Legacy Iron Ore (ASX: LCY) has begun its foray into Queensland's coal sector with the planned acquisition of six highly prospective coking and thermal coal tenements in the productive Surat, Maryborough and Mulgildie Basins.
The company exited a trading halt today to reveal the strategic move, which is the first corporate transaction undertaken by Legacy since India's largest iron ore producer and rapidly developing steel maker, NMDC, acquired a 50% stake in the company in December 2011.
Highlighting the attractiveness of the region, the coal tenements are surrounded by mining giants BHP Billiton (ASX: BHP) and Xstrata (LSE: XTA), as well as a number of major Indian corporations, which have made substantial coal investments in the area.
Combined, the tenements cover around 3,200 square kilometres with coal intersections identified from historical drilling.
In the Surat Basin, although no defined drilling has been conducted for coal, historical drilling for base metals and gold has intersected coal seams of between 0.3 and 3 metres thick from within the Evergreen Formation and the area covered by two of the exploration permits.
Based on historical data, EPCA 2303 and EPCA 2304 are likely to have an exploration target of 130 to 580 million tonnes with a raw ash of 12% to 26% (adb) and a gross calorific value of 5,500 to 6,500 kilocalories per kilogram.
These tenements are also strategically located close to infrastructure, with a railway line to the port of Gladstone just 21 kilometres east of the project area.
The main coal‐bearing sequences within the Surat Basin at this location are the Evergreen Formation and similarly the Mulgildie Coal Measures of the Mulgildie Basin, the northern extension of the Surat Basin.
Sharon Heng, Legacy Iron Ore managing director, commented on the positive move:
"The tenements provide excellent targets for exploration and the delineation of large‐scale coking and thermal coal deposits which are surrounded by several operating mines and well established infrastructure that will support development and exports."
Heng told Proactive Investors today Queensland is the right address for high quality coking and thermal coal.
"Queensland seems to hold all the right quality, the grade is there."
Settlement of the acquisition
Legacy has entered into a binding term sheet with Subiaco Capital, Velarium Holdings and Sara Bella Energy to acquire the six tenements.
The company will pay a total of A$6 million via staged payments.
A refundable deposit and initial cash payment will be made to each of the vendors.
A $2.5 million deferred performance based cash payment will also be made to Subiaco Capital upon the delineation of an Inferred JORC Resource of no less than 100 million tonnes of 5,000 kilocalories per kilogram thermal coal on tenements EPCA 2303 and 2304.
Legacy plans to undertake a drilling program which will target the rapid development of JORC Resources.
The company's plan is to solely develop the tenements without the assistance of a joint venture partner.
On the acquisition trail
"This initial project acquisition is the opening foray into coal by Legacy and is only part of a continuing period of investigation of various opportunities within the Australian mining industry," Heng said.
"Looking forward, Legacy's ability to access significant funding sources means that the company's future acquisitions are likely to involve larger scale developed or producing assets."
Heng said the company is considering both greenfields and advanced acquisitions, and is in discussions with parties on both.
Legacy is also investigating potential overseas opportunities.
Heng told Proactive Investors the company is still investigating the acquisition of near-term development and producing assets, but that these types of projects take longer to acquire.
"We're still looking at near-term and producing assets, but as you know they take a lot longer and it's a long time to get to even sign any sort of MoU.
"There are a lot of projects that people have held onto and to develop them is just really expensive and they would be requiring JV partners to develop it, and I can see an opportunity where we can just buy instead of having a JV."
Legacy is, however, also considering potential joint venture partnerships.
"It depends on the quality of the assets and it's offtake that we're after," Heng said.
Future acquisitions are part of Legacy's re-aligned strategy to broaden its product portfolio post-NMDC's 50% shareholding acquisition.
NMDC intends to use Legacy as a foothold in Australia to acquire other mineral assets.
Importantly, NMDC's acquisition of a 50% interest in Legacy provides the company with substantial funding to continue its buying spree.
At the end of the March quarter, Legacy had $17.3 million in cash reserves.
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