TORONTO, ONTARIO--(Marketwire - Sept. 10, 2012) - Homeland Energy Group Ltd. (TSX:HEG) ("Homeland" or the "Company") wishes to advise that it has recently completed a strategic review of its operations at its Kendal Colliery in South Africa.
The operations at Kendal incurred losses during the 4 month period ended from April to July. It was determined that the losses had arisen as a result of inadequate production of coal for the wash plant which in turn has been caused by geological intrusions which affected the coal quality. HEG had determined to implement a new product mix which results in only higher quality coal being sent through the wash plant with the remainder of the coal being sold directly to third parties including Eskom.
Management is of the view that these changes will allow HEG to maximize the performance of the Kendal Colliery while mitigating the impact of the complicated geology at the site.
In order to permit the required changes to the business model to be implemented and to address current working capital shortfalls arising from these losses and from the costs of exposing additional coal at E block, GMR Energy Ltd., the Company's controlling shareholder, has agreed to provide up to an additional US$6,000,000 in financing to address cash flow concerns during the adjustment period. These funds will bear interest at the rate of LIBOR plus 4.5% and will be payable over time beginning in March of 2014 with the final payment being made in March of 2020. An initial draw down of US$3,000,000 has been made. In order to comply with the rules of the Toronto Stock Exchange, interest will not accrue on this loan until shareholder approval has been obtained. The Company will be calling a special meeting of the shareholders in the near future to address this matter.
This transaction is exempt from the valuation and minority shareholder approval requirements of Multilateral Instrument 61-101 by virtue of the exemptions set on in sections 5.5(1)(c) and 5.7(1)(f). However, shareholders of the Company will be required to approve the payment of interest under the loan pursuant to the rules of the Toronto Stock Exchange.
Homeland Energy Group Ltd. (TSX:HEG) is a coal producer with operations in the Witbank area of South Africa. The company also has a large-scale development property in South Africa and exploration interests in Southern Africa. Homeland will continue to seek out interests in additional coal projects in South Africa and neighbouring countries as well as internationally. Homeland Energy Group Ltd. is currently traded on the Toronto Stock Exchange under the symbol "HEG" with 471,204,149 common shares issued and outstanding.