Xceed Resources (ASX: XCD) has updated the market today its Bankfontein Project and the financing of its Moabsvelden thermal coal project - with the 2013 production target remaining on track.
Xceed is currently in advanced stages of securing development financing for Moabsvelden, where there are no infrastructure constraints to development with all production to be sold at the mine gate. The project expected to deliver $20 million in net operating cashflow per year for 15 years.
As previously advised, Xceed has received from locally based South African banks indicative, non-binding offers of project finance for the development of Moabsvelden - which is located in the Witbank coalfield of South Africa.
To enable these financial institutions to submit final credit approved offers of project finance, Badger Mining & Consulting, a locally based consultancy firm with recognised expertise in the South African coal industry, has been appointed on behalf of the financial institutions to undertake an independent technical review of the Moabsvelden bankable feasibility study.
Xceed said that this review is expected to be completed in the coming weeks. Subject to the results of the Badger review, the company then expects to finalise the process of obtaining project development finance for Moabsvelden in the next quarter.
Bankfontein Project project update; economic interest
Xceed also updated the market on the Bankfontein project, with a Competent Persons Report being received from its independent geological consultants, Gemecs in respect of the initial drilling program undertaken on the project - which is located in the Ermelo coalfield of South Africa.
Gemecs reported that the JORC Resources on the project currently total 19.76 million tonnes (Indicated 6.05 million tonnes and Inferred 13.71 million tonnes).
Importantly - 15.84 million tonnes (Indicated 5.94 million tonnes and Inferred 9.91 million tonnes) of this total are of potential economic interest as they are contained within the high yielding, high quality B Lower and C Lower seams of the Ermelo coal field.
Washability testwork undertaken indicates that primary yields to produce an export quality coal product average 66% in the case of the B Lower seam and 95% in the case of the C Lower seam.
Equity partner update
Xceed recently entered into a Memorandum of Understanding with Thebe Mining Resources pursuant to which it is proposed that Thebe will invest R90 million in the Moabsvelden project.
The proposed transaction is progressing with independent technical consultants acting for Thebe having reviewed the Moabsvelden project and reported to Thebe that they are satisfied with the information that has been provided to them.
The Thebe investment committee has met and approved an initial investment of R65 million into the Moabsvelden project company and formal documentation governing this investment is currently being drafted. The Company and Thebe are currently working through a process whereby the balance of the R90 million funding will be introduced.
Xceed is currently trading near cash backing, with a market cap. of $10 million and over $7 million is cash at the end of the June 2012 quarter.
(The $10 million market cap. based on the issued capital and shares due to come out of escrow in or around 2013).
Xceed therefore has an enterprise value of just $3 million, yet Moabsvelden is expected to deliver $20 million net operating cashflow per year for 15 years, by producing annually 666,000 tonnes of export quality product (26Mj) and 890,000 tonnes of domestic product (20Mj).
Highlighting the value proposition for investors, Moabsvelden's Feasibility Study displayed ungeared post-tax NPV of A$92 million.
The substantial cashflow and establishment of an operational team at Moabsvelden will be the platform to acquire and develop larger, longer term projects.
Then add to the mix the Roodepoort and Bankfontein projects which represent add-on exploration opportunities not requiring significant capital or management time.
Xceed's current share price in the mid $0.07 range provides a low entry price for the value investor, and if production from Moabsvelden comes on line as forecast in 2013 then significant cash flow will be derived - providing the basis for the company to potentially grow by acquisition.
Based on this information - Proactive Investors therefore considers Xceed to have the potential for a significant re-rating with the current share price unlikely to be on offer in the next 12 to 18 months.
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