Corsa Announces Completion of Acquisition of PBS Coals

Not for Dissemination in the United States or for distribution to U.S. Newswire Services

TORONTO, Aug. 20, 2014 /CNW/ - Corsa Coal Corp. (TSXV: CSO) ("Corsa" or the  "Company") is pleased to announce that yesterday it completed the previously announced transaction for the acquisition of PBS Coals Limited, a wholly-owned subsidiary of OAO Severstal, in an all-cash transaction for consideration of US$60 million, subject to customary adjustments for working capital and debt (the "Transaction"). As part of the Transaction, Corsa has assumed certain reclamation and water treatment liabilities totaling approximately US$60 million and will fund US$20 million of cash currently used as bonding collateral by PBS Coals Limited into escrow accounts for water treatment and certain other liabilities, to be released to a subsidiary of OAO Severstal following a customary time period and subject to adjustments.

As part of its acquisition financing, Corsa completed its previously announced non-brokered private placement of 463,821,966 common shares ("Common Shares") for gross proceeds of approximately US$65 million at C$0.15 per Common Share ("Private Placement") and entered into a US$25 million non-revolving term credit facility ("Credit Facility") with a syndicate of lenders that includes Sprott Resource Lending Partnership ("SRL"). The proceeds of the Private Placement and from the Credit Facility were used to satisfy the consideration payable in connection with the Transaction, with additional proceeds being used for purposes related to the Transaction and growth capital.

Changes to Management and the Board of Directors

The Company is pleased to announce the appointment of George Dethlefsen as its Chief Executive Officer. Mr. Dethlefsen is currently also a Director of Corsa.  As part of the transition, Mr. Dethlefsen has stepped down as Managing Director of Quintana Capital Group. In connection with his appointment, the Board of Directors of the Company (the "Board") granted Mr. Dethlefsen stock options to purchase a total of 6,000,000 Common Shares.

The options were granted on August 19, 2014 in accordance with Corsa's Amended and Restated Stock Option Plan (the "Option Plan"), are exercisable for five years at a price of C$0.29 per Common Share and subject to the terms and conditions of the Option Plan, Mr. Dethlefsen's employment agreement and the approval of the TSXV. Such options will vest one-third on the first anniversary of the date of grant, one-third on the second anniversary of the date of grant and one-third on the third anniversary of the date of grant. The C$0.29 exercise price represents the closing market price on August 18, 2014, the day immediately preceding the date of grant.

Pursuant to the terms of Sprott Resource Partnership's ("SRP"), a wholly-owned affiliate of Sprott Resource Corp. (TSX: SCP), acquisition of Common Shares under the Private Placement, Arthur Einav, a nominee of SRP, was appointed to the Board. Keith Dyke, Chief Operating Officer and President of Corsa, stepped down as a member of the Board.

Arthur Einav is Managing Director, General Counsel and Corporate Secretary of Sprott Resource Corp. Mr. Einav is also General Counsel of Sprott Inc. and is a director of Independence Contract Drilling, Inc., an NYSE-listed portfolio company of Sprott Resource Corp. He holds a Bachelor of Laws degree and a Masters in Business Administration from Osgoode Hall Law School and the Schulich School of Business. He also holds a Bachelor of Science degree from the University of Toronto and is a member of the Law Society of Upper Canada and the New York State Bar.

Stock Option Grants

In connection with the Acquisition, the Board granted stock options to purchase a total 12,200,000 Common Shares to certain employees of PBS and the Company. The grant, together with the options granted to Mr. Dethlefsen, represents approximately 1.5% of the total Common Shares outstanding. The options granted to such employees were granted in accordance with the Option Plan, are exercisable for five years at a price of C$0.29 per Common Share and are subject to the terms and conditions of the Option Plan and TSXV approval. Such options will vest one-third on the first anniversary of the date of grant, one-third on the second anniversary of the date of grant and one-third on the third anniversary of the date of grant.

Financing of the Transaction

Private Placement

The TSXV has conditionally approved the listing of the Common Shares issued under the Private Placement and the Common Shares issued as part of the Private Placement are subject to resale restrictions pursuant to applicable securities laws requirements and will not be freely tradeable until December 20, 2014. The Private Placement was originally announced on July 15, 2014.

As part of the Private Placement, Corsa and QKGI New Holdings LP ("New QKGI") allocated New QKGI's entire subscription of 141,786,666 Common Shares to two affiliated funds of Quintana Capital Group LP, Quintana Energy Partners II, LP ("QEP II") and Quintana Energy Partners II – TE, LP ("QEP II – TE"). QEP II acquired 128,824,387 Common Shares for approximately US$18.2 million and QEP II – TE acquired 12,962,279 Common Shares for approximately US$1.8 million.

Accordingly, New QKGI, QKGI Legacy Holdings LP, QEP II and QEP II - TE (collectively, "QEP"), all affiliates of Quintana Capital Group LP, hold an aggregate of 578,819,438 Common Shares, representing 48.6% of the issued and outstanding Common Shares and 170,316,639 redeemable membership units of Wilson Creek Energy, LLC ("Redeemable Units"), Corsa's US operating subsidiary, which, for as long as amounts are outstanding under the Credit Facility, are redeemable for Common Shares on a one for one basis. Assuming the tender for redemption of all Redeemable Units and exchange for Common Shares, QEP would exercise control or direction over an aggregate of 749,136,077 Common Shares, representing approximately 55.0% of the outstanding Common Shares.

In addition, SRP, which acquired 236,963,302 Common Shares as part of the Private Placement, representing approximately 19.9% of the outstanding Common Shares, entered into a Registration Rights Agreements with Corsa on August 19, 2014 which provides SRP with rights to twice demand registration in Canada for as long as it holds at least 10% of the outstanding Common Shares. A copy of the registration rights agreement will be filed on SEDAR under Corsa's profile. The summary herein is qualified in its entirety by the detailed terms and conditions of the registration rights agreement.

SPR will also have certain ongoing rights including the right to nominate one member of the Corsa board of directors, subject to certain conditions. The right to nominate one member of the Corsa board of directors will terminate if SRP, together with its affiliates, ceases to hold at least 10% or more of the outstanding Common Shares for a continuous period of at least 30 days and QEP has undertaken to vote in favor of the election of the SRP board nominee at any shareholder meeting, for so long as QEP owns at least 20% of the outstanding Common Shares.

Credit Facility

In connection with the Credit Facility, SRL was issued 36,100,000 Common Share purchase warrants of Corsa (each a "Bonus Warrant"). Each Bonus Warrant has a term of five years and is exercisable for one Common Share at an exercise price of C$0.195. The Common Share purchase warrants issued to SRL and the Common Shares issuable thereunder are subject to resale restrictions pursuant to applicable securities laws requirements and the policies of the TSXV and will not be freely tradeable until December 20, 2014.

A copy of the credit agreement with respect to the Credit Facility will be filed on SEDAR under Corsa's profile. The summary herein is qualified in its entirety by the detailed terms and conditions of the credit agreement.

Advisors

Corsa obtained legal and tax advice from Stikeman Elliott LLP, Vinson & Elkins LLP, PennStuart, Fike, Cascio & Boose LLP, Jackson Kelly PLLC, and PricewaterhouseCoopers LLP.

Additional Disclosure regarding QEP's Investment in Corsa

QEP currently owns an aggregate of 578,819,438 Common Shares, or approximately 48.6% of the Common Shares outstanding and, accordingly, QEP is a 'Control Person' as defined in the TSXV Corporate Finance Manual, and the subscription by QEP II and QEP II - TE under the Private Placement was a 'related party transaction' as defined under Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions ("MI 61-101"). The Private Placement was exempt from the minority shareholder approval requirements of MI 61-101, as neither the fair market value of any securities issued to nor the consideration paid by QEP II and QEP – TE, together, exceeded 25% of Corsa's market capitalization calculated in accordance with MI 61-101.

In connection with the Private Placement, QEP waived its anti-dilution rights under its investor rights agreement with the Company dated July 31, 2013.

The address of QEP is 601 Jefferson Street, Suite 3600, Houston, Texas. QEP's acquisition of Common Shares is made as a strategic investment and QEP may increase or decrease its investment, directly or indirectly, in Corsa from time to time, depending on market conditions or any other relevant factors.

A copy of the early warning report to be filed by QEP will be available shortly under Corsa's profile at www.sedar.com and further information can be obtained by contacting Jimmy McDonald, CFO at 713-751-7500.

The securities described herein have not been registered under the U.S. Securities Act of 1933, as amended, and may not be offered or sold in the United States unless registered thereunder or unless an exemption from registration is available.

Information about PBS

PBS, based in Somerset County, Pennsylvania, commenced production in 1963 and was acquired by OAO Severstal in 2008. Its current operations include 13 developed mines (3 active) and two preparation plants with access to both the CSX and Norfolk Southern Railway. PBS is located 60 miles from Pittsburgh and 170 miles from the Baltimore port, and its coal brands are well recognized by long-standing domestic and international customers.

Based solely on management prepared unaudited interim financial statements, as at June 30, 2014 (six months ended 2014), PBS sold approximately 482,000 tons of metallurgical and thermal coal, generated operating revenues of approximately US$46 million, incurred cost of sales and operating expenses, exclusive of depreciation and amortization, of approximately US$50 million and had negative earnings before interest, depreciation, and amortization of approximately US$4 million. Corsa expects to realize synergies from the Transaction as it combines its personnel, assets and infrastructure with those of PBS, especially given the close proximity to Corsa's existing assets.

Corsa has not included figures from the audited financial statements of PBS, as Corsa does not believe such historical financials to be an accurate representation of the current business operations at PBS in light of recent market conditions experienced by the coal mining industry and may be misleading without sufficient additional information. Such financial information will be available in the business acquisition report in respect of the Transaction to be prepared in compliance with National Instrument 51-102 – Continuous Disclosure Obligations and filed within 75 days from the date of the completion of the Transaction.

Information about Corsa

Corsa's primary business is the mining, processing and selling of metallurgical and thermal coal, as well as actively exploring, acquiring and developing resource properties consistent with its coal business.

Caution

Investors are cautioned that, except as disclosed by the Company, any information released or received with respect to the Transaction may not be accurate or complete and should not be relied upon. Trading in the securities of Corsa should be considered highly speculative.

The TSX Venture Exchange has in no way passed upon the merits of the Transaction, Private Placement or Facility and has neither approved nor disapproved the contents of this press release.

Forward-Looking Statements

This press release contains forward-looking statements and forward-looking information within the meaning of applicable securities laws (collectively, "forward-looking statements") and which are based on the expectations, estimates and projections of management of Corsa as of the date of this press release unless otherwise stated. Forward-looking statements are statements and information regarding possible events, conditions or results of operations that are based upon assumptions about future economic conditions and courses of action. Some of the forward-looking statements may be identified by words such as "expects" "anticipates", "believes", "plans", "projections", "outlook", "intends", "may", "could", "would", "might", "will" and similar expressions. More particular and without limitation, this press release contains forward-looking statements and information concerning the anticipated benefits of the transaction to Corsa and its securityholders.

By their very nature, forward‐looking statements involve numerous assumptions, inherent risks and uncertainties, both general and specific, and the risk that predictions and other forward‐looking statements will not prove to be accurate. Do not unduly rely on forward‐looking statements, as a number of important factors, many of which are beyond Corsa's control, could cause actual results to differ materially from the estimates and intentions expressed in such forward‐looking statements.

Forward‐looking statements speak only as of the date those statements are made. Except as required by applicable law, Corsa does not assume any obligation to update, or to publicly announce the results of any change to, any forward‐looking statement contained herein to reflect actual results, future events or developments, changes in assumptions or changes in other factors affecting the forward‐looking statements.

The TSXV has in no way passed on the merits of this news release.  Neither TSXV nor its Regulation Services Provider (as that term is defined in policies of the TSXV) accepts responsibility for the adequacy or accuracy of this release.

SOURCE Corsa Coal Corp.