Penfold Capital Acquisition Corporation
TSX VENTURE : PNA.P

PBS Coals Corporation

June 17, 2008 08:00 ET

Penfold Capital Acquisition Corporation to Enter Into a Business Combination With PBS Coals Corporation

TORONTO, ONTARIO--(Marketwire - June 17, 2008) -

NOT FOR DISSEMINATION IN THE UNITED STATES OR FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES AND DOES NOT CONSTITUTE AN OFFER OF THE SECURITIES DESCRIBED HEREIN

Penfold Capital Acquisition Corporation (TSX VENTURE:PNA.P) ("Penfold") is pleased to announce that it has entered into a letter of intent with PBS Coals Corporation ("PBS") dated June 16, 2008 to enter into a business combination with PBS (the "Qualifying Transaction").

PBS is a private British Columbia Corporation which owns 85% of the equity of the PBS Coals Group of Companies, a privately held group of companies engaged in the mining, processing and sale of primarily metallurgical coal from their properties in West-Central Pennsylvania (the "PBS Group"). The PBS Group consists of PBS Coals, Inc., a Delaware corporation, and Rox Coal, Inc., a Pennsylvania corporation, and their subsidiaries and holding companies. The PBS Group currently produces approximately 3 million clean tons of bituminous coal a year from both its underground and surface operations. The PBS Group has six surface and six underground mines in operation, and controls 153.3 million tons of measured and indicated coal resources with an additional 98.3 million tons of contingent resources. The PBS Group has initiated a mine expansion program to increase production to 5 million clean tons per year over the next two fiscal years (consisting primarily of metallurgical coal) and to complete construction of its Cambria processing facility.

A private placement equity financing from treasury of approximately US$70 million (the "Financing") is intended to be completed in connection with the Qualifying Transaction. In addition, existing shareholders of PBS may elect to sell a portion of their holdings of PBS, with the effect that the overall size of the offering may be increased to the US$300 million range. The terms of the Financing are expected to be determined prior to the date of the Definitive Agreement (as defined below).

Penfold is a capital pool company and intends for the acquisition of PBS to constitute its Qualifying Transaction as such term is defined in the policies of the TSX Venture Exchange (the "Exchange"). The Qualifying Transaction is not a non-arm's length transaction pursuant to the policies of the Exchange.

Shareholders' Meeting

Since the Qualifying Transaction is an arm's length transaction, Penfold is not required to obtain shareholder approval of the Qualifying Transaction. However, Penfold will hold a special meeting of shareholders to approve, among others, the following matters: (i) the consolidation of the common shares of Penfold on the basis of one new share for each 10 existing shares, such that the acquisition of PBS as part of the Qualifying Transaction can be effected on a one-for-one share basis; (ii) a name change of Penfold to "PBS Coals Limited"; and (iii) the adoption of a new stock option plan.

Terms of Qualifying Transaction

Pursuant to the terms of the letter of intent, completion of the Qualifying Transaction will be subject to a number of conditions, including execution of a definitive acquisition agreement (the "Definitive Agreement"), completion of satisfactory due diligence and receipt of applicable regulatory and shareholder approvals. Under the terms of the letter of intent, PBS may terminate its obligations prior to completion of the Qualifying Transaction upon payment of a $300,000 termination fee (in addition to Penfold's expenses) in the event of a transaction (not involving a "capital pool company") which provides superior value to PBS. There can be no assurance that the Qualifying Transaction will be completed as proposed or at all.

The Qualifying Transaction will be completed by way of a share exchange or amalgamation of a new subsidiary of Penfold and PBS whereupon the shareholders of PBS will receive one common share of Penfold (on a post-consolidated basis) for each common share of PBS.

PBS currently has 118,969,929 common shares issued and outstanding. PBS also has options, warrants and rights issued and outstanding to acquire an aggregate of 11,481,501 common shares. Any outstanding options, warrants and similar rights to acquire shares of PBS will be exchanged for analogous options, warrants and similar rights to acquire common shares of Penfold, subject to compliance with the policies of the Exchange.

Upon the completion of the Qualifying Transaction and the Financing, PBS will be a wholly-owned subsidiary of Penfold and PBS will own 86% of the equity of the PBS Group, with management directly or indirectly continuing to hold the balance of the equity.

In conjunction with the Qualifying Transaction, the five holders of an aggregate of 2,000,000 common shares of Penfold currently subject to escrow have agreed to transfer to PBS within escrow, on a pro-rata basis, 1,700,000 of the escrow shares (the "Escrow Block") for an aggregate consideration of $306,000. The Escrow Block will subsequently be cancelled or will not otherwise be entitled to participate in the share exchange as part of the Qualifying Transaction.

Trading of the securities of Penfold will be halted until the completion of the Qualifying Transaction.

Description of PBS Coals Corporation

All information in this press release relating to PBS is the sole responsibility of PBS.

The PBS Group is engaged in the mining, processing and sale of primarily metallurgical coal. The PBS Group is an established regional coal producer with six operating surface and six operating underground mines located in West-Central Pennsylvania. As of March 31, 2008, the PBS Group controlled 153.3 million tons of measured and indicated coal resources with an additional 98.3 million tons of contingent resources. The PBS Group controls by ownership or lease approximately 48,040 acres of land and/or coal in Somerset County. The PBS Group also controls mineral properties in both Indiana and Fayette Counties in Pennsylvania. During the year ended March 31, 2008, the PBS Group produced approximately 2.7 million clean tons of primarily high quality, low volatile metallurgical coal in Somerset County, Pennsylvania.

The PBS Group has been in operation for more than 45 years and has long standing relationships with many of the most significant global consumers of metallurgical coal. Production is processed at the PBS Shade Creek preparation facility and shipped to customers via one of two major railways serving PBS. The PBS Group has initiated a mine expansion program to increase production to 5 million clean tons per year over the next two fiscal years (consisting primarily of metallurgical coal) and to complete construction of its Cambria processing facility.

The following table provides a summary mineral resource estimate of PBS Coals, Inc. and Rox Coal, Inc. as at March 31, 2008.



Summary of Resources (1),(2),(3)

Resources of Immediate Interest
----------------------------------------------------
Current In-Place Seam Tons-000
Control By Assurance of Existence Category
ASTM (as of March --------------------------------------
Deposit Type Coal Rank 31, 2008) Measured Indicated Total Inferred
----------------------------------------------------------------------------
Surface Low-Med.
Volatile Controlled 15,262 - 15,262 -
Bituminous Contingent 153 - 153 -
--------------------------------------
Subtotal
- Surface 15,415 - -

Underground Low-Med
Volatile Controlled 106,811 31,242 138,056 -
Bituminous Contingent 54,563 43,546 98,109 -
--------------------------------------
Subtotal
- Under-
ground 161,374 74,788 236,162 -

Total
- Resources Controlled 122,073 31,242 153,315 -
Contingent 54,716 43,546 98,262 -
--------------------------------------
176,789 74,788 251,577 -
--------------------------------------

---------------------------
(1) PBS Coals Corporation owns 85% of the equity of PBS Coals, Inc. and Rox
Coal, Inc.
(2) All identified resources are classified "Resources of Immediate
Interest". "Contingent Surface Deposit" Type is an area where PBS
currently controls the mineral but not the surface which PBS plans to
acquire prior to mining. "Contingent Underground Deposit Type" includes
mineral (coal) properties which PBS plans to acquire (purchase or lease)
and reports the identified coal properties are available to be acquired
at a future date closer to actual mining.
(3) Resources include Reserves reported in the table below entitled "Summary
of Reserves".


Following is a summary of estimated coal reserves of PBS Coals, Inc. and Rox Coal, Inc., as of March 31, 2008.



Summary of Reserves(1)

Reserve Tons (000)
---------------------------------------------------------
Saleable by Permit Status
--------------------------------
In-Seam
Deposit ASTM Recov- Run-of Per- Permit Not
Type Coal Rank In-Place erable -Mine mitted Pending Permitted Total
----------------------------------------------------------------------------

------------------
Reserves in Active
Mines
------------------
Surface Low-Medium
Volatile 2,414 2,169 2,348 1,934 - - 1,934
Bituminous 50,200 26,207 30,583 19,809 - 382 20,191
---------------------------------------------------------
Under- Low-Med
ground Volatile 52,614 28,376 32,931 21,743 - 382 22,125
Bituminous
Subtotal
- Active
Mines

------------------
Reserves not in
Active Mines
------------------
Surface Low-Medium
Volatile
Bituminous 12,848 9,912 10,536 926 4,571 2,019 7,516
Under- Low-Med
ground Volatile
Bituminous 81,758 39,797 45,349 11,181 11,703 7,466 30,350
---------------------------------------------------------
Subtotal
- Not
in
Active
Mines 94,606 49,709 55,885 12,107 16,274 9,485 37,866

------------------
Total - Reserves
------------------
Surface Low-Medium
Volatile
Bituminous 15,262 12,081 12,884 2,860 4,571 2,019 9,450
Under- Low-Medium
ground Volatile
Bituminous 131,958 66,004 75,932 30,990 11,703 7,848 50,541
---------------------------------------------------------
Total 147,220 78,085 88,816 38,850 16,274 9,867 59,991

--------------------------
(1) PBS Coals Corporation owns 85% of the equity of PBS Coals, Inc. and
Rox Coal, Inc.



Information in this press release relating to mineral reserves and resources is derived from the technical report prepared by John T. Boyd & Company Inc. entitled "Independent Technical Report Coal Reserves and Mining Operations PBS Coals, Inc." for PBS Coals Corporation as at March 31, 2008. The mineral reserve and resource estimates have been prepared under the supervision of Ronald L. Lewis, Chief Operating Officer and Managing Director of John T. Boyd & Company, Inc., a qualified person, as such term is defined in National Instrument 43-101. Ronald L. Lewis is independent of PBS.

The financial statements of PBS for the period ended March 31, 2008 have not yet been completed and will be included in the Listing Statement prepared in connection with the Qualifying Transaction.

Insiders and Board of Directors of the Resulting Issuer

Upon completion of the Qualifying Transaction, all of the existing directors and officers of Penfold will resign and it is anticipated that management of the resulting issuer will include the persons identified below. The board of directors of the resulting issuer will be increased to nine (9) directors and will be solely composed of the nominees of PBS, of which six (6) directors will be independent of management. The directors will be as follows:

Colin K. Benner (Chairman)

John R. Brodie

Patrick Connolly

John H. Craig

Joseph Hayes

Peter Grosskopf

Timothy Phillips

Charles Pitcher

Robert Scott

The only shareholders of PBS who own more than 10% of the outstanding common shares are Sprott Resource Corp (TSX:SCP) and two private Guernsey companies (Zebra Holdings and Investments Limited and Lorito Holdings Limited). These shareholders are expected to own more than 10% of the shares of Penfold after giving effect to the Qualifying Transaction (and therefore are expected to become insiders of Penfold), subject to the number of shares which may be issued and sold as part of the Financing. In addition, the directors and officers of PBS mentioned in this press release will become insiders of Penfold.

The shares of PBS are held by eighteen shareholders (including seven directors and officers of PBS), all of whom act at arm's length to Penfold.

Background on New Officers

Colin K. Benner - Chairman

Colin Benner is a professional mining engineer with over 40 years of experience in mining engineering and management in the Canadian and International mining industry. Currently he is Vice Chairman and Chief Executive Officer of Skye Resources Inc. and Chairman of PBS. As well, he serves as a director on a number of Boards of other mining companies. Previously, Mr. Benner held the position of CEO and Vice Chairman of Lundin Mining Corp., CEO and Vice Chairman of EuroZinc Mining Corp. and President and CEO of Breakwater Resources Ltd.

Robert Scott- President and Chief Executive Officer

Robert Scott has been with the PBS Group since 1985. From 1985 to 1988, he served as CFO and Operations Director before becoming President in 1989. Prior to this, he was CFO of NSM Ltd., involved in mining worldwide. Prior thereto, he served for 13 years as a Board Director for Derek Crouch plc, a U.K. public company involved in mining operations in the U.K. and U.S.A, and held the positions of CFO as well as Executive Director for U.S. mining. Mr. Scott is a Scottish Chartered Accountant, a Chartered Management Accountant and was a founder member of the Institute of Corporate Treasurers.

Timothy Phillips - Executive Vice-President

Timothy Phillips has over 33 years experience in the coal mining industry, and has been with the PBS Group since 1983, previously holding positions as Vice President of Marketing, Engineering and Processing. Prior thereto, he held positions with NSM plc, the prior owner of the PBS Group, and the National Coal Board of England. Mr. Phillips has acted as a technical advisor to various government agencies worldwide, and has carried out feasibility studies for various mining ventures in the U.S. and 16 other countries. Mr. Phillips is a graduate of London University with a Special Honors degree in Geology. He is a certified Professional Geologist in the Commonwealth of Pennsylvania.

Joseph Hayes - Vice-President, Finance, Chief Financial Officer

Joseph Hayes has over 30 years experience in the coal business and has been with the PBS Group since 1984, and is responsible for the PBS Group's financial reporting, including forecasting and budgeting, financial due diligence and cash management. Prior to joining the PBS Group, Mr. Hayes was employed at the Cerro-Marmon Coal Group. Mr. Hayes is a graduate of Lycoming College where he earned a Bachelor of Arts degree in Accounting. He is a member of both the American and Pennsylvania Institute of CPA's.

Sponsorship of Qualifying Transaction

Sponsorship of a qualifying transaction of a capital pool company is required by the Exchange unless exempt in accordance with the Exchange policies. Given the size and nature of the qualifying transaction, Penfold will apply for an exemption from the sponsorship requirements pursuant to the policies of the Exchange.

Penfold will make a subsequent press release of information regarding summary financial information and details of the Financing.

About Penfold

Penfold Capital Acquisition Corporation is part of the Penfold Capital group of companies. Penfold Capital is a private merchant bank. For more information see www.penfoldcapital.com.

Cautionary Note

As noted above, completion of the Qualifying Transaction is subject to a number of conditions, including but not limited to, acceptance by the Exchange, approval of the shareholders of PBS, completion of the share consolidation by Penfold and completion of the Financing. Where applicable, the Qualifying Transaction cannot close until the required approvals have been obtained. There can be no assurance that the Qualifying Transaction will be completed as proposed or at all.

Investors are cautioned that, except as disclosed in the filing statement to be prepared in connection with the transaction, any information released or received with respect to the Qualifying Transaction may not be accurate or complete and should not be relied upon. The trading in the securities of Penfold should be considered highly speculative.

Forward-Looking Statements

Certain information set forth in this press release contains "forward-looking statements", and "forward-looking information under applicable securities laws. Except for statements of historical fact, certain information contained herein constitutes forward-looking statements which include management's assessment of PBS' future plans and operations and are based on PBS' current internal expectations, estimates, projections, assumptions and beliefs, which may prove to be incorrect. Some of the forward-looking statements may be identified by words such as "expects" "anticipates", "believes", "projects", "plans", and similar expressions. These statements are not guarantees of future performance and undue reliance should not be placed on them. Such forward-looking statements necessarily involve known and unknown risks and uncertainties, which may cause PBS' actual performance and financial results in future periods to differ materially from any projections of future performance or results expressed or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to: liabilities inherent in coal mine development and production; geological, mining and processing technical problems; PBS' inability to obtain required mine licenses, mine permits and regulatory approvals required in connection with mining and coal processing operations; dependence on third party coal transportation systems; competition for, among other things, capital, acquisitions of reserves, undeveloped lands and skilled personnel; incorrect assessments of the value of acquisitions; changes in commodity prices and exchange rates; changes in the regulations in respect to the use of coal; the effects of competition and pricing pressures in the coal market; the oversupply of, or lack of demand for, coal; currency and interest rate fluctuations; various events which could disrupt operations and/or the transportation of coal products, including labor stoppages and severe weather conditions; the demand for and availability of rail, port and other transportation services; and management's ability to anticipate and manage the foregoing factors and risks. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. PBS undertakes no obligation to update forward-looking statements if circumstances or management's estimates or opinions should change except as required by applicable securities laws. The reader is cautioned not to place undue reliance on forward-looking statements.

The securities described in this press release have not been and will not be registered under the United States Securities Act of 1933, as amended, and may not be offered or sold in the United States or to a U.S. person absent an available exemption from the registration requirements of such Act.

The TSX Venture Exchange Inc. has in no way passed upon the merits of the proposed transaction and has neither approved nor disapproved the contents of this press release.

Contact Information

  • Penfold Capital Acquisition Corporation
    Michael G. Thomson
    Director
    (613) 864-4005
    Email: independentpresident@shaw.ca
    or
    Penfold Capital Acquisition Corporation
    Gary M. Clifford
    President and Chief Executive Officer
    (416) 418-9802
    Email: gary@penfoldcapital.com
    Website: www.penfoldcapital.com
    or
    PBS Coals Corporation
    Robert Scott
    President and Chief Executive Officer
    (814) 443-4668