graduate of the University of Alabama with a BS in Marketing and minor in Public Relations.

"We are excited about completing this transaction and our new partnership with CanAm. Our years of experience in Alabama gives us a strong belief in the achievement of our joint vision of continued growth for both BCC and CanAm through current asset growth and the development of additional opportunities in Alabama ", said Robert A. Lewis, President of Birmingham Coal & Coke Company, Inc.

"The expertise and experience in the coal business that these gentlemen bring to CanAm will add additional depth and credibility as we continue to emerge as a coal production company. We have worked with both Bob and Tom over the last 12 months and have built an excellent relationship with them and this partnership is the next step in the evolution of our collaboration" said Tim Bergen, CEO of CanAm.

RELEASE OF ESCROWED FUNDS FROM SUBSCRIPTION RECEIPT FINANCING

Further to a press release dated April 11, 2011, the Company is pleased to report that the proceeds of its Subscription Receipt financing have been released from escrow as a result of the successful completion of the Transaction. The Subscription Receipts have been exchanged for convertible debentures of CanAm (the "Debentures") in the principal amount of the Subscription Receipts and common share purchase warrants of CanAm (the "Warrants") such that each $1,000 principal amount of the Debentures resulted in holders receiving 1,666 Warrants.

The Debentures mature 36 months from the date of issuance of the Debentures and are convertible, at the option of the holder, into common shares ("Common Shares") of the Company at a conversion price of $0.30 per Common Share. The Debentures will be unsecured and will bear interest at a rate of 9.5 percent per year, payable semi-annually. The Company shall have the right to require conversion of the Debentures any time after one year if the volume weighted average price of the Common Shares over the preceding 20 trading days is at $0.60 or higher. Each Warrant entitles the holder to purchase one additional Common Share for a period of 2 years from the date of issuance of the Warrants at an exercise price of $0.35 per Common Share

OTHER INFORMATION

The Company engaged Retread Resources Ltd., Mr. Dennis Nikols, P. Geo, to prepare a resource report in accordance with National Instrument 43-101 in respect of BCC. This report has been completed and will be the subject of a separate press release which will be released shortly. Also, CanAm will file a Business Acquisition Report, including audited financial statements of BCC, as required pursuant to National Instrument 51-102. The Transaction is considered an arm's length transaction.

SUMMARY

Since November 2009, the Company has embarked on a strategy to become an emerging coal producer and the BCC Transaction follows the successful acquisition of our metallurgical coal producing company RAC Mining LLC. Combined with BCC, CanAm's assets now comprise an ownership stake in:

  • 4 producing coal mines
  • 1 development mine
  • Estimated 2011 exit coal sales of between 40,000 to 50,000 tons per month
  • Permits and leases covering approximately 5,000 acres of land
  • Workforce of 110+ employees

In addition, the Company continues to pursue the development of the Buick Coal Property which holds significant coal resources, 188 million tons of indicated and 103 million tons of inferred coal resources, in Colorado, USA (see the technical report entitled "Limon Lignite Project, Elbert County, Colorado, USA," dated October 26, 2007 and filed on SEDAR on November 2, 2007). The Company also has in excess of $6 million of cash, including its 50% share of BCC's current cash position.

About CanAm Coal Corp.

CanAm is a coal producing and development company focused on growth through the acquisition, exploration and development of coal resources and resource-related technologies. CanAm's main activities and assets include its Alabama coal mine operations, the exclusive rights to a proprietary Coal to Liquids technology which converts coal into liquid fuels (such as oil, jet fuel) at an economical cost with zero airborne emissions and the Buick Coal Project which holds significant coal resources, 188 million tons of indicated and 103 million tons of inferred coal resources, in Colorado, USA (see the technical report entitled "Limon Lignite Project, Elbert County, Colorado, USA," dated October 26, 2007 and filed on SEDAR on November 2, 2007). Other coal and related opportunities continue to be evaluated on an ongoing basis.

Forward-Looking Information and Statements

This press release contains certain forward-looking statements and forward-looking information (collectively referred to herein as "forward-looking statements") within the meaning of applicable Canadian securities laws. All statements other than statements of present or historical fact are forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as "could", "should", "can", "anticipate", "estimate", "expect", "believe", "will", "may", "project", "budget", "plan", "sustain", "continues", "strategy", "forecast", "potential", "projects", "grow", "take advantage", "well positioned" or similar words suggesting future outcomes. In particular, this press release may contain forward-looking statements relating to: the information in relation to BCC's assets and operations, the future production of the Powhatan mine and BCC's mines and the future sales from BCC's coal brokerage business. This forward looking information is based on management's current understanding of the Transaction and BCC, and from information obtained from, and in respect of, BCC.

In addition, forward-looking statements regarding the Company are based on certain key expectations and assumptions of the Company concerning anticipated financial performance, business prospects, strategies, the sufficiency of budgeted capital expenditures in carrying out planned activities, the availability and cost of services, the ability to obtain financing on acceptable terms, the actual results of exploration projects being equivalent to or better than estimated results in technical reports or prior exploration results, and future costs and expenses being based on historical costs and expenses, adjusted for inflation, all of which are subject to change based on market conditions and potential timing delays. Although management of the Company consider these assumptions to be reasonable based on information currently available to them, these assumptions may prove to be incorrect.

By their very nature, forward-looking statements involve inherent risks and uncertainties (both general and specific) and risks that forward-looking statements will not be achieved. Undue reliance should not be placed on forward-looking statements, as a number of important factors could cause the actual results to differ materially from the Company's beliefs, plans, objectives and expectations, including, among other things: general economic and market factors, including business competition, changes in government regulations or in tax laws; the early stage development of the Company and its projects; general political and social uncertainties; commodity prices; the actual results of current exploration and development or operational activities; changes in project parameters as plans continue to be refined; accidents and other risks inherent in the mining industry; lack of insurance; delay or failure to receive board or regulatory approvals; changes in legislation, including environmental legislation, affecting the Company; timing and availability of external financing on acceptable terms; conclusions of economic evaluations; and lack of qualified, skilled labour or loss of key individuals. These factors should not be considered exhaustive. Many of these risk factors are beyond the Company's control and each contributes to the possibility that the forward-looking statements will not occur or that actual results, performance or achievements may differ materially from those expressed or implied by such statements. The impact of any one risk, uncertainty or factor on a particular forward-looking statement is not determinable with certainty as these risks, uncertainties and factors are interdependent and management's future course of action depends upon the Company's assessment of all information available at that time.

Forward-looking statements in respect of the future production of the Powhatan mine and BCC's mines and the sales from BCC's coal brokerage business may be considered a financial outlook. These forward-looking statements were approved by management of the Company on January 25, 2011. The purpose of this information is to provide an operational update on the Company's activities and strategies and this information may not be appropriate for other purposes.

The forward-looking statements contained herein are expressly qualified in their entirety by this cautionary statement. The forward-looking statements included in this press release are made as of the date of this press release and the Company does not undertake to publicly update such forward-looking statements to reflect new information, subsequent events or otherwise unless so required by applicable securities laws.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

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