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London Mining to make US$40m from selling non-core DMC stake

London Mining (AIM: LOND) will receive US$24.8m in cash from the sale of its non-core 27.5% interest in Delta Mining Consolidated (DMC), a South African based coal and iron focused resource company. The company agreed the deal with Sable Mining (AIM: SBLM), who currently own approximately 36% of DMC and made an offer for the company’s outstanding equity earlier this month.

"The decision to monetise the non-core investment in DMC allows London Mining to focus its management time and balance sheet on the assets it operates", London Mining chief executive Graeme Hossie said.

London Mining expects to receive a further US$15.2m in respect of guarantees made by certain members of DMC’s management team. In January 2010, London Mining and Heine van Niekerk and Pieter Wiese - DMC’s chief executive and chief financial officer respectively – entered into a private agreement, whereby Van Niekerk and Weise, among others, guaranteed that London Mining would receive total proceeds of US$40m from in the event of the sale of DMC.

As a result of the private agreement, the company is therefore due a further US$15.2m, which London Mining expects to receive in the form of Sable Mining shares, from private investment vehicles of Van Niekerk and Weise.

DMC holds substantial shareholdings in several early stage coal and iron ore assets in South Africa, including the Rietkuil coal project, Springbok Flats coal project, and Limpopo coal project. Additionally the company also has various coal prospecting and exploration rights in Botswana and Swaziland.

In August 2008, London Mining initially bought an initial 39.3% interest in one of DMC’s partially-owned subsidiary, DMC Coal, for a US$16.5m consideration and it also issued a US$18.5m loan to DMC Energy, another DMC subsidiary. Earlier this year, London Mining agreed to convert the loan and the equity stake in the respective subsidiaries, into a 28% shareholding in the DMC parent company.

The company noted that the investment is held on its balance sheet at US$29m.

On the 1 April, Sable Mining made offers to acquire the issued share capital of DMC. It agreed deals with the Avalon Trust and Mikakor CC – holding 490,374 and 25,613 DMC shares respectively - the deals represented 36.5% of DMC’s total equity and Sable paid a combined US$36.9m in shares, 81.5m shares in all.

London Mining has been involved in acquisitions of its own in recent weeks. On 30 March 2010, the company acquired the remaining 80% of Colombian coal producer International Coal Company (Pending:ICC).

ICC is targeting production of 250 ktpa (kilo tonnes per annum) of coking coal within 18-24 months and up to 400 ktpa of coke with first production within 12months. The business, which London Mining said would be the development platform for its Colombian coking coal business, was acquired from Pacific Overseas Investments, SIHL Investments International Corporation, Talman Alliance and Executive Players.

ICC consists of three coking coal concessions in the Socha coking coal region of Colombia with an aggregate area of 606 ha (hectares), a contract with Invercoal to develop and earn a 51% interest in a 250ktpa mine as well as land, environmental and construction permits and detailed plans to build coke ovens with a nameplate capacity of 200ktpa, which could go up to 400ktpa.

In terms of its iron ore business London Mining was also boosted significantly merely a day later, on the 31March, when the company announced another big increase in resources at its iron ore portfolio. London Mining continues to delineate big iron ore resources in Sierra Leone, Saudi Arabia and Greenland.

Separately this morning, Ferrous Resources, London Mining’s largest shareholder with 20 million shares (18.3%), announced that it intends to sell its stake in the company via an accelerated bookbuild, carried out by JP Morgan Cazenove and Liberum Capital.



Disclosure: The author holds no positions in the company