Proactive Investor's  Instablog

Coal developer East Energy Resources (ASX:EER) has secured a 4 year secured draw-down facility for funding of up to $5,500,000 from a Noble Group subsidiary.

The facility is with Noble's 50.1% owned subsidiary Idalia Coal Pty Ltd. Noble, through its subsidiary Onglory Pty Ltd, owns 30.46% of East Energy.

Funds provided under the facility will enable East Energy to continue exploration at its 1.74 billion tonne Blackall Coal Project (EPC 1149), located south west of major deposits owned by Hancock Coal and Waratah Coal in the Galille Basin.

It will also enable East Energy to cast an eye over other project opportunities.

Idalia is 50.1% owned by Camvill Pty Ltd, which is a subsidiary of the Noble Group Limited ("Noble"). Noble, through its subsidiary Onglory Pty Ltd, owns 30.46% of East Energy.

The funding will be provided on a staggered basis with $2.5m being available to draw down immediately, and then $1m being available to draw down each year thereafter for three years, if required.

An amount of $1.2m of the initial drawdown will be received by East Energy within the next couple of days.

Terms

- Interest on the facility may be capitalized for the term of the facility, at the discretion of East Energy.
- The applicable interest rate is the 6-month bank bill swap rate plus a margin of 7.5%.
- East Energy will be providing security for this facility with a personal property security over the Company's assets and a mortgage over the Company's tenement.
- Repayment of the facility can be made at any time and without restriction within the four year term, with a six month extension available to East Energy.
- Should this extension be required at the end of the four year term, Idalia has the right, subject to any shareholder approval required, to convert any part of the drawn down balance of the facility into ordinary shares in East Energy.

Shareholders approval

The ASX Listing Rules require East Energy to obtain shareholder approval for the security arrangements under the general security deed executed by the Company to secure the facility; this approval will be sought at the upcoming annual general meeting of East Energy in November 2012.

Analysis

Recently, East Energy grew the Blackall Thermal Coal Project Resource grow by a massive one billion tonnes to a total JORC Resource 1.74 billion tonnes.

Of this total, 627 million tonnes is in the higher confidence Indicated category, while 1.113 billion tonnes is in the Inferred category.

There is an Exploration Target of 1.8Bt to 2Bt of Thermal Coal for EPC1149 - suitable for open cut mining.

East Energy is well positioned to leverage the infrastructure options being considered for the Galilee Basin and the projected expansion of Queensland's coal ports. Blackall is in close proximity to other projects being developed, with potential infrastructure access via the Galilee.

Today's news of a $5.5m facility from a Noble Resources subsidiary is further evidence of the regard that Noble holds for East Energy and for the Blackall Coal Project. It also indicates the upside that Noble sees at Blackall and in the coal market.

East Energy has a market cap. of A$21 million and, with cash in hand of $1.5 million at the end of the June 2012 quarter, has an enterprise value of $19.5 million. On an EV/Resource, Blackall is valued at around $0.01 per tonne.

Proactive Investors believes East Energy is significantly undervalued at its current valuation based on the above.

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