Ascot Resources (ASX: AZQ) is acquiring a 90% interest in the 5,000 hectare Urabá coal mining concession in Colombia that could offer synergy benefits - including production of a blended coal product - with its Titiribi Coal Project.
Preliminary surface geology and sampling, together with extensive field mapping, indicate the coal at Urabá has some potential to be a blend metallurgical type coking coal given some elevated Free Swell Index's (FSI's).
The project is located within 25km of existing port infrastructure, 260 kilometres from an existing coal port and about 360 kilometres north of Titiribi.
Logistic costs are expected to be low due to its proximity to the coast.
"The acquisition of the Urabá Project expands the company's geographical footprint in Colombia and is in line with the company's objective of targeting projects that exhibit potentially near term production and low development capital," managing director Andrew Caruso said.
"With the recent delivery of its maiden JORC Resource at the Titiribi Project and the agreement to acquire the Urabá concession, the company continues to demonstrate its ability to fast-track its interests in Colombia."
Once the acquisition is complete, Ascot plans to proceed with a formal exploration drilling program.
The Vendor is a private company associated with Mr Paul Kopejtka and Mr Joe van den Elsen, both of whom are directors of Ascot. Ascot will therefore seek all necessary related party approvals from shareholders in order to proceed with the transaction.
Ascot believes that the Urabá concession offers various operational synergies with Titiribi.
This includes the scope for producing a blended coal product from the two projects, increasing marketability and volumes, while consolidation production of both projects could reduce transport, logistics and freight costs.
Potential also exists to increase regional volumes via acquisition of surrounding concessions.
The company said the acquisition and effective integration of Urabá will enhance the growth potential and scale of its existing portfolio adding that it will investigate these and other possible synergies in greater detail.
The Urabá concession is located in the northern-most part of the Department of Antioquia, which hosts a number of coal bearing area.
It lies on the eastern flank of the valley of the Rio Currulao, which flows northward, and continues southward past the headwaters into the valley of the Rio Mulatos.
The concession defines a coal-bearing zone that is about 21 kilometres long and 2.5 kilometres wide and can be accessed via road connecting the Antioquia central region and the Urabá central zone with the ocean.
Coal is hosted in the upper member of the Pavo Formation, which is between 15 million and 20 million years old. The coal was deposited in the lower to middle deltaic zone in conditions similar to those currently active in the lower Magdalena River.
Preliminary geological research has identified 16 major coal seams ranging from 0.8 metres to 2.2 metres thick, with a 5 metre thick coal outcrop identified in the southern part of the concession.
Geological surveys suggest that the coal-bearing zone is continuous from north to south through the length of the concession. The coal dips to the east at varying degrees between 45 degrees and 70 degrees.
Notably, preliminary assay results from coal surface samples and trenching of weathered outcropping coal indicate a reasonably high rank coal with some elevated Free Swell Index's (FSI's), suggesting that the coal has the potential to contain metallurgical qualities.
As part of the acquisition, Ascot will gain access to all previous and historical work conducted at the Urabá project site including preliminary surface geology, geological field mapping and sample analysis from surface outcropping.
Transportation & Logistics
Within 25 kilometres of the concession is the small, active Caribbean port of Turbo in the southern part of the Gulf of Urabá , which coal could be trucked and exported to established markets in Europe, Brazil and the east coast of the United States.
Turbo is also the northern terminus of the main route of the Pan-American Highway in South America.
Given the short distance to the port and relatively flat terrain, Ascot will investigate the potential to transport coal via a conveyor belt transportation system.
Alternatively coal could be trucked to the existing coal port of Morrosquillo, located 260 kilometres away along non-mountainous, relatively flat roads.
Under the conditional Heads of Agreement will acquire Carbones de Uraba, which has an agreement to acquire 90% of the issued shares in Carbones de Golfo S.A, which holds the Urabá concession.
Ascot will pay the vendor US$120,000 and the actual costs incurred by the vendor as a result of payments it must make to the 10% minority interest in Carbones Golfo in respect of certain concession maintenance costs and the corporate restructuring of Carbones Golfo required to enable the acquisition to proceed.
Within 6 months of completion, Ascot must make a further payment to the vendor equivalent to the reimbursement of actual direct costs incurred by the vendor in connection with securing its interest in Carbones Golfo and costs associated with completed geological work to date.
The quantum of the Deferred Consideration is to be agreed within 14 days of the agreement date and will not exceed US$500,000.
Carbones Uraba has agreed to pay the Minority Holder the following Resource- and Reserve-linked milestone cash payments:
- US$0.009 per tonne of Indicated and Measured Resource defined on the Concession, of which US$0.004 per tonne is payable within 120 days and $0.005 is payable within 240 days of Resource definition; and
- US$0.03 per tonne of Proven and Probable Reserve defined on the Concession, of which US$0.01 per tonne is payable within 12 months and $0.02 is payable within 24 months of Reserve definition.
The Minority Holder will also be free-carried up to the period that is three years following commercial production, at which time the 10% free-carry will be repaid from 50% of the Minority Holder's share of the Carbone Golfo's profits.
With the deal, Ascot is adding to its coal footprint in Colombia and its strategy of targeting projects that have potential for near term production and low development capital.
While Ascot continues to progress the Scoping Study for its Titiribì Project and work towards maiden coal production by mid-2014, increasing marketability and volumes of its coal through blending with coal from Urabá would have a positive impact on its economics.
This will be further improved if the reduction in transport, logistics and freight costs through consolidated production is realised.
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