The transaction, which is subject to shareholder approval, is with Coal Development Holding B.V, a wholly owned investment vehicle of the African Minerals Exploration & Development Fund, at A$0.14 cents per share, a 45% premium to Universal's last traded price.
The placement proceeds will be used to fund the equity component of Kangala thermal coal project, with the project now fully funded. The equity funding will enable Universal to draw down on the 65% project finance facility being provided by Rand Merchant Bank.
Under the terms of the deal Coal Development will provide strategic support and investment to Universal and have the right to appoint two non-executive directors to the board.
It is anticipated that the transaction will be completed by 7 January, 2013, with Universal shareholders likely to vote on increasing the single ownership threshold to 30% from the current 20% in late December.
Universal Coal is a South African focussed coal company holding interests in three thermal coal projects which currently contain over 317 million tonnes of JORC Resources.
The company has an attributable interest of 70.5% in the Kangala Project, which hosts a resource of 147 million tonnes, with half in the measured category. Reserves are 19.5 million tonnes.
The project is also ideally situated in the Witbank coalfield in South Africa, which supplies more than 50% of South Africa's saleable export and domestic coal.
In the last quarter, Universal concluded a full due diligence for Kangala following the finalisation of the commercial terms for a Coal Supply Agreement (NYSE:CSA) with Eskom, a major South African power utility.
Universal Coal also completed detailed design and engineering of the processing plant and infrastructure phases with preferred contractors commencing pre-site establishment activities for the construction, erection and commencement of mining operations at Kangala.
The company will follow up the Kangala project with the development of the Roodekop Project and Brakfontein Project subject to positive feasibility studies, financing and other regulatory approvals, with both projects being planned with the object of maximising their export coal potential.
It also has an earn-in agreement over two coking coal projects- Berenice and Somerville- that together contain 1.64 billion tonnes of JORC compliant resources.
The shares placed at a 45% premium highlights Universal's potential, with Coal Development's funding jumpstarting the flagship Kangala thermal coal project, with it likely to go into production next year.
With the funding, Universal is now in a position to draw down against the project finance facility (65% of the project capital) being provided by Rand Merchant Bank.
It is now finalising this project finance facility, which is in final stages of legal documentation with RMB, which is expected to be ready for draw down in line with project schedules during first quarter 2013.
The potential of Universal Coal has not been lost on the broker community, with Helmsec Global Securities recently rating the stock as a buy with a 12 month price target of $0.42.