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Xceed Resources Receives Buy Rating, $0.30 Price Target

Xceed Resources (ASX: XCD) recently advised that the South African Department of Mineral Resources has granted a mining right in respect of the company's Moabsvelden thermal coal project in South Africa.

UK broker Old Park Lane has a Buy Recommendation on Xceed, with the target price of $0.30 more than three times the last traded price of $0.09.

The following is an extract from the broker report.

Mining right granted for flagship project

Xceed advised that the South African Department of Mineral Resources (DMR) has granted a mining right in respect of the company's Moabsvelden thermal coal project in South Africa.

The granting of the long awaited mining right is a significant achievement for Xceed and moves the company a giant leap towards commencing construction by the end of the year.

With $20m of project finance in place, Xceed is now focused on securing a coal supply agreement with Eskom.

Mining right secured.

The granting of the mining right for Moabsvelden removes a major obstacle to the development timeline of the project. We view this as a major achievement and a vote of confidence in both Xceed's management team and the project.

Permitting, especially in South Africa can be a slow and arduous process with the timeline to some extent in "the lap of the gods".

As such, we viewed the mining right as the most crucial permit to obtain. Xceed will now arrange to post the required environmental bond and register the right in order for it to become effective.

One of the critical conditions precedent.

The granting of the mining right satisfies one the critical conditions precedent required for two major events:

1). the drawdown of the Standard Bank $20m debt facility; and
2). the planned R65m (A$7m) investment into Moabsvelden at the project level by Thebe. The remaining conditions are off-take commitments and Section 11 approval (MPRDA 2002 act) for the bank debt and Thebe investment respectively.

Thebe alliance producing results.

It appears as though the relationship with Thebe Mining Resources, Xceed's BEE and 30% development partner at Moabsvelden is already providing significant momentum to the development of the project.

Xceed reports that it has been working closely with Thebe with respect to the DMR and other elements of the project.

Capex largely covered.

The Standard Bank project finance together with the proposed Thebe investment covers approximately 90% of Moabsvelden's projected R268m (A$29m) capital cost including EPCM and contingencies.

Near-term construction.

The granting of the mining right means that Xceed should still be on track to commence construction at Moabsvelden before the end of the year which we believe could result in commissioning by mid-2014.

We remain extremely positive on the project which is scheduled to produce 3 Mtpa ROM coal over a 15 year mine life via a low-strip, low-cost open pit operation.

Moabsvelden also leverages off its close proximity to Johannesburg and the inland coal market which negates the need to secure rail and port allocation for exports.

Eskom next.

Xceed will now focus on securing the anticipated coal supply agreement with Eskom, South Africa's state power utility which the company reports should be finalised shortly, followed by the remaining development permits.

Securing the mining right at Moabsvelden had the potential to be a thorn in the side for Xceed and as such we view the granting of the right as a landmark achievement which significantly de-risks the project's development timeline.

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