Homeland Energy to Purchase US-Based Appolo Fuels and Diversified Energy for US$105-Millionadmin
Wednesday, August 27th 2008
Homeland Energy Group Ltd., Appolo Fuels and Diversified Energy are pleased to announce that they have finalised a binding agreement for Homeland Energy to purchase the operating assets of Appolo Fuels, Inc., owner and operator of the Appolo coal mine and Diversified Energy, Inc., the associated coal marketing firm, of Middlesboro, Kentucky and Knoxville, Tennessee, respectively. The total purchase price of US$105-million plus finder’s fees will be payable by November 27, 2008.
The resource is situated in Bell County, Kentucky and Claiborne County, Tennessee. The vast majority of the resource is derived from property leaseholds that total approximately 33,000 acres. Complete details of the Appolo resource will be made available through Homeland’s National Instrument 43-101 compliant resource report to be released in due course.
Appolo has been in operation since 1972. Appolo’s operations are above ground, with the exception of one underground mine that is contracted out to a third party operator. Appolo owns and operates three high wall miners -equipment used in mountainous areas – while a fourth is operating under contract. In addition, Appolo owns and operates a 700-ton per hour wash plant and loading facility capable of handling 3.5-million tons per annum (Mtpa). Both Norfolk Southern and CSX railways jointly serve Appolo’s siding. The average age of equipment being acquired is less than five years.
Current mine production is 1.6 Mtpa. Homeland management believes that production can be increased to 2.0 Mtpa through 2009. The mined product is a high quality thermal coal with an average thermal quality of 12,800 British Thermal Units per pound (btu/lb). Of the tons currently produced, 75 percent contains less than 1% sulphur; 20 percent contains 1% to 1.5% sulphur, and 5 percent of production exceeds 1.5% sulphur.
All product containing in excess of 1.5 percent sulphur is sold for gasification. The remainder of Appolo’s production is sold to US industrial users such as chemical plants and paper mills. Homeland management expects all new and renewed contracts to be priced within the context of the NYMEX Central Appalachian coal futures market. Total cash costs, including operating costs, selling costs, royalties and G&A are forecast by Homeland Management to be in line with costs for Central Appalachian coal production.
Diversified Energy, the US coal marketing firm being acquired by Homeland Energy Group as part of this transaction, brings access to significant long-term buyers of Central Appalachian coal in the United States. The Appolo Mine is jointly serviced by both CSX Corporation and Norfolk-Southern Corporation rail lines, which will potentially open Homeland to further sales and distribution as the production profile of Appolo is expanded.
“The Appolo Mine is an excellent example of the type of asset that Homeland plans to focus on for future acquisition,” commented Stephen Coates, President and CEO. “The growth profile for these assets, both in terms of operations and in terms of sales is going to assist in the significant movement of Homeland toward the mid-tier of international coal companies.”
Mike Nell, Chief Operating Officer of Homeland Energy Group said: “We have been very impressed with the production rates and operations of the Appolo Mine. Appolo’s operations, environmental and management track records are enviable and fit well with Homeland’s corporate mandate for safe, clean, efficient and profitable operations.”
Current senior management at Appolo has committed to remaining involved through a transition period of not less than one year. Positive discussions have commenced with other key employees Homeland is committed to carrying on the operations as the stand and to growing the production profile of Appolo Mine over the coming years in order to meet increasing domestic and export demand for this quality Central Appalachian coal.
The purchase price of US$105-million may include the assumption of approximately US$20-million in Appolo debt. Homeland’s management team is currently in discussions with several groups with regards debt financing for the purchase of Appolo and Diversified. Mr. Coates added: “based upon the current margins at Appolo, we believe that debt financing the acquisition is the most appropriate option to pursue and well within the means and capabilities of the Company”.
Homeland’s exploration and mine development programs are carried out under the supervision of Mr. Mike Nell, Chief Operating Officer, Homeland Energy Group Ltd. Mr. Nell, a professional mining engineer and “Qualified Person” as defined under National Instrument 43-101, has reviewed and verified the technical content of this press release.
For an update on Homeland Energy’s producing operation, the Kendal Coal Mine, development property, the Eloff Mining Project, and other Homeland interests and assets, please refer to the news release entitled “Homeland Energy Group’s Kendal Mine Produces First Coal”, dated July 16, 2008.
Homeland Energy Group Ltd. is a producing coal company, traded on the Toronto Stock Exchange under the symbol “HEG”. The company is focused on energy exploration and development in Southern Africa. Homeland owns two producing operations in South Africa – the Kendal Mine near Witbank, and the Northfield site reclamation project near Dundee; an advanced development stage coal project in South Africa (Eloff Coal Mining Project) as well as a number of early-stage exploration properties in the provinces of Mpumalanga and Kwa-Zulu Natal. Total South African production for 2009 is forecast to be 2.1-million tonnes from Kendal and Northfield.
The Company is currently negotiating to acquire interests in a number of additional coal properties in eastern South Africa and neighbouring countries. Homeland is a significant shareholder in Homeland Uranium Inc., a Canadian uranium exploration and development company focused on projects in Niger and the United States, and has several other global strategic investments. Homeland Energy Group Ltd. began trading on the Toronto Stock Exchange on March 5, 2008 and has 150,079,642 common shares issued and outstanding.