Phoenix Coal Inc announced that it has entered into a definitive agreement to sell the company's ongoing surface mining business and reserves primarily in Muhlenberg County of Kentucky to a significant privately owned, Ohio based coal producer.
Upon completion of the Transaction, Phoenix's assets will include a significant cash position and the Gryphon Mining Complex.
Subsequent to the end of the second quarter 2009, the Company entered into a definitive agreement for the Transaction with the Acquirer. The Assets included in the Transaction primarily consist of four operating surface mines, surface mining equipment, a preparation plant facility, the Island Dock barge loading facility and coal properties containing the coal reserves of the surface mining business.
As consideration, the Acquirer will pay Phoenix USD 5.7 million in cash at closing and will assume all debt associated with the equipment being sold, reclamation liabilities for ongoing coal mining operations, coal sales contracts and other obligations associated with the Assets. The Company can potentially receive an additional USD 1.0 million, upon satisfaction of certain post-closing obligations. The Acquirer will provide surety bonds for the assumed reclamation obligations which, upon transfer of the active mining permits, will replace Phoenix's letters of credit, thereby freeing up approximately USD 5.8 million of restricted cash of the Company. The Company estimates the total value of the Transaction to be approximately USD 30 million, before any working capital adjustment. Completion of the Transaction is subject to certain closing conditions.
Upon closing the Transaction, targeted for September 30th 2009, Phoenix expects to have a cash balance of approximately USD 23.7 million, reclamation liability of USD 2.3 million, and vendor financing related to the Gryphon Mining Complex of USD 3.0 million. Phoenix's assets will also include Gryphon, which contains 68.4 million tonnes of proven and probable coal reserves and 46.4 million tonnes of measured and indicated coal resources.
Mr David Wiley president & CEO of Phoenix Coal said that "Phoenix had been committed to an aggressive growth strategy focused on the acquisition of operating mines and Greenfield reserves in order to build the scale necessary to support long-term growth. However, the challenging economic environment, coupled with the downdraft in the coal market, hampered our ability to execute this strategy. In light of these issues, and in addition to other unexpected challenges we encountered at our surface mining operations, the Board of Directors and Management believe it is in the best interest of shareholders to divest of these assets to a major coal producer with the scale necessary to run a profitable surface mining business. With the divestiture, we are now better positioned to take advantage of opportunities in the current market. We have a strong cash position, minimal liabilities, and nearly 70 million tons of proven and probable coal reserves at the Gryphon Mining Complex. We are currently engaged in advanced discussions with a number of qualified parties regarding the strategic options available to us with regard to Gryphon and the Company as a whole. Cormark Securities Inc which we recently hired as financial advisors, together with Management and the Board, is evaluating options that include a joint venture to finance and operate the mine, the sale of the Gryphon reserve, or a merger of Phoenix with other operating entities."
