Proactive Investor's  Instablog

Xceed Resources (ASX: XCD) has received a BUY recommendation and A$0.25 price target, more than double its last traded share price, from broker Old Park Lane Capital.

The following is an extract from the report.

In a major restructuring event, Xceed Resources Ltd (ASX: XCD) has signed an MOU with BEE-compliant Thebe Mining Resources (Pty) Ltd ("TMR") whereby TMR is proposing to become a cornerstone investor in the Moabsvelden thermal coal project and Xceed Resources.

TMR plans to inject ZAR 90m (A$11m) towards development of the project and will replace XCD's existing BEE partners to end up with a 30% stake in the project. Xceed has also short-listed two banks to advance indicative term sheets to credit approval status for an anticipated 60% of the ZAR 266m development cost.

- A masterstroke. Xceed has lined up TMR, a subsidiary of Thebe Investment Corporation and a solid BEE partner to inject ZAR 90m (A$11m) into Xceed Resources.

A$7.75m of this will be invested at the project level, with the balance of A$3.25m available to invest directly into XCD as part of a future capital raise after the bank debt credit approval process has been completed.

The investment directly at the project level provides substantial funding for project development, minimises dilution, and removes the circling vulture of a large future equity capital raise at a punitive price.

- New partner. Execution of the agreements in the MOU would see TMR emerge with a 30% stake in Moabsvelden and replace XCD's existing BEE partner.

As a result, XCD's interest in the project will reduce to 70% from 74%, although we note this would have minimal impact on our NAV.

The project company will buy back the 26% held by the existing BEE shareholders for a cash consideration ZAR 57m, with payments due to commence six months after coal sales.

We view the transaction positively as it is clearly advantageous to XCD to have a BEE partner that contributes financially to future development costs and is not free carried.

TMR has a strong South African presence to help XCD evaluate a number of development options, and also offers the possibility to help generate new project acquisition opportunities.

- Bank financing becoming a reality. XCD has received indicative offers of development finance from various South African banks, from which the company has short-listed two banks; Rand Merchant Bank and Standard Bank to advance indicative term sheets to credit approved status.

XCD expects the potential financing to cover approximately ZAR 160m, or 60% of the total anticipated development cost of ZAR 266m.

XCD expects the banks due diligence to be completed shortly, leading to credit approved bank facilities being offered towards the end of September quarter this year.

- Fast track development. XCD believes that the successful closure of the TMR transaction should allow the company to commence off-site fabrication of coal washing plant in Q4 this year with the objective of first coal production in mid-2013, subject to regulatory receipt of approvals and mining licence.

In a world where project delays are endemic, we note that this is in fact, ahead of schedule and another vote of confidence in Xceed's management team.

We are encouraged by the advances XCD has made with arranging the debt finance for Moabsvelden and view the addition of a new, financially strong BEE partner as a critical step in fast tracking Moabsvelden into production.

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