Coalcorp must complete sale to meet financial needs, avoid bankruptcy

By Caroline Salls

Pittsburgh, Feb. 3 - Coalcorp Mining Inc. said a proposed sale of its LaFrancia mine and the outstanding shares of La Francia II concession holder Adromi Capital Corp. is crucial to meeting the company's short-term and long-term financial needs, according to a news release.

Coalcorp said it has agreed to sell the mine and related infrastructure assets and the Adromi shares to a subsidiary of the Goldman Sachs Group, Inc. The transaction is valued in excess of $200 million, including $50 million in liabilities to be assumed by the buyer.

If the transaction is not approved by shareholders, Coalcorp said it will most likely have no choice but to file for bankruptcy or seek creditor protection.

In addition, Coalcorp said the proposed sale provides it with up to $5 million in bridge financing to fund January and February operations, of which $2 million has already been disbursed.

The $3 million bridge financing balance is subject to shareholder approval. Coalcorp said it could not operate during the interim period without this financing.

According to the release, the funds received by Coalcorp under a previous settlement agreement with Xira Investment Inc. and former Coalcorp management will not be sufficient to meet its short-term or long-term financial needs if the sale is not completed.

The company said the lack of port access, future capital expenditures and ongoing expenses with its mining contractor means it will run out of cash soon, even with the funds from the settlement agreement.

"If the proposed transaction is not completed, Coalcorp has no alternatives," the company said.

Specifically, Coalcorp said it is unable to cure a default on its senior notes, it would not be able to repay the bridge financing without the sale proceeds and it would have no port access to deliver coal and generate revenue.

Additionally, the company said there is a risk under Colombian law that the Colombian Mining Ministry could terminate Coalcorp La Francia I and II concessions under bankruptcy or insolvency proceedings.

Following the Goldman transaction, a proposed offering for the senior notes and the settlement agreement, Coalcorp said it would have $55 million, including $1.5 million of accounts payable, $20 million in cash proceeds from the sale and entitlement to $34 million in settlement payments.

Coalcorp said the sale transaction is supported by a special committee of independent directors and a 44% shareholder, who also holds senior notes issued by the company.

The company said it received two other non-binding offers from strategic buyers, but those offers represented significantly less value and certainty than the Goldman transaction.

One of the non-binding offers was for a $150 million cash consideration, but was highly conditional and subject to an unacceptably long due diligence period, and the other was for $160 million, but unlike the Goldman transaction, did not include a commitment to assume liabilities.

Coalcorp is a Colombian coal mining, exploration and development company.

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