Posted in | Business | Mining

Royal Coal Signs Coal Purchase Agreement with Sandstorm Metals and Energy

Royal Coal Corp. (TSX VENTURE:RDA) ("Royal Coal" or the "Company") announces that it has entered into a coal purchase agreement with Sandstorm Metals & Energy Ltd. (TSX VENTURE:SND) ("Sandstorm Energy") to acquire 18% of the first six million tons of coal produced, and thereafter 12% of the life of mine coal produced from the Company's following surface coal mining projects in Eastern Kentucky, USA:

  • Big Branch Mine, an operating thermal coal mine and any development extensions thereof
  • Sid Mining Project, a permitted and bonded thermal coal project expected to begin production in mid-2011 (collectively, the "Mines").

Sandstorm Energy will be required to make an upfront payment of US$11 million plus ongoing fixed payments of US$55/ton, subject to certain adjustments as set out in the coal purchase agreement.

The Company has provided certain production level guarantees, including that Sandstorm Energy will receive minimum cash flows of US$2 million in calendar year 2011 and minimum cash flows of US$2.5 million in each of calendar years 2012, 2013, 2014 and 2015 as a result of the further sale of the coal purchased from the Company.

The completion of the Sandstorm Energy coal purchase agreement remains subject to Sandstorm Energy completing an equity financing for minimum gross proceeds of US$60 million and the Company raising US$5 million via an equity offering or joint venture.

The Company has entered into a separate royalty agreement with Sandstorm Energy pursuant to which, in exchange for an upfront payment by Sandstorm Energy of US$3 million (to be paid by December 17, 2010), the Company will pay Sandstorm Energy a royalty equal to 2.7% of revenue from the above Mines until Sandstorm has been paid an aggregate amount of US$4.5 million, and thereafter 1.35% of revenue from the above Mines.

The Company will enter into a security agreement in favour of Sandstorm Energy as security for its obligations under the coal purchase agreement and royalty agreement.

The Company also announces it has entered into a non-binding letter of intent with Alto Group Holdings Inc. pursuant to which Alto would make a US$5 million investment in the Company's Sid Mining Project in exchange for a 50% joint venture interest in the project. The funds would be used to commence coal production at the Sid Mining Project. If the transaction closes, all operations in the joint venture project would be directed and managed by the Company.

Source: http://www.royalcoal.com/

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