Exploration Insights by Robert Tyerman

Small company watchers are braced for the switch to AIM from PLUS-quoted of promising Ascot Mining, which has a potentially highly cash-generative gold operation in Costa Rica, after issuing £3 million of loan stock to AIM play Red Rock Resources and others, convertible at half its present 40.5p.

Making the same transition is David Bramhill’s Wessex Exploration, which has raised £1.875 million at 2.5p and has 1.5 per cent of a joint venture off the coast of Guyane (formerly French Guyana) with the likes of Shell and Tullow Oil.

Coal fires the deals
But coal is beginning to steal the limelight. Nat Rothschild’s £1.8 billion deal to acquire a major stake in potential Indonesian coal production of 140 million tonnes a year through reverse takeovers by his Vallar Resources company, now suspended at 972.5p, and a new company, Bumi, to be listed in London, is a sign of the enthusiasm building up. 
   
American coal producer Walter Energy has proposed bidding $3.3 billion (£2.2 billion) for AIM-quoted Canadian miner Western Coal. The deal, which is worth $11.50 a share and is subject to due diligence, is 56 per cent above Western’s current price.

It would represent a hefty profit for South African activist investor Julian Treger, whose Audley investment fund bought into Western three years ago at around 75 cents and has agreed to sell 19.8 per cent of the company to Walter Energy for $630 million. Treger fuelled speculation recently when he resigned from the Western board, and Growth Company Investor highlighted the shares at 315p, since when they have bounded to 659p.

The combined group would be one of the world’s largest quoted metallurgical coal producers. Prospects will be interesting, if the deal goes through, though partial profit taking might be judicious in the short term.

China bid lifts Caledon
China’s Guangdong Rising Assets Management (GRAM) has agreed ‘in principle’ a ‘possible’ 112p bid for Aussie coal play Caledon Resources. AIM-quoted Caledon has been in talks with GRAM for some time, and fellow AIM counter Polo Resources, with 28 per cent of Caledon and £28 million of loan facilities out to the company, has indicated non-binding support.

State-owned GRAM is on the lookout for coal assets to meet local demand. GRAM chairman Li Jinming says the company is looking forward to providing ‘the necessary investment to expand production substantially’.  

The bait for GRAM is Caledon’s array of coal interests in Queensland, principally the Minyango deposit, holding an estimated 346 million tonnes. Floated ten years ago as a China play before switching to Australian coal, Caledon shares have had a rough ride in the past.

Highlighted by Growth Company Investor in July at 24.75p, the shares have now risen fourfold to 101p, Cash in now or wait for the deal to go through the regulatory and financing hoops for the full 112p.

Timis eyes production    
Frank Timis’s African Minerals (AM) has raised $307 million at 425p for its Tonkolili iron ore project in Sierra Leone. The Guernsey-based AIM company is also seeking to arrange a $500 million ‘high-yield loan facility’ for a total funding package of around $800 million.

The aim is to take Tonkolili into production in the fourth quarter of next year, and AM says it hopes to be producing at the rate of up to 12 million tonnes of iron ore a year by the end of 2012. The company has an agreement with Chinese steelmaker Shandong Iron & Steel about financing Tonkolili’s development and hopes to lift production by a further 25 million tonnes a year.

Floated at 75p in 2007 and highlighted by Growth Company Investor in February at 399p, AM’s tightly held shares now change hands at 425p, valuing the company at £1.1 billion. They should retain support while iron ore remains in vogue and Sierra Leone stays stable.