Australia’s Avexa Ltd. (ASX: AVX) said Nov. 5 that it wants to take the unusual route of funding its prescription drug development efforts by investing in a coal mine project in Alabama.
The company said it will invest US$4m to purchase a 25.5% equity share in Coal Holdings USA LLC. Approval for the investment will be put to Avexa shareholders at its upcoming annual general meeting, which will be held on Dec. 14.
Coal Holdings USA holds a mineral lease allowing it to mine the North Pratt coal seam at a site located north of Birmingham, Ala. There is already an existing underground mine which will be re-opened to produce coking coal, Avexa said. Coal Holdings is currently 100% owned by Stray Dog Mining LLC.
In addition to investing US$4m in Coal Holdings USA, Avexa will also lend Coal Holdings up to US$6m. The loan facility will be secured by a charge over Coal Holdings’ assets or real property. Avexa’s money will be used to purchase the equipment and machinery necessary to re-open the mine and commence operations in addition to meeting usual working capital requirements and transaction costs.
The remaining 74.5% of Coal Holdings will be owned by three entities: Singapore-based entrepreneur Jonathan Lim; U.S. coal operator Jimmie Ryan; and Wild Dog Mining Pty Ltd., an Australian private company represented by mining contractor Colin Macdonald. Ryan and Wild Dog Mining currently own 100% of Coal Holdings and are selling a 51% stake to Avexa (25.5%) and Jonathan Lim (25.5%).
The North Pratt seam at this site contains an estimated 20 million tons of metallurgical-grade coal reserves, Avexa said. A National Instrument 43-101 technical report shows a measured and estimated resource of approximately 10.5 million clean recoverable tons of in-situ met coal. Extracting the coal will take about 15 years. The mine will employ up to 100 workers, working two shifts a day. The first coal is expected to be produced within 9-12 months, Avexa noted.
The mine is budgeted to produce 660,000 tons of coal a year at full production, generating US$85m a year based on the project’s business plan assumptions. Iain Kirkwood, Chairman of Avexa, said: “The deal makes good commercial sense for Avexa. Two experts have reviewed and verified the technical and economic assumptions used in the project’s business plan. Production costs are budgeted at US$50/ton. The base case metallurgical coal selling price of US$130/ton is expected to generate US$85 million a year gross. Earnings before interest and tax is expected to be US$50 million a year. Avexa’s 25.5% share will earn US$12.5 million pre-tax each year or US$8.1 million after tax for the 15-year life of the mine based on these assumptions. Avexa’s US$6 million loan should be repaid out of the first year’s cash flow.”
Kirkwood said the annual surplus cash flow from the project will allow Avexa to fund internally the development of several biotechnology initiatives, including anti-HIV drugs.
“Avexa’s board understands this is a bold strategy but believes this is the best option for Avexa,” said Kirkwood. “Over the past 12-18 months, the board has considered and rejected a multitude of potential investment and merger opportunities many of which attributed no value to Avexa’s portfolio of anti-infective projects. This opportunity stands out. We believe the model will change the paradigm for funding biotechnology, which previously has been done via multiple equity raisings and Federal and State government grants including the R&D tax rebate concessions.”
No mines are listed with the U.S. Mine Safety and Health Administration under either Stray Dog Mining or Coal Holdings USA. Both companies have been registered in recent months with the U.S. Office of Surface Mining, with OSM now showing any mine permits assigned to either company. Ryan, however, is associated with a number of Alabama companies with mine permits, including the newly-registered North Pratt Mining LLC, which is shown as being owned by Coal Holdings USA. North Pratt Mining is shown as having a pending application with the Alabama Surface Mining Commission for the Pratt No. 1 mine.
North Pratt Mining seeks permit for Alabama deep mine
North Pratt Mining filed an Aug. 17 permit application at the Alabama commission for the Pratt No. 1 deep mine surface facilities, to be located in Jefferson County. The mine site will consist of approximately 99 acres of surface disturbance, of which about 38 acres has been previously disturbed by surface mining, said the application. The coal recovery area will consist of approximately 600 acres for the proposed five-year mine plan. All of the Pratt coal seam mining rights within the mine area are owned by RGGS Corp. It is anticipated that continuous miners and continuous haulage will be used for room-and-pillar mining. Four previous entries were driven in a southeasterly direction by a previous mining operation and will be utilized by this operation.
The new mining operations are planned for a seven entry system that will produce pillars of 40 feet wide and 40 feet long and coal recovery of approximately 55%. Coal removed from the mine will be processed through a dry screening system prior to being washed onsite.
Construction of the preparation plant, conveyor systems, rotary breaker, holding bins, and transfer houses will begin with the clearing and grubbing of the construction site, the application said. This prep plant system will have a capacity of 250 tons per hour of mine run coal. Dependent upon the market for specific coal products, additional washing methods may be added to this facility.
The proposed entry to be faced up for the Pratt No. 1 mine is south of the workings of the old Lindbergh mine of Brookside Pratt Mining Co. on the Pratt seam of coal. The reserve area of the new Pratt No. 1 mine is bordered by the Franklin mine of Franklin Coal on the west. The haul road and Coarse Refuse Disposal Area No. 1 serving the Pratt No. 1 mine is underlain by the old workings of the Lindbergh mine, the Davidson Coal Co. Coal Creek mine and the Blossburg mine. The majority of the Pratt No. 1 mine is underlain by the old workings of the Jim Walter Resources Bessie mine.
North Pratt Mining, out of Fort Smith, Ark., was first listed in the OSM database on April 25. OSM shows the company as 100% owned by Coal Holdings USA, with the President of North Pratt Mining being Jimmie Ryan. The parent of Coal Holdings USA is Stray Dog Mining, with OSM data showing Ryan as the 50% owner of Stray Dog Mining, with the other 50% held by Wild Dog Mining. Jason Lawler is shown as the sole owner of Wild Dog Mining. OSM shows Ryan with past positions in Alabama producers like Kodiak Coal and Oak Mountain Energy. OSM doesn’t show Lawler with any past coal company associations.