New facility for Cambrian

02/01/2009 Robert Tyerman

Western Canadian Coal intends to provide a $36 million (£25.8 million) loan facility to potential bid target Cambrian Mining.

AIM-quoted Western, a company with producing and prospective coal assets in British Columbia and for a long time part of entrepreneurial Cambrian’s web of holdings, wants to provide the facility at an accruing interest rate of 12 per cent to enable Cambrian to repay existing debts to South African-owned Investec Bank (UK). The proposal is one step towards clearing the decks for the hoped-for £28 million paper acquisition by Western of London-based fellow AIM counter Cambrian, which has stakes in coal, gold and antimony production in North America, Australia and Wales.

Cambrian, which is paying a $600,000 fee to Western ‘in connection with the loan’, has in the other direction also agreed to accept full repayment by Western of a C$5 million loan facility provided by Cambrian to Western last year. Meanwhile, Cambrian also holds C$29 million of Western’s 7.5 per cent convertible debentures.

Mark Burridge, Cambrian’s chief executive officer, who since his appointment has been at pains to simplify the company’s previous Byzantine structure of holdings and connections, argues the loan facility, apart from helping with a ‘debt maturity mismatch’, is a preliminary step to a firm offer from Western for Cambrian. ‘Coal prices will be under pressure’, he argues, and there is ‘industrial and market logic in creating a larger, stronger and more diversified company, almost all of whose operations will be 100 per cent owned’.

Fallen stars of the recent commodity boom, shares in both Western and Cambrian trade at mere fractions of recent highs. But, at 43p and 27p respectively, both have initially responded favourably to the latest moves.

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