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Universal Coal Secures Majority Stake In Brakfontein, Gains Greater Traction In Thermal Coal Market

Universal Coal (ASX: UNV) has secured a majority interest in the Brakfontein Thermal Coal Project in South Africa which could allow accelerated development of the project, with a Feasibility Study and regulatory applications well advanced.

The close proximity of Brakfontein to Universal's proposed Kangala Mine presents the company with the option of developing off the shared Kangala infrastructure, which in turn will result in lower development capital and a corresponding increase in the economy of scale of the potential larger project.

The increase in stake follows a mutual amendment to the acquisition and option agreement, entered into earlier this month between Universal Coal and Energy Holdings South Africa - a wholly owned subsidiary of Universal CoalPlc, Unity Rocks Mining and Universal Coal Development III.

The Brakfontein Project hosts a JORC thermal coal Resource of 87.6 million tonnes, of which over 80%, or 70.5 million tonnes, is in the high confidence Measured category.

Tony Weber, chief executive officer, commented on the milestone:

"We are delighted to have secured management control over the Brakfontein Project earlier than anticipated.

"Development of the project will allow Universal Coal to compete in the higher value thermal markets, with the Feasibility Study and regulatory applications aimed at moving this asset closer to production progressing well."

Approaching cash flows

Universal is moving closer to cash flows with the execution of binding term sheet with South African power utility Eskom for the supply of about 2 million tonnes of coal per annum.

Development of the Kangala thermal coal mine about 65 kilometres east of Johannesburg is expected to start in the second half of this year with first saleable coal delivered a year later.

The supply agreement has an initial term of eight years with an option for another eight year renewal once the resource base increases through Universal's adjacent property holdings.

Kangala planned production

Universal is planning an open pit operation at Kangala, with a 1.7:1 stripping ratio, which allows for a low average life-of-mine operating cost of less than A$13.50 per run of mine tonne.

In April this year the company completed the optimisation of the Bankable Feasibility Study for Kangala.

This confirmed saleable coal tonnages of about 2.1 million tonnes per annum from a planned 2.4 million tonnes per annum run of mine production rate over the life of the mine.

The initial pit will deliver an eight year life-of-mine from the 19.5 million tonnes of Proven Reserves, with further upside possible based on the available resources.

Analysis

This is a strategic step forward for Universal with the milestone securing of a majority stake in Brakfontein which could bring the company closer to production and potential cash flows from the project sooner.

The development of Brakfontein will benefit from the project's close proximity to Kangala, providing Universal with potential lower development costs and the advantage of economies of scale.

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