NewLead Holdings Ltd. NEWL ("NewLead") today announced that the Company has entered into an
agreement to acquire title and excavation rights in properties containing 18.6
million tons of estimated coal reserves for $11.0 million. NewLead also
entered into an agreement to acquire ownership and leasehold interests in
properties containing approximately 143.1 million tons of coal for $55.0
million.
Coal and Natural Gas Reserve Acquisitions
As of December 28, 2012, NewLead entered into an agreement to acquire title
and mineral excavation rights to 5,000 acres of land in Kentucky. The coal
reserves in these properties are estimated to be approximately 18.6 million
tons. The transaction is subject to execution and delivery of certain
definitive agreements and other closing conditions, but is currently expected
to close by January 29, 2013. There can be no assurance that the transaction
will be consummated. The consideration of $11.0 million was paid in the form
of notes maturing on January 29, 2013. The notes do not accrue interest, but
remain subject to a guaranty by the initial purchaser and are secured by a
mortgage lien and a security interest in the assets being purchased.
NewLead has also entered into an agreement to acquire ownership and leasehold
interests in 18,335 acres in Tennessee containing coal and natural gas and
other natural resources. The agreement contemplates that the Company will
acquire rights, title, permits and leases to coal mines with total reserves
estimated at 143.1 million tons. The transaction is subject to execution and
delivery of certain definitive agreements and other closing conditions, but is
currently expected to close in February 2013. There can be no assurance that
the transaction will be consummated. The agreement contemplates that
consideration of $55.0 million shall be payable in cash in two installments;
$30.0 million at closing and the remaining $25.0 million on the first
anniversary of the closing.
The estimated reserves stated above are as determined by independent
appraisals. The methodology used by the independent appraisers was not
compliant with the methodology required by the Securities and Exchange
Commission ("SEC") in reserve reports and, accordingly, should not be relied
upon. Such reserve information is only provided to give the best currently
available information. NewLead is undertaking to obtain reserve reports that
comply with SEC methodology. Such reports may differ materially from the
information provided herein.
The properties in Tennessee and Kentucky also include natural gas wells and
projects relating to extraction of timber, sand, gravel, fly ash and dimension
stone. Third parties are currently extracting these commodities on the
properties and paying royalties.
Coal Supply Contracts
NewLead signed two coal supply contracts with creditworthy counterparties for
the sale of coal to such parties. Annual revenue from these two contracts is
expected to be $184.7 million in the first year, $318.4 million in the second
year and $370.4 million for the third and final year.
The first contract provides for the sale of 70,000 tons of coal per month for
the first 12 months (840,000 tons annually), increasing to 140,000 tons per
month for the second year (1.68 million tons annually) and 210,000 tons per
month for the third year (2.52 million tons annually). All tonnage is subject
to a variation of 5%. The price was established based on the prevailing market
price for coal at the time the contract was entered into.
The second contract provides for the sale of 130,000 metric tons per month for
the first 12 months (1.56 million metric tons annually), increasing to 210,000
metric tons per month for the second and third years (2.52 million metric tons
annually). All tonnage is subject to a variation of 5%. The price was
established based on the prevailing market price for coal at the time the
contract was entered into.
NewLead intends to source the coal to meet such contracts from the estimated
reserves discussed above, but to the extent it is unable to do so, it will be
required to seek to source the coal from other suppliers at the prevailing
prices.
Management Company
NewLead also entered into an agreement to acquire a local coal mining
management company in exchange for compensation, paid in the form $3.0 million
in common shares of NewLead and a warrant for $6.4 million in common shares of
NewLead. Such acquisition is subject to a number of terms and conditions and
there is no assurance it will be consummated. The management company shall be
responsible for managing the daily operations of the coal mines and the
excavation of the coal from the properties.
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