Aspiring coking coal producer Cokal (ASX: CKA) is on course to see its Bumi Barito Mineral (BBM) coking coal project past the finishing post and into production after receiving funding from a privately-held Hong Kong-incorporated resources investment company, based in China.
The company signed a binding term sheet with Domain International Holdings which includes a financing package totalling A$67 million for the development of its BBM coking coal project, that will ultimately look to produce around 2 million tonnes of coal per year.
BBM is a metallurgical coal project located in Kalimantan, Indonesia and comprises approximately 1,500 hectares. The company is squarely focused on the near-term production of BBM and is currently raising capital for mine development.
Domain has been loitering with intent for over a year and has been in discussions with Cokal regarding a deal. According to Cokal, the resources investment company has already conducted detailed due diligence on the feasibility of the project and has sent its technical team to inspect the coal mining operation directly.
With the deal now signed and funding forthcoming later this year, today’s agreement is expected to provide the funding solution Coka has been searching for – thereby setting the stage for the junior coking coal company to transform into a major international coking coal producer.
The specific terms of the transactions stipulate that Domain will provide Cokal with a debt and equity financing package sufficient to fully fund development of BBM to a production capacity of 2Mtpa of coking coal.
Cokal expects to receive the first A$1 million of the funding package by 25 May 2018 and a further A$1 million by 15 June 2018, thereby alleviating any lingering funding concerns for the coking coal junior.
In exchange for the A$2 million funding injection, Domain will receive the equivalent amount of Cokal shares prices “priced at a 10% discount to the five-day VWAP price”, with the issuance of Cokal shares still contingent on shareholder approval, which Cokal says it will obtain “as soon as possible”.
An additional sum of US$50 million will be injected into Cokal-BBM Pte Ltd, a wholly-owned subsidiary of Cokal, which holds a 60% interest in BBM, and will comprise an equity component of US$30 million for a 50% interest in Cokal-BBM Pte Ltd and a residual debt component of no less than US$20 million. Cokal says the debt component will be repaid from project cash flows with no recourse to Cokal.
“Cokal has developed a much sought after coking coal project in BBM to the production-ready stage and is highly motivated to commence production in order to realise the inherent strategic and financial value of the asset. Coal production from BBM will generate attractive profits for Cokal and returns for its shareholders,” said Domenic Martino, chairman of Cokal.
In parallel to today’s funding announcement, the company has also launched the search for a new chief executive officer to steer it through the development phase.
Following today’s news of Domain’s intended investment, Cokal shares fell 12% and it was trading at $0.044 per share by midday.