Corsa Announces Transformative Transaction to Purchase Low Volatile Metallurgical Coal Producer PBS Coals Limited for US$60 Million

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TORONTO, July 15, 2014 /CNW/ - Corsa Coal Corp. (TSXV: CSO) ("Corsa" or the "Company") announces that it has entered into an agreement (the "Agreement") with Lybica Holding B.V. ("Lybica"), a wholly-owned subsidiary of OAO Severstal, among others, to acquire all of the issued and outstanding shares of Lybica's wholly-owned subsidiary, PBS Coals Limited ("PBS"), in an all-cash transaction for consideration of US$60 million, subject to customary adjustments for working capital and debt (the "Transaction").

"This acquisition is a perfect match for Corsa's strategic vision of building a low cost, premium-quality metallurgical coal producer. Corsa is now positioned with the asset base and financial flexibility required to capitalize on the company's ambitious growth plans," commented Corbin Robertson III, Corsa's Chairman and Co-Founder of Quintana Capital Group, the largest shareholder of Corsa. George Dethlefsen, a Corsa Board Director and Managing Director of Quintana Capital Group, added "Quintana is pleased to partner in financing this transaction with Sprott Resource Corp., Sprott Resource Lending, and the Lundin Family, who share our investment philosophy and favorable long term outlook for low volatile metallurgical coal."

"The proximity of PBS' assets and infrastructure to Corsa's existing Pennsylvania operations creates considerable synergy and marketing opportunities. Adding the PBS metallurgical coal properties improves Corsa's ability to grow production, lower costs, and better serve our customers domestically and internationally," commented Keith Dyke, President of Corsa.

Transaction Highlights

• Large permitted base of globally scarce low-volatile metallurgical ("met") coal
• Complementary infrastructure and customer base
• Close proximity to the largest metallurgical coal buying region in the U.S. as well as the Baltimore port
• Low capital-intensity organic growth pipeline with attractive cost structure
• Assets acquired at a low-point in the commodity cycle

Acquired Assets

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. Collectively, these mines sold approximately 2.5 million and 1.7 million tons of premium quality low-volatile met coal in 2012 and 2013, respectively. 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. Its existing assets and infrastructure enable PBS to scale up to 3.5 million tons of saleable metallurgical production per year if market conditions warrant.

Updated Investor Presentation and SEDAR Filing

An updated version of the Company's Investor Presentation detailing the Transaction is now available on its website at www.corsacoal.com.  

A copy of the Agreement will be filed with the Canadian securities regulatory authorities and will be available under Corsa's profile at www.sedar.com.

Conference Call

Corsa will host a joint investor conference call with Sprott Resources Corp. set to begin at 11:00 am Eastern Time today, July 15, 2014 to discuss the Transaction. The call can be accessed by dialing (888) 231-8192 (toll free), ten minutes prior to the scheduled start of the call and providing conference number: 74742708.The call will be available for replay approximately one hour after the completion of the conference call by dialing (855) 859-2056 (toll free) or (416) 849-0833 (reference number: 74742708) until July 28, 2014. The conference call will be webcast live at www.sprottresource.com.

The Transaction

The Transaction is subject to customary conditions including, but not limited to, approval of the TSX Venture Exchange ("TSXV"). The Transaction has been unanimously approved by Corsa's board of directors and Corsa anticipates that the Transaction will be completed by mid-August 2014. As part of the Transaction, Corsa has also agreed to assume 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 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

Financing of the Transaction

The consideration for the Transaction will be paid using equity financing and a new credit facility with additional proceeds to be used for purposes related to the Transaction and growth capital:

• Approximately US$65 million to be raised through a non-brokered private placement of common shares of Corsa ("Common Shares") at C$0.15 per Common Share; and
• US$25 million non-revolving term credit facility underwritten by Sprott Resource Lending Partnership ("SRL").

Private Placement

Corsa has entered into subscription agreements with each of Sprott Resource Corp., through Sprott Resource Partnership ("SRP"), QKGI New Holdings LP ("New QKGI"), corporations controlled by Lundin Family Trusts, and Bank Julius Baer & Co. Ltd. ("Bank Julius Baer") to complete a non-brokered private placement for an aggregate of 463,821,966 Common Shares (the "Private Placement"), to be issued at C$0.15 per Common Share for gross proceeds of US$65,425,329 (C$69,573,295, based on the exchange rate of US$1.00:C$1.0634, being the Bank of Canada's noon rate on July 3, 2014).

SRP has agreed to acquire 236,963,302 Common Shares for a total of approximately US$33.4 million as part of the Private Placement. Assuming completion of the Private Placement, SRP will hold 19.9% of the outstanding Common Shares and will 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 New QKGI and its affiliate, QKGI Legacy Holdings LP (collectively, "QEP") will be required to undertake 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. SRP will also have certain registration rights for as long as it holds at least 10% of the outstanding Common Shares.

As part of the Private Placement, New QKGI, a current shareholder of the Company and affiliate of Quintana, has agreed to acquire 141,786,666 Common Shares for a total of US$20 million, Zebra Holdings and Investments S.á r.l. and Lorito Holdings S.á r.l., two corporations controlled by Lundin family trusts and current shareholders of the Company, have agreed to acquire an aggregate of 70,893,332 Common Shares for a total of US$10 million and Bank Julius Baer has agreed to acquire 14,178,666 Common Shares for a total of US$2 million.

Corsa may also issue Common Shares to certain other institutional and accredited investors prior to the closing of the Transaction as part of the Private Placement. If any such investors participate, Corsa will allocate to such investors a portion of New QKGI's $20 million subscription and New QKGI's subscription will be reduced accordingly.

The Private Placement is expected to close immediately prior to the closing of the Transaction. Completion of the Private Placement is subject to customary conditions, including receipt of the approval of the TSXV and all other necessary regulatory approvals.

Credit Facility

In addition to the Private Placement, Corsa has entered into a binding commitment letter with SRL pursuant to which SRL has agreed to provide the Company with a senior secured non-revolving term credit facility in the amount of US$25 million with a five year term (the "Facility"). The interest rate under the Facility would be ten percent (10%) per annum. For the period up to and including the second anniversary of the Facility, Corsa would have the option of adding any interest payable under the Facility to the principal amount or, subject to approval of the TSXV, satisfying any interest payment by the issuance of Common Shares (based on five day volume weighted average trading price for common shares immediately prior to the last business day of the period multiplied by 105%). In addition, the Facility may be prepaid without penalty, in whole or in part, at any time after three months of interest has been paid.

In consideration for the Facility, SRL will also receive up to 36.1 million Common Share purchase warrants of Corsa ("Bonus Warrants"). Each Bonus Warrant will have a term of five years and be exercisable for one Common Share at an exercise price of C$0.195. The terms of the Bonus Warrants are subject to approval of the TSXV.

The Facility will be established immediately prior to the closing of the Transaction and is subject to customary closing conditions, including the entering into of definitive loan documentation by the parties and approval of the TSXV.

Change in Corsa Management

Following the closing of the Transaction, the Company is pleased to announce that it intends to appoint George Dethlefsen as its Chief Executive Officer and add the title of Chief Operating Officer to Keith Dyke, current President of Corsa.

In addition to being a director of Corsa, Mr. Dethlefsen is currently a Managing Director at Quintana Capital Group, where he is responsible for sourcing, evaluating and executing investments, including leading Quintana Capital Group's coal sector investments. Previously, he was with the general partner of Natural Resource Partners. Prior to joining Natural Resource Partners, George was with Goldman, Sachs & Co.'s Mergers & Acquisitions Department. Mr. Dethlefsen attended Rice University, where he earned a B.A. in Economics and Managerial Studies, and The University of Texas at Austin, where he earned an M.B.A.

Corsa's Chairman, Corbin Robertson III said, "George has played a key role in Quintana's coal investments since 2002, and has been a director of Kopper Glo since 2008 and a director of Corsa for the past year. He brings a wealth of industry knowledge, financial knowledge, and mergers and acquisitions expertise to our management team. It should be a seamless transition for our team as George and Keith have worked closely together for over six years and the Board felt that adding George's skill set with Keith Dyke and the rest of our board's and management team's expertise would strengthen our ability to continue to aggressively grow the Company and increase shareholder value."  

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 New QKGI's Investment in Corsa

QEP currently owns an aggregate of 437,032,772 Common Shares, or approximately 60.1% of the Common Shares outstanding as of July 14, 2014 and, accordingly, New QKGI is a 'Control Person' as defined in the TSXV Corporate Finance Manual, and its subscription under the Private Placement is 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 is 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 New QKGI will exceed 25% of Corsa's market capitalization calculated in accordance with MI 61-101.

Assuming completion of the Private Placement, the 141,786,666 Common Shares acquired by New QKGI as part of the Private Placement will represent approximately 11.9% of the 1,190,770,362 outstanding Common Shares and QEP will exercise control or direction over 578,819,438 Common Shares, representing approximately 48.6% of the then outstanding Common Shares, as well as 170,316,639 common membership units ("Redeemable Units") of Corsa's subsidiary, Wilson Creek Energy, LLC. 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 upon completion of the Private Placement.

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 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

Completion of the Transaction, Private Placement and Facility are subject to a number of conditions, including TSXV approval. There can be no assurance that the Transaction will be completed as proposed or at all.

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, the timing and anticipated receipt of all necessary approvals, including TSXV approvals for the Transaction, Private Placement and Facility; and the ability of the parties to satisfy the conditions to, and to complete, the Transaction, Private Placement and Facility;

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. Risks and uncertainties inherent in the nature of the Transaction include the failure to obtain TSXV and other necessary approvals or to otherwise satisfy the conditions to the completion of the Transaction, Private Placement and Facility, in a timely manner, or at all. Failure to obtain such approvals, or the failure of the parties to otherwise satisfy the conditions to or complete the Transaction, Private Placement or Facility, may result in the Transaction not being completed on the proposed terms, or at all.

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.