Proposed Acquisition Transaction and Private Placement
NOT FOR DISSEMINATION IN THE UNITED STATES OR FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES AND DOES NOT CONSTITUTE AN OFFER OF THE SECURITIES DESCRIBED HEREIN
August 17, 2010 Toronto, Ontario – Corsa Capital Ltd. (TSXV: CSO) (“Corsa” or the “Corporation”) is pleased to announce that it has entered into an agreement dated August 16, 2010 (the “Agreement”) with Wilson Creek Energy, LLC (“Wilson Creek”) and the owners of Wilson Creek, pursuant to which Corsa will acquire Wilson Creek (the “Acquisition Transaction”), subject to the terms and conditions of the Agreement, including the completion of the Private Placement (as described below).
Wilson Creek is based in Somerset County, Pennsylvania and will, upon completion of the Acquisition Transaction, own, control and/or have options to acquire coal properties with proven and probable reserves of 5 million tons (comprised of 1 million tons of proven and 4 million tons of probable reserves) and measured and indicated resources of 74 million tons (comprised of 3 million tons of measured resources and 71 million tons of indicated resources) attributable to the Pittsburgh Seam property, of which 14 million tons are considered to be metallurgical coal) and inferred resources of 2 million tons. Wilson Creek has commenced the construction of a wash plant, located on the CSX railway, to produce metallurgical coal for domestic and export use. The wash plant is expected to be commissioned by the end of the first quarter of 2011, and will be supplied initially by three open pit mines and additional coal purchase contracts from other regional operations. In addition, Wilson Creek plans to operate two underground mines and four open pit mines that are in the permitting stage and are expected to commence production between 2011 and 2014. The Pittsburgh Seam property in Washington County, Pennsylvania, is under option to Wilson Creek and is in the permitting stage and is expected to commence production in 2013.
Donald K. Charter, a current director who will be the new President and CEO of Corsa, commented, “The team we have assembled both on the Board and management are very experienced in coal production, marketing, acquisitions and capital markets. The acquisition and expansion of Wilson Creek represents a strong first step in the development of a new metallurgical coal producer. The funds raised in the private placement will fund the construction of the Wilson Creek wash plant and provide the funds to bring on multiple mines, with the focus on the production and sale of high margin metallurgical coal.”
“As we ramp up production through the Wilson Creek wash plant, we will reduce our unit operating costs” says Joseph Gallo, EVP Operations of Wilson Creek. “The existing infrastructure and our mining methods will keep our operating costs low. The development projects are low environmental impact contour mining and drift mining and we have a clear path for permitting in Pennsylvania and Maryland. The multiple mine strategy provides operating flexibility and risk mitigation. The individuals in the Wilson Creek operations team have excellent safety records, and this focus on safety will be foremost in Wilson Creek going forward. Our operations and development projects have no legacy liabilities. Having operated in Somerset County and the surrounding area for over 30 years, we have good relationships with the local community and workforce.”
Colin K. Benner, Chairman of Corsa, states, “We are pleased with our agreement with Wilson Creek Energy LLC as it fits our strict acquisition criteria for creating long-term shareholder value through the production of metallurgical coal. Wilson Creek has assembled a very good property package and has the operational expertise to increase annual production to 2.5 million tons of coal by 2015, subject to upgrading of resources to reserves. Under the direction of Don Charter as the new President and CEO of Corsa together with the experience of the Wilson Creek operations team and the strategic advantage of the on-rail Wilson Creek wash plant, we expect to continue accretive growth in the region.”
A private placement equity financing from treasury (the “Private Placement”) of approximately $56 million and an issuance of a convertible debenture with a principal amount of approximately $7.8 million are intended to be completed by Corsa in connection with the Acquisition Transaction.
Terms of Acquisition Transaction
The completion of the Acquisition Transaction will be subject to a number of conditions, including the completion of the Private Placement and receipt of applicable regulatory, third party and shareholder approvals. The consideration payable to the Wilson Creek vendors consists of the issuance of an aggregate of 50,000,000 common shares of Corsa and a cash payment of US $13,000,000, subject to adjustment in certain circumstances. Certain liabilities of Wilson Creek accrued at closing will survive the completion of the Acquisition Transaction, including a US $2 million payment due to a third party which will be payable shortly after closing of the Acquisition Transaction. In addition, production from the Wilson Creek cleaning plant is subject to a royalty on production of clean coal processed.
The seven vendors, each an individual resident in Pennsylvania, and their respective ownership interest in Wilson Creek are as follows: Joseph Gallo (14%), Michael M. Svonavec (20.5%), John J. Svonavec (7.5%), Kerry Mears (14.5%), Rob Mears (14.5%), Curt Mears (14.5%) and Stephen Meehan (14.5%).
Upon the completion of the Acquisition Transaction and the Private Placement, Wilson Creek will be an indirect wholly owned subsidiary of the Corporation. On a fully diluted basis (after giving effect to the Acquisition Transaction, the Private Placement share issuance and shares associated with the advisory fee (as described below), the exercise of all options outstanding, and the exercise of all current warrants outstanding and warrants to be issued in connection with the Private Placement and Convertible Debenture (as described below)), the former Wilson Creek members will own approximately 23.9% of the outstanding shares of the Corporation, the Private Placement subscribers and Convertible Debenture holder (as described below) will hold an aggregate of approximately 62% of the outstanding shares of the Corporation and existing shareholders of the Corporation will hold approximately 11.2% of the outstanding shares of the Corporation.
The Agreement will terminate if the conditions to the Acquisition Transaction are not completed by December 31, 2010, or such other date as may be agreed to by the parties.
Cormark Securities Inc. and GMP Securities L.P. have been appointed lead agents on behalf of a syndicate of agents including Canaccord Genuity Corp. and Haywood Securities Inc. (collectively, the “Agents”) for the Private Placement, which will consist of subscription receipts (the “Subscription Receipts”) on an agency basis for up to $56 million at a price of $0.50 per Subscription Receipt (the “Issue Price”). The Agents have also been granted an over-allotment option to solicit buyers for up to an additional 15% of Subscription Receipts at the Issue Price, exercisable in whole or in part at any time on or prior to 24 hours prior to closing of the Acquisition Transaction.
Each Subscription Receipt will be convertible into one common share in the capital of the Corporation upon satisfaction of certain release conditions (the “Release Conditions”), including obtaining all necessary regulatory approvals and satisfying conditions to the completion of the Acquisition Transaction. The Private Placement is expected to be completed on or about September 15, 2010.
The Agents will generally receive a cash commission equal to 5% of the gross proceeds of the Private Placement (the “Agency Fee”) and that number of broker warrants (the “Broker Warrants”) that is equal to 5% of the number of Subscription Receipts issued pursuant to the Private Placement. Each Broker Warrant will entitle the holder to purchase one common share in the capital of the Corporation for a period of 24 months from the date of issuance at the Issue Price. In addition, Cormark Securities Inc. will receive an advisory fee in connection with the Acquisition Transaction of $500,000 (which will be satisfied by the issuance of 1,000,000 common shares of the Corporation, subject to regulatory approval.)
The Subscription Receipts will be issued pursuant to the terms of a subscription receipt indenture (the “Subscription Receipt Indenture”) to be entered into between the Corporation, Cormark Securities Inc., as co-lead Agent, and an escrow agent (the “Escrow Agent”). The gross proceeds from the sale of Subscription Receipts will be deposited with the Escrow Agent pursuant to the terms of the Subscription Receipt Indenture. The Subscription Receipt Indenture will provide, among other things, that upon the satisfaction of the Release Conditions, the Agency Fee and the expenses of the Agents will be paid to the Agents and the remainder of the gross proceeds and any interest thereon will be released from escrow and delivered to the Corporation. The net proceeds of the Private Placement will be advanced by the Corporation to its wholly owned subsidiary to be used to satisfy the cash portion of the purchase price (as may be adjusted) in respect of the Acquisition Transaction; to fund the construction costs of a coal cleaning plant; to fund the purchase price of a property in respect of which Wilson Creek has an option to acquire; to fund development expenses in respects of Wilson Creek’s properties and for general working capital purposes. In the event that the Release Conditions are not satisfied within 120 days of the closing of the Private Placement, the gross proceeds will be returned to the subscribers to the Private Placement.
In connection with the Private Placement, the Corporation proposes to issue and sell to certain investors a convertible debenture (the “Convertible Debenture”) in the principal amount of $7.8 million. The Convertible Debenture will be repayable concurrently with the conversion of the Subscription Receipts on satisfaction of the Release Conditions, subject to the repayment being satisfied by the issuance of common shares of the Corporation based on the Issue Price of the Subscription Receipts. The Convertible Debenture will be convertible at any time at the option of the holder into common shares of the Corporation at a price of $0.50 per common share. The Convertible Debenture will bear interest at a rate of 5% per annum and will be secured by an assignment of a security interest in the assets of Wilson Creek. The proceeds of the Convertible Debenture will be used to advance funds to Wilson Creek on a fully secured basis on the assets of Wilson Creek, which includes the wash plant, to fund payments for the construction of the wash plant. In connection with the issuance of the Convertible Debenture, the Corporation will issue a warrant to the holders of the Convertible Debenture to purchase 2,000,000 common shares of the Corporation at a price equal to $0.50 for a period of 2 years from the date of the issuance of the Convertible Debenture.
The Corporation will seek the approval of its shareholders in respect of the Acquisition Transaction as required under the rules of the TSX Venture Exchange (the “TSXV”). As permitted by the rules of the TSXV, such approval may be sought by the written consent of holders of a majority of the Corporation’s common shares.
The completion of the Acquisition Transaction and Private Placement is subject to approval of the TSXV and requires the approval and filing of a Filing Statement.
The Corporation’s common shares are listed for trading on the TSXV. However, in accordance with TSXV policy, the Corporation’s common shares are currently halted from trading and the Corporation expects that trading in the common shares of the Corporation may remain halted pending completion of the Acquisition Transaction.
Description of Wilson Creek
All information in this press release relating to Wilson Creek is the sole responsibility of Wilson Creek.
Wilson Creek is a Somerset County, Pennsylvania based metallurgical and thermal coal producer. Wilson Creek will, at closing, operate three active open pit mines and plans to develop a further four open pit mines and two underground mines. Current production is at an annualized rate of 240,000 raw tons of coal from the three existing mines, with projected capacity reaching up to approximately 2 million raw tons of coal annually in 2013 (subject to upgrading resources to reserves) from a total of nine mines, including those currently operating and those in the permitting stage and under development and under option (including the Pittsburgh Seam property).
Wilson Creek is a newly formed Pennsylvania limited liability company owned by seven individuals resident in Somerset County, Pennsylvania to consolidate their ownership of Northern Appalachian coal mining assets. Wilson Creek’s mining leases and options provide Wilson Creek with control over resources of 81 million tons of recoverable coal (comprised of 5 million tons of proven and probable reserves, 74 million tons of measured and indicated resources and 2 million tons of inferred resources), including 71 million tons of indicated resources attributable to the Pittsburgh Seam property, of which 14 million tons are considered to be metallurgical coal. In relation to the Pittsburgh Seam property, Wilson Creek has an option to acquire 100% of Westpenn Coal Inc. at a price of $20 million (payable over 4 years) to acquire 11.5 million tons of metallurgical coal and 50.5 million tons of thermal coal respectively of the total 71 million ton resource.
Wilson Creek has undertaken the construction of a coal cleaning plant with expected capacity of approximately 2 million tons of clean coal annually upon completion and commissioning, expected to be in the first quarter of 2011.
The mineral reserve and resource estimates have been prepared under the supervision of Dennis Noll of Earthtech Inc., a qualified person, as such term is defined in National Instrument 43-101 – Standards of Disclosure for Mineral Projects. Dennis Noll is independent of Wilson Creek. A technical report prepared in accordance with National Instrument 43-101 in respect of Wilson Creek’s material properties will be filed and referred to in the Filing Statement.
The reserve and resource data contained in the press release was calculated based on the following information:
The data relating to proven and probable reserves referred to above (5.2 million tons) is based on the following projected rates and costs (and assumes that the reserves consist of 88% metallurgical coal and 12% thermal coal):
Production rate: up to 780,000 tons of raw coal annually
Mine life: up to 10 years
Cash Operating costs: US$57 per clean ton
Average coal price realized: $110 per clean ton, weighted average, taking into consideration 88% metallurgical at $100 for 2010 / $130 for 2011 / $120 for long term; 12% thermal at $50 for 2010 / $53 for 2011 / $57 for long term over production of reserves
Projected cumulative cash flow from 5 million tons of reserves: US$275,000,000 (calculated based on projected coal price realized, less projected operating costs) (5.2M tons @ $110/ton – 5.2M tons @ $57/ton)
Capital expenditures: US$40,000,000
The above information is provided to support the disclosure of reserve data only. Capital costs used to determine the categorization of 5 million tons as reserves include equipment costs, cost of development and sustaining capital, but do not, for the purpose of the above disclosure only, include the capital costs associated with the coal cleaning plant. Operating costs do not include any capital costs or expenses not directly attributable to production. Cash flow analysis of reserves assumes usage of company-owned cleaning plant, which is currently under construction.
The reserves estimate is based on the following drill hole data:
Proven reserves consist of three active coal surface mines with reserve footprints ranging from 26 to 76 acres. Data points consist of air rotary drilling, core drilling, and channel sampling in active cuts. Measurement density ranges from 3 acres per data point to 5 acres per data point.
Probable reserves consist of four proposed coal surface mine sites and one underground mine coal site. The probable reserve footprints for the surface mines range from 22 to 48 acres and the probable reserve footprint for the underground mine is 936 acres. Data points consist of air rotary drilling and core drilling for the surface mine sites and core drilling for the underground mine site. Measurement density for the surface mine sites ranges from 1 to 2 acres per drill hole for the surface mine sites and 29 acres per drill hole for the underground mine site.
The resources estimate is based on the following drill hole data:
Measured resources consist of 28 acres of area on a permitted, active surface mine site that was excluded from the proven reserve category, a 28 acre surface mine site, and 702 acres of an additional seam to be added to the underground mine site categorized as a probable reserve. Data points for the surface mine sites consist of air rotary drilling, core drilling, and channel sampling in active cuts. Core drilling was performed at the underground mine site and this data is shared with the seam proposed to be mined as a probable reserve. Measurement density for the surface mine sites ranges from 3 to 5 acres per data point for the surface mine sites and 23 acres per drill hole for the underground mine site.
Indicated resources consist of 1 acre and 5 acres, respectively, of areas on two of the surface mine sites that were excluded from the probable reserve category, a 20 acre surface mine site, which needs more drilling to assess its reserve potential, and 11,702 acres associated with a proposed underground mine. Data points for the surface mine sites consist of air rotary drilling and core drilling. Core drilling was performed at the underground mine site. Measurement density for the surface mine sites ranges from 1 to 6 acres per data point for the surface mine sites and 148 acres per drill hole for the underground mine site.
An audited balance sheet of Wilson Creek as at June 30, 2010 and alternative financial information for the periods ended December 31, 2009 and June 30, 2010 for Wilson Creek in respect of the two operating mines which were in operation prior to June 30, 2010 have not yet been completed and will be included in the Filing Statement prepared in connection with the Acquisition Transaction.
Insiders, Board of Directors and Senior Management of the Corporation
Upon completion of the Acquisition Transaction, the former Wilson Creek members will be entitled to nominate two representatives to the board of directors of the Corporation. The board of directors of the Corporation will be increased to eight (8) directors, of which five (5) directors will be independent of management. The directors and members of senior management will be as follows upon completion of the Acquisition Transaction:
Colin K. Benner (Chairman)
Donald K. Charter (President and CEO)
John H. Craig
Michael Svonavec (President of Wilson Creek)
Kerry Mears (Vice-President, Business Development of Wilson Creek)
Donald K. Charter (President and CEO)
Michael Svonavec (President of Wilson Creek)
Kerry Mears (Vice-President, Business Development of Wilson Creek)
Joseph Gallo (Executive Vice President, Operations of Wilson Creek)
Stephen Meehan (Vice President, Coal Marketing of Wilson Creek)
After giving effect to the Acquisition Transaction, no current shareholder or owner of Wilson Creek will own more than 10% of the common shares of the Corporation, provided however that at this time it is unknown whether subscribers of Subscription Receipts under the Private Placement will acquire a sufficient number of Subscription Receipts to beneficially own or exercise control over more than 10% of the voting rights of the outstanding common shares of the Corporation (after giving effect to the Acquisition Transaction, the Private Placement and the conversion of the Convertible Debenture).
Background on New Officers and Directors
Colin K. Benner – Chairman
Colin Benner is a professional mining engineer with over 40 years of experience in mining engineering and management in the Canadian and International mining industry. Currently he serves as a director on a number of Boards of other mining companies.
Donald Charter – President, CEO and Director
Donald Charter has over 20 years of experience in the capital markets and mining industry. He served as EVP of Dundee Corporation for 10 years, as well as Chairman and CEO of Dundee Securities Corporation. He currently sits on the Board of Directors of a number of public companies.
John H. Craig
John Craig is a partner at Cassels Brock and Blackwell LLP specializing in securities law acting primarily for public mining companies. He also serves on the boards of a number of companies in the resource industry.
Patrick Connolly has over 30 years experience as a banking executive, and was most recently EVP and Head of North American Global Finance for Dresdner.
Timothy Phillips – Director
Timothy Phillips has over 34 years experience in the coal mining industry, and held several senior positions with the PBS Coals Ltd., a coal producer in Somerset County, PA, prior to his retirement.
Robert Scott - Director
Robert Scott has over 40 years experience in the coal industry, most recently as President and CEO of PBS Coals Ltd.
Michael Svonavec – Director, President of Wilson Creek
Michael Svonavec has over 30 years experience in Somerset County operating over 30 strip mines and preparation plants. He is the former owner of Svonavec Inc., a private producer of 600,000 tons of coal and 400,000 tons of aggregates annually in Somerset.
Kerry Mears – Director, VP Business Development, Wilson Creek
Kerry Mears has over 36 years of experience in mining coal, and developed and operated 15 deep and 23 strip mines in Pennsylvania.
Joseph Gallo – EVP Operations, Wilson Creek
Joseph Gallo, a mine engineer, has over 30 years in the coal business, and is the former President for PBS Coals Ltd.
Stephen Meehan – VP Coal Marketing, Wilson Creek
Stephen Meehan has over 36 years experience in the coal industry. He is a former sales executive with Tanoma Energy and Alpha Natural Resources.
For further information please contact:
About the Corporation
The Corporation is a Vancouver, BC based mineral resources company. The Corporation’s management team, board of directors, and advisory board, have significant experience in mineral resource property acquisition, finance, and operations. The Corporation’s team has specific experience in developing and mining coal deposits.
As noted above, completion of the Acquisition Transaction is subject to a number of conditions, including but not limited to, acceptance by the TSXV, approval of the shareholders of the Corporation and completion of the Private Placement. The Acquisition Transaction and Private Placement will only close once the required approvals noted in this press release have been obtained. There can be no assurance that the Acquisition Transaction or the Private Placement will be completed.
Investors are cautioned that, except as disclosed in the Filing Statement to be prepared in connection with the Acquisition Transaction, any information released or received with respect to the Acquisition Transaction may not be accurate or complete and should not be relied upon. The trading in the securities of the Corporation should be considered highly speculative.
Certain information set forth in this press release contains “forward-looking statements”, and “forward-looking information” under applicable securities laws. Except for statements of historical fact, certain information contained herein constitutes forward-looking statements which include management’s assessment of Wilson Creek’s future plans and operations and are based on Wilson Creek’s current internal expectations, estimates, projections, assumptions and beliefs, which may prove to be incorrect. Some of the forward-looking statements may be identified by words such as “expects” “anticipates”, “believes”, “projects”, “plans”, and similar expressions. These statements are not guarantees of future performance and undue reliance should not be placed on them. Such forward-looking statements necessarily involve known and unknown risks and uncertainties, which may cause Wilson Creek’s and the Corporation’s actual performance and financial results in future periods to differ materially from any projections of future performance or results expressed or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to: liabilities inherent in coal mine development and production; geological, mining and processing technical problems; Wilson Creek’s inability to obtain required mine licenses, mine permits and regulatory approvals required in connection with mining and coal processing operations; dependence on third party coal transportation systems; competition for, among other things, capital, acquisitions of reserves, undeveloped lands and skilled personnel; incorrect assessments of the value of acquisitions; changes in commodity prices and exchange rates; changes in the regulations in respect to the use of coal; the effects of competition and pricing pressures in the coal market; the oversupply of, or lack of demand for, coal; currency and interest rate fluctuations; various events which could disrupt operations and/or the transportation of coal products, including labor stoppages and severe weather conditions; the demand for and availability of rail, port and other transportation services; and management’s ability to anticipate and manage the foregoing factors and risks. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. The reader is cautioned not to place undue reliance on forward-looking statements.
The TSX Venture Exchange has in no way passed upon the merits of the proposed transaction and has neither approved nor disapproved the contents of this press release. Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
The securities described in this press release have not been and will not be registered under the United States Securities Act of 1933, as amended, and may not be offered or sold in the United States or to a U.S. person absent an available exemption from the registration requirements of such Act.