Coalcorp Announces Transactions Implementing Focus on Core Assets

TORONTO, July 2 /CNW/ - Coalcorp Mining Inc. (TSX-CCJ) announced today that it has completed three transactions pursuant to which Coalcorp has disposed of non-core assets, as well as acquired its third party coal sales agency agreement. These transactions allow Coalcorp to focus its energies and finances on the infrastructure and production assets that are key to Coalcorp's success, as well as realize significant cost savings as the company increases its coal production to the 6.0 mtpa level.

Disposition of Caypa Mine

Coalcorp does not anticipate that the Caypa mine will be cash flow positive in the near or medium terms, and it represents an undesirable drain on Coalcorp's cash reserves. As a result, Coalcorp has completed an agreement with Xira Investment Inc., an arm's length private company incorporated in Panama, to acquire shares of Carbones Colombianos del Cerrejon, S.A. (CCC) the holder of the mining contract at Caypa. Consideration consists of up to US$25.0 million, payable in tranches, as well as the payment of a US$1.00 per tonne sales commission.

Under the agreement, Coalcorp is transferring to Xira 40% of its shareholding in CCC in consideration for the immediate payment of US$1.0 million. Subsequent payments of US$7.0 million, US$6.0 million and US$6.0 million will be made 13, 22 and 25 months from now. An additional US$5.0 million payment can be received by Coalcorp upon the satisfaction of certain conditions, to be satisfied no later than 28 months from completion. The shares transferred to Xira will be held in escrow and be subject to a pledge held by Coalcorp until all consideration is paid. Coalcorp will earn a US$1.00 per tonne sales commission on all coal sold by CCC.

Disposition of Cartagena Port and License

As previously announced, Coalcorp has determined that the Cartagena port and associated license is not critical to the company's success, given the anticipated location of Coalcorp's main coal port at Barranquilla and the restrictions on use imposed by the Colombian government on the Cartagena location. Coalcorp has therefore completed an agreement with Lando Industrial Park Inc., a Panamanian joint venture led by a group of Italian private equity investors and Promotora de Energia Electrica de Cartagena & Cia, S.C.A. E.S.P. (Proelectrica), to acquire the land associated with the port assets, as well as all of the shares of Sociedad Portuaria del Carare S.A. (Carare), the holder of the port license. Consideration consists of US$20.0 million, of which US$5.0 million was paid at closing. Subsequent payments are to be made of US$10.0 million within 120 days, and US$5.0 million within 485 days, of closing.

Proelectrica is a Cartagena, Colombia-based electrical utility, of which 21.7% is owned indirectly by Pacific Rubiales Energy Corp., a TSX-listed oil and gas production company. Pacific Rubiales shares common directors with Coalcorp (being Serafino Iacono, Miguel de la Campa, Jose Francisco Arata, Neil Woodyer, Augusto Lopez and Miguel Rodriguez), and therefore all directors in common abstained from voting on, and approving, this transaction. The board received independent valuations of the port lands that were sold that valued the lands at between US$8.8 million and US$10.6 million. Carare incurred approximately US$1.8 million to obtain the existing port license.

Acquisition of Coal Sales Agency Agreement

Additionally, Coalcorp has acquired its existing coal sales agency arrangement through the acquisition of its sales agent, GC Coal, from its shareholders, who are arm's length to the company. Consideration for the acquisition, which has also been completed, consists of the issuance of 6,649,342 common shares in the capital of Coalcorp, valued at US$10.0 million, and the payment of US$10.0 million in cash. Coalcorp also paid the vendors US$2.0 million in cash on account of sales commissions that were due to GC Coal. As part of the acquisition, Coalcorp retained the services of the GC Coal employee who has been primarily responsible for negotiating all of Coalcorp's coal sales agreements to date.

Coalcorp estimates that it will be able to realise substantial savings from the acquisition of GC Coal.

Coalcorp is a coal mining, exploration and development company with interests in the La Francia coal mine and related infrastructure projects and a number of coal exploration properties, all located in Colombia. Further information can be obtained by visiting our website www.coalcorp.ca.

Contacts

Michael Davies
Chief Financial Officer
(416) 360-4653