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FERRUM CRESCENT LIMITED - DEFINITIVE AGREEMENT WITH RIO TINTO TO ACQUIRE TWO HIGH QUALITY ANTHRACITE COAL ASSETS IN SOUTH AFRICA

Release Date: 25/09/2012 09:29
Code(s): FCR     PDF:  
Wrap Text
DEFINITIVE AGREEMENT WITH RIO TINTO TO
ACQUIRE TWO HIGH QUALITY ANTHRACITE COAL ASSETS IN SOUTH AFRICA

  
Ferrum Crescent Limited
(Previously Washington Resources Limited)
 (Incorporated and registered in Australia and registered as an external company in the Republic of South Africa)
(Registration number A.C.N. 097 532 137)
(External company registration number 2011/116305/10)
Share code on the ASX: FCR
Share code on AIM: FCR
Share code on the JSE: FCR          ISIN: AU000000WRL8 
(“Ferrum Crescent” or “the company” or “the group”)




FORBES COAL ANNOUNCES DEFINITIVE AGREEMENT WITH RIO TINTO TO
ACQUIRE TWO HIGH QUALITY ANTHRACITE COAL ASSETS IN SOUTH AFRICA

-    EXPECTED INCREASE IN ANNUAL PRODUCTION CAPACITY TO 2.5 MILLION TONNES

-   ACQUISITION FULLY UNDERWRITTEN BY INVESTEC BANK

TORONTO, ONTARIO – September 24 , 2012: Forbes & Manhattan Coal Corp. (TSX: FMC)
(JSE: FMC) (“Forbes Coal” or the “Company”) and Rio Tinto PLC (LSE:RIO) (“Rio Tinto”)
are pleased to announce that they have entered into a definitive agreement where Forbes Coal
will acquire 100% ownership of the shares and shareholder claims of Riversdale Mining Limited
in Riversdale Holdings (Proprietary) Limited (“RHPL”).

Forbes Coal will as a result acquire RHPL’s 74% interest in the Zululand Anthracite Colliery
(“ZAC”), a current producing anthracite mine, and RHPL’s 74% interest in the Riversdale
Anthracite Colliery (“RAC”), an undeveloped anthracite resource. The balance of 26% of each of
ZAC and RAC is owned by Black Economic Empowerment Partners. Both properties are
located in the Kwa-Zulu Natal province of South Africa and are located approximately 230
kilometres from Forbes Coal’s Aviemore operations.

The base consideration payable by Forbes Coal for the transaction is estimated to be ZAR 440
million ($52.3 million CAD), via a structured deal with a fixed payment of ZAR 315 million ($37.5
million CAD) payable on closing, and two additional variable payments each estimated to be
ZAR 62.5 million ($7.4 million CAD). The first variable payment will be based on saleable
production levels for the twelve months ending June 30, 2013 and the second variable payment
is based on saleable production levels for the twelve months ending June 30, 2014. In addition
to these payments, Forbes Coal will also pay an annual revenue share of 10% on incremental
revenue above ZAR 850 million ($102 million CAD), to be adjusted for CPI, until June 30, 2025.

ZAC Asset Highlights
The ZAC asset is thought to be one of last, large-scale producers of high-quality anthracite
product in South Africa. Some of the key features of ZAC include:

- High quality anthracite production;
- Historic average run of mine production of 700,000 tonnes of coal per annum over the
last five years;
- Historic EBITDA of $10 million to $15 million per year over the last four years;
- Combined yield of approximately 75% on run of mine production;
- Rail siding 10 kilometres from plant owned and operated by ZAC; and
- 150,000 tonnes per annum of Quattro allocation at Richard’s Bay Coal Terminal
(“RBCT”).

Fully Funded by Investec Bank (SA)

The financing of the acquisition will come from a fully guaranteed ZAR 396 million ($47 million
CAD) debt facility and cash on hand. The debt facility is being underwritten by Investec Bank, a
South African based financial institution, and is available to be drawn on closing, which is
expected to occur in May 2013. Forbes Coal will review its optimal capital structure prior to
drawdown of any of the debt facility in order to source the most effective cost of capital for the
Company. However, there is no requirement to make any payments for ZAC until the title has
transferred from Rio Tinto to Forbes Coal following, in addition to other conditions, Section 11
consent from the South African Government. It is also anticipated that a portion of the variable
payments will be funded through the free cash flow generated from the acquired property.

Acquisition Rationale

CONSOLIDATION – Delivery on Forbes Coal’s growth strategy and consistent with strategy of
consolidation in Kwa-Zulu Natal region
SCALABILITY – Scales Forbes Coal’s annual production capacity to an estimated 2.5 million
tonnes
QUALITY– ZAC increases Forbes Coal’s portfolio of high quality coal products and greater
access to metallurgical coal market
MARKETING – Solid domestic and export offtake agreements in place
SYNERGIES – Potential synergies with Aviemore in terms of blending product
LOGISTICS – Siding and blending facility at ZAC a strategic asset
DIVERSIFICATION – Forbes Coal will have six shafts under its control, diversifying production
risk
COST SAVING – Potential overhead savings for both Forbes Coal Dundee and ZAC operations
UPSIDE – RAC is expected to provide additional exploration and production upside

Expected Synergies

In addition to these benefits, the Company anticipates a number of synergies which could
increase its consolidated EBITDA by a further $5 million. With proximity to the Aviemore
property, optimization of transportation and inventory management is expected. As well,
increased production volumes should allow the company to negotiate preferential port and rail
rates. Cost savings may also be experienced as general overhead costs can be minimized. The
Company also sees opportunity to expand capacity at ZAC processing facilities to support
organic growth with relatively low capital injection.

Forbes Coal Pro-Forma

On a pro-forma basis, following the acquisition of the ZAC property, the new Forbes Coal is
expected to have the following characteristics:

- Estimated total production capacity of up to 2.5 million tonnes (1.3 million tonnes
Bituminous and 1.2 million tonnes Anthracite), a total production increase of 39%;
- An 80% increase in rail siding facilities;
- Potential EBITDA of $32-47 million, which represents up to a 114% increase from
consolidated EBITDA of $22 million for Forbes Coal for the twelve months ended
February 28, 2012; and
- A shift in the Company’s production profile, currently at a ratio of 30% metallurgic/70%
bituminous, to an anticipated ratio of around 50% metallurgic/50% bituminous increasing
the amount of high-margin anthracite product being sold.

Stephan Theron, President and CEO of Forbes Coal, commented on the acquisition: “The
acquisition of ZAC significantly accelerates Forbes Coal’s goal of becoming a 3-4 million tonne
producer. Our original timeframe was to complete this within the next 18 months and with the
acquisition we expect to be producing almost 2.5 million tonnes in less than a year’s time. We
also recognize that there is a shortage of mid-tier, premier quality producers in the coal market
in South Africa and this acquisition is likely to provide the Company with both short and long
term positive benefits. ZAC is known as a premium high quality anthracite producer and
increases Forbes Coal’s exposure to the high margin metallurgical coal market.”

Conference Call

Forbes Coal will be holding an investor conference call to discuss the details of the acquisition.
The call details are as follows:

Date:                                          Tuesday, September 25, 2012
Time:                                          9:00am (ET)
Pass code:                                     4709890
For Local and International, call:             +1-416-340-2217
North America Toll Free, call:                 +1-866-696-5910
Global Toll Free, call:                        (Access Code)-800-8989-6336

To dial using the Global Toll Free Line, use your country’s access code found in the document
here. Global Toll Free is not available in South Africa; please dial in using the Local/International
number.

A live webcast of the conference call will also be available on the Forbes Coal website at
www.forbescoal.com and a recording will be posted to the website shortly after the call is
completed.

About Forbes Coal

Forbes Coal is a growing coal producer in southern Africa. It holds a majority interest in two
operating mines through its 100% interest in Forbes Coal (Pty) Ltd, a South African company
("Forbes Coal Dundee") which has a 70% interest in Zinoju Coal (Pty) Ltd. ("Zinoju"). Zinoju
holds a 100% interest in the Magdalena bituminous mine and the Aviemore anthracite mine in
South Africa (collectively, “the Forbes Coal Dundee Properties”). The mines have a substantial
resource base and each mine has a projected life span in excess of 20 years. Forbes Coal is in
the process of increasing production at both mines using existing infrastructure and capacity.
The Company has in-place transportation infrastructure allowing its coal to reach both export
corridors and the growing domestic coal market. Forbes Coal has a strong balance sheet and
an experienced coal-focused management team.

Please refer to the Company's NI 43-101 compliant technical report on the Slater Properties
dated March 1, 2011 entitled "Technical Report on Slater Coal and Subsidiaries, KwaZulu-Natal
Province, South Africa", available on the SEDAR profile of the Company at www.sedar.com.
Additional information is available at www.forbescoal.com.

Cautionary Notes:

Johan Odendaal, B.Sc.(Geol.), B.Sc.(Hons)(Min. Econ.), M.Sc. (Min. Eng.), a director of
Minxcon and an independent Qualified Person, as defined in National Instrument 43-101 has
reviewed and approved the scientific and technical information contained in this release.

The ability of the Company to increase production amounts has not been the subject of a
feasibility study and there is no certainty that the proposed expansion will be economically
feasible.

This press release contains “forward-looking information” within the meaning of applicable
Canadian securities legislation. Forward-looking information includes, but is not limited to,
statements with respect to the anticipated production results with respect to the Forbes Coal
Dundee Properties, future financial or operating performance of the Company and its projects,
statements regarding the anticipated improvements in logistical support and anticipated
improvements in sales, statements made with respect to prospects for the business of the
Company, requirements for additional capital, government regulation of the mineral exploration
industry, environmental risks, acquisition of mining licences, title disputes or claims, limitations
of insurance coverage and the timing and possible outcome of pending litigation and regulatory
matters. Generally, forward-looking information can be identified by the use of forward-looking
terminology such as “plans”, “expects” or “does not expect”, “is expected”, “budget”,
“scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, or
“believes”, or variations of such words and phrases or state that certain actions, events or
results “may”, “could”, “would”, “might” or “will be taken”, “occur” or “be achieved”. Forward-
looking information is subject to known and unknown risks, uncertainties and other factors that
may cause the actual results, level of activity, performance or achievements of the Company to
be materially different from those expressed or implied by such forward-looking information,
including but not limited to: general business, economic, competitive, foreign operations,
political and social uncertainties; a history of operating losses; delay or failure to receive board
or regulatory approvals; timing and availability of external financing on acceptable terms; not
realizing on the potential benefits of the proposed transaction; conclusions of economic
evaluations; changes in project parameters as plans continue to be refined; future prices of
mineral products; failure of plant, equipment or processes to operate as anticipated; accidents,
labour disputes and other risks of the mining industry; and, delays in obtaining governmental
approvals or required financing or in the completion of activities. Although the Company has
attempted to identify important factors that could cause actual results to differ materially from
those contained in forward-looking information, there may be other factors that cause results not
to be as anticipated, estimated or intended. There can be no assurance that such information
will prove to be accurate, as actual results and future events could differ materially from those
anticipated in such statements. Accordingly, readers should not place undue reliance on
forwardlooking information. The Company does not undertake to update any forward-looking
information, except in accordance with applicable securities laws.
FOR FURTHER INFORMATION PLEASE CONTACT:

Stephan Theron                            Colinda Parent
President and Chief Executive Officer     VP, Corporate Development
+1 (416) 861-5912                         +1 (416) 861-5811
Email: stheron@forbescoal.com              Email: cparent@forbesmanhattan.com

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