CanAm Coal Corp.
TSX VENTURE : COE

CanAm Coal Corp.

February 09, 2011 06:30 ET

CanAm Signs LOI to Acquire 50% of a Private Corporation with 3 Producing Coal Mines

CALGARY, ALBERTA--(Marketwire - Feb. 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"), have signed a letter of intent (the "LOI") to acquire a 50% ownership stake in a privately held coal producer ("Targetco") (the "Transaction") from its principal shareholders. In addition, pursuant to the LOI, the Company has an option to acquire an additional 30% of the Targetco shares within 2 years from the closing of the Transaction and the remaining 20% of the Targetco shares within a 5 year time period from the closing of the Transaction.

"This transaction provides CanAm with significant immediate benefits and further positions the Company for growth. Through this acquisition, we gain access to: three producing mines, a brokerage business, a stable cash flow, high quality thermal coal and, last but not least, additional coal expertise. Also, this transaction enables CanAm to expedite one of our key strategic goals of producing 50,000 to 100,000 tons of coal per month. Combined with the production from our Powhatan mine and an additional 27,000 tons per month from Targetco, 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

  • 35 year old coal company;
  • Family run 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 or 40,000 tons per month;
  • Operates a coal brokerage business with average annual sales of approximately 80,000 tons or 6,500 tons per month;
  • Controls permits and leases covering approximately 3,000 acres of land;
  • Employs approximately 85 employees;
  • Owns an extensive fleet of Komatsu and Caterpillar mining equipment with a fair market value in excess of US$16 million as determined by an independent third party valuator;
  • Operates using the highest standards of safety and was awarded "2009 Sentinels of Safety" awards for two out of its three 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 of approximately US$4million and key financial measures of the management prepared consolidated financial statements of Targetco for the periods ended December 31, 2009 and 2008 are as follows:
(in US$millions)   December 31, 2009   December 31, 2008
Balance Sheet
Current Assets   8.8   11.1
Total Assets   30.7   30.4
Current Liabilities   9.5   10.3
Long Term Liabilities   13.6   14.5
Total Liabilities   23.1   24.8
Net Assets   7.6   5.5
Income Statement        
Revenue   40.9   48.3
Cost of Sales   36.8   46.3
EBITDA (1)   8.4   6.0

(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 LOI

Pursuant to the LOI, the Transaction will result in Radar USA purchasing 50% of all of the issued and outstanding shares of Targetco (the "Targetco Shares") from its principal shareholders. In consideration for the Targetco Shares, CanAm will pay the Targetco principal shareholders a purchase price of an aggregate of US$11,000,000 comprised of: (i) an aggregate cash payment of US$8,000,000 and a pro rata payment of an aggregate of 12.5 million common shares in the capital of CanAm Coal Corp. at a deemed price of $0.24 per CanAm share, representing a payment of US$3 million. The LOI also contains an option (the "Option") whereby CanAm can acquire an additional 30% of the Targetco Shares within 2 years from the closing date of the Transaction and the remaining 20% of the Targetco shares within 5 years from the closing date of the Transaction. The cash purchase price for the remaining 50% of the Targetco Shares purchased pursuant to the Option shall be based on a multiple of four times the average annual EBITDA of Targetco 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 2 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 LOI contemplates the negotiation and execution of definitive documents, including a definitive share purchase agreement, option agreement and unanimous shareholders agreement, in relation to the Transaction by March 31, 2011. The LOI contains standstill provisions such that Targetco and CanAm will not participate in any activities which may reduce the likelihood of the success of the Transaction. 

OTHER INFORMATION

The LOI is subject to certain conditions including due diligence by CanAm, acceptance of the Transaction by the TSX Venture Exchange and other conditions customary for transactions similar in nature to the Transaction. As part of its due diligence, the Company has engaged Retread Resources Ltd., Mr. Dennis Nikols, P. Geo, to prepare a resource report in accordance with National Instrument 43-101. This report will be submitted prior to the closing of the transaction and further information on this report will be provided at a later date. Also, following the completion of the Transaction, CanAm will file a Business Acquisition Report, including audited financial statements of Targetco, as required pursuant to National Instrument 51-102. The Transaction would be an arm's length transaction. There can be no assurance that the Transaction will be completed as proposed or at all.

The Company is considering various financing options to fund the Transaction, including equity financing, debt financing or other innovative financing arrangements, and further information will be provided by the Company at a later date.

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 timing and completion of the Transaction and information in relation to Targetco's assets and operations, the future production of the Powhatan mine and Targetco's mines. This forward looking information is based on management's current understanding of, and negotiations in respect of, the Transaction and information obtained from, and in respect of Targetco.

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 may be considered a financial outlook. These forward-looking statements were approved by management of the Company on January 25, 2010. 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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