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Xceed Resources Attracts Share Price Target Of A$0.25 From UK Broker

Xceed Resources (ASX: XCD) has received a Buy recommendation and a $0.25 share price target from Old Park Lane Capital after achieving several key milestones for its Moabsvelden thermal coal project in South Africa.

The UK broker said upcoming key catalysts for Xceed will be the receipt of a credit approved bank term sheet for debt finance and the granting of a mining licence.

The following is a copy of the report.

A strong end to the year

Xceed's report for the December quarter sets out some key milestones that should pave the way for the development of the company's Moabsvelden thermal coal project in South Africa.

The South African banks shortlisted by Xceed to prepare offers of debt finance for Moabsvelden are close to completing their evaluation of the independent technical review of the project's feasibility study.

Xceed anticipates receiving a credit approved bank term sheet during the current quarter.

Xceed also completed a number of transactions to restructure the BEE ownership of Moabsvelden as part of a ZAR90m investment by Thebe Mining Resources (Pty) Ltd ("TMR") which is contingent on the granting of a Mining Right which the company expects to receive in late Q1 or early Q2 this year.

- BEE restructuring and cornerstone investment. Substantial progress has been made with agreements between Xceed and TMR, and Xceed and the founder Black Economic Empowerment ("BEE") partners being executed.

The process will see TMR become the new BEE partner at Moabsvelden and inject ZAR65m (A$7m) directly at the project level and potentially a further ZAR25m (A$2.6m) into Xceed at the corporate level as part of a future capital raising.

The ZAR65m has already been transferred into an escrow account and will be released subject to Xceed receiving a credit approved offer of bank finance, the granting of a Mining Right, and Ministerial approval for the change in project ownership.

The founding BEE shareholders will be paid a consideration of ZAR57m from operating cash flows over a four year period but only commencing six months after first coal sales.

Xceed made an early payment of ZAR10m towards this obligation during the December quarter. As of 31st December the company held cash of A$4.5m.

- A masterstroke. We continue to hold the view that the TMR transaction is of significant benefit to Xceed.

Although Xceed's stake in Moabsvelden will reduce from 74% to 70%, the benefits of the deal outweigh any potential downshift in valuation as a result of the ownership change.

In particular, TMR will replace a free-carried BEE partner with a contributing partner, whilst the ZAR65m investment at the project level minimises dilution and reduces Xceed's capex funding burden.

Furthermore, TMR is well capitalised and offers the opportunity for enhanced working relationships with Eskom, in addition to being a potential source of new project acquisitions.

- Bank finance close to ignition. During the December quarter the South African Banks were busy reviewing the independent technical report on Moabsvelden which was prepared by Badger Mining and Consulting.

Regrettably, the process was not completed before the Christmas break but Xceed anticipates credit approval from one or more banks during the March quarter.

Xceed expects to secure debt funding for approximately 60% of Moabsvelden's slated A$30m development cost.

- Project progress. Xceed has sent two bulk samples of Moabsvelden coal to Eskom, South Africa's state-owned power utility, for detailed quality analysis.

This is a key step that will enable the company to advance discussions with Eskom for a binding coal supply agreement in respect of the project's domestic (20 MJ/kg) quality coal.

Xceed also completed detailed design work during the quarter in respect of civil design works. We think this adds considerable comfort as Moabsvelden nears the start of construction.

- Red tape! Xceed expects the Moabsvelden Mining Right to be granted by the end of the March quarter or early in the June quarter.

We are encouraged by the progress that Xceed has made during the quarter. The upcoming key catalysts will be the receipt of a credit approved bank term sheet for debt finance and the granting of a Mining licence.

If both of these can be secured before the end of the current quarter, then we estimate that Xceed should be on track to commission Moabsvelden (3Mtpa ROM) by this time next year.

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