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Metals Finance's Geoff Hill Discusses U.S. Coal Acquisition With Proactive Investors

Metals Finance Ltd's non-executive chairman, Geoff Hill, discusses raising IPO funds for the acquisition of U.S. based Texas and Oklahoma Coal Company, and the subsequent name change to Pacific American Coal.

The new funds will be used to purchase a 30% shareholding in Georges Colliers Inc, the owner and operator of the P8 Mine, with first coal sales expected in 2015.

The company also retains the option to increase its equity in GCI up to 80%, which has plans to boost production from P8 Mine to 1.25 million tonnes per annum and to upgrade the coal output so that it can supply steel producers with low volatile pulverised coal.

PROACTIVE INVESTORS: Welcome Geoff.

The IPO is targeting a subscription of $3.5 million, can you please outline investor appetite for the raise?

GEOFF HILL: We are in one of the most difficult markets for mining investment I have seen for some time, but we already are over our minimum subscriptions, and with our existing shareholder base will have over 400 subscribers on the register.

The acquisition is in the U.S. and contains metallurgical coal, not steaming coal. Initially, we are targeting cash flow from domestic U.S. consumption.

Further, when you point out our current valuation versus comparable projects, we are leveraged into any coking coal price rise.

I'm also fortunate in having good support from colleagues and investors who know me and have been following the project with interest. They have been the core of our investor success.

The issue will close on tomorrow, Thursday 11th December 2014.

How will the acquisition be conducted?

GEOFF HILL: I'm off to Oklahoma next week to complete our final due diligence and sit down with our partners. We expect to complete the acquisition in the next two weeks.

Pacific American Coal will complete a reverse take-over of the Texas and Oklahoma Coal Company at a deemed value of $11.1 million, by issuance of 56 million shares and 16.8 million options.

The company will also acquire an initial equity stake in the P8 Mine of 30% - 47% that is based on a fundraising range of $3.5 - $5.0 million. An option is also held to increase the equity interest up to a maximum 80%

What does the acquisition deliver investors?

GEOFF HILL: Well we now can focus on developing the intrinsic value of our portfolio of projects.

Cash conservation will be important in this tough market but we plan to invest in Pickaxe's potential and with our option to got 80% over time, have some flexibility.

The operating P8 Mine in Oklahoma is cash flow positive and has an existing contract with a local power station. Owner, GCI has some exciting development opportunities which we will be looking in to.

How is Pacific American Coal positioned to benefit from an improving U.S. economy?

GEOFF HILL: Pacific American Coal is well located to take advantage of the recovering US economy, particularly as we are seeing local demand for our coal increase significantly.

There is potential for P8 to increase sales and improve margins by selling industrial coal into the U.S. domestic market.

Pacific American Coal will also acquire 100% ownership in a portfolio of highly prospective metallurgical coal assets located near infrastructure in four major North American coal basins in Oklahoma, Colorado and British Columbia.

The combined JORC coking coal exploration targets across the entire portfolio are between 697 million and 1,031 million tonnes.

Can you outline some key catalysts for the next year?

GEOFF HILL: With our staged acquisition of P8 and the significant mine development program in Oklahoma, investors can expect a series of announcements on our progress there.

Being listed I would also expect to see other opportunities present themselves in and around Oklahoma as our partners PickAxe are active.

Over winter in North America we will be working on and modelling all the past historical data we have now available, on our two potential tier 1 projects in British Columbia, so there will be news from there as well.

By the end of summer we will have completed sufficient exploration work.

We hope to have identified at least 1 JORC resource estimate for one, hopefully two of British Columbia projects.

Additionally, we have had a couple of expressions of joint venture interest to work through so that also will keep us busy.

PROACTIVE INVESTORS: Thank-you Geoff.

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