APM works out formal deal to buy 25% of Donkin coal project

Advanced Primary Minerals Corp. (TSX VENTURE: APD) said Aug. 8 that it has entered into a definitive agreement with Erdene Resource Development Corp. (TSX: ERD) to acquire Erdene Resources Inc., which holds all of Erdene’s North American property interests, which is mostly Erdene’s interest in the Donkin Coal Project in Nova Scotia.

Consideration for this buy will be the issuance of shares of APM by way of a court-approved plan of arrangement. Following the arrangement, all of Erdene’s North American property interests will be held by an amalgamated company (Amalco). A new name and the management team of Amalco will be announced later. The boards of both APM and Erdene have approved the transaction.

Erdene currently owns about 60% of the issued and outstanding shares of APM. In addition, three of APM’s five directors are also management of Erdene and/or members of the board of directors of Erdene. Steps have been taken by the board of directors of APM to address any potential conflicts of interest, including the appointment of an additional Independent Director, Charles Pitcher, and the formation of the Independent Committee.

APM’s current business is development, processing and sale of its primary kaolin resources in Georgia in the U.S. However, the continued weak kaolin market has led management to investigate alternative business opportunities. APM sold its kaolin production assets and associated mining operation on June 29.

Following the completion of the arrangement, Amalco will hold all of Erdene’s North American property interests, consisting primarily of its 25% interest in the Donkin project, with the remaining 75% interest held by Xstrata Coal Donkin Ltd. Given international miner Xstrata plc‘s announcement of its intent to sell its interest in the project, Donkin is expected to have a new ownership structure later this year, which is anticipated to bring the project to production.

“We strongly believe that the separation of Erdene’s major projects, Donkin Coal and Mongolian minerals exploration, into separate public companies will provide excellent value to the Company’s shareholders,” said Peter Akerley, President and CEO of Erdene. “The split will provide investors with a clearer framework to assess the investment opportunity and provide management with greater flexibility in the advancement of specific projects.”

The Donkin proposal includes the construction and operation of an underground coal mine with a lifespan in excess of 30 years. The mine would work from old entries on land on Cape Breton Island under the floor of the Atlantic Ocean. Operations would include multiple continuous-miners producing about 3.6 million tonnes per annum (Mtpa) of run-of-mine coal. A coal handling and processing plant will be constructed to produce about 2.75 Mtpa of product clean coal suitable for international coking coal markets as well as international and domestic thermal coal markets. The coal will be transported to international markets via a newly constructed barge-to-ship loadout facility.

The Xstrata Donkin sale process for 75% of the project, announced April 26, is anticipated to be concluded before the end of 2012. This process is expected to culminate with the selection of a company with the mining experience, technical expertise and financial capability to operate the proposed mine.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.