Amalfi Capital Corporation (TSX VENTURE:ALI.P) ("Amalfi" or the "Corporation")
is pleased to announce that CDR Minerals Inc. ("CDR") has completed its
previously announced financing, its purchase of certain leases (the "Big Branch
Project Assets") in connection with a mining project known as the Big Branch
(the "Big Branch Mining Project"), and that it has received a technical report
(the "Sid Report") dated June 26, 2009 with respect to the Sid mining project
(the "Sid Mining Project") and a technical report (the "Big Branch Report")
dated July 17, 2009 with respect to the Big Branch Mining Project. The technical
reports were prepared by Phillip Lucas, P.E., P.L.S. of Summit Engineering, Inc.
("Summit") in accordance with National Instrument 43-101 ("NI 43-101").
As previously announced on June 9, 2009, Amalfi intends to complete an arm's
length business combination (the "Business Combination") with CDR, which if
completed, is expected to constitute Amalfi's qualifying transaction for
purposes of Policy 2.4 of the TSX Venture Exchange Inc. ("TSX Venture")
Corporate Finance Manual. The parties intend to complete the Business
Combination by way of a three-cornered amalgamation (the "Amalgamation), wherein
a wholly-owned subsidiary of Amalfi will amalgamate with CDR and continue as one
company under the Business Corporations Act (Ontario). Prior to the Business
Combination and subject to shareholder approval, Amalfi intends to consolidate
its shares on the basis of one Amalfi Share for each three and one-half (3.5)
presently outstanding Amalfi Shares, resulting in 3,314,286 post-consolidation
Amalfi Shares outstanding prior to the completion of the Business Combination.
Pursuant to the Amalgamation, Amalfi will issue 53,142,371 post-consolidation
Amalfi Shares at a deemed price of CDN$0.50 per share, to acquire a 100%
interest in CDR. In addition, each of the current holders of the 7,735,407
existing warrants of CDR ("CDR Warrants"), 438,446 existing broker warrants of
CDR (the "CDR Broker Warrants") and 7,225,000 stock options ("CDR Options") of
CDR will receive an equal number of replacement share purchase warrants and
stock options of Amalfi, which shall, subject to adjustment, be exercisable on
the same terms and conditions as the CDR Warrants, CDR Broker Warrants and CDR
Options, as applicable.
Pursuant to the Business Combination, Amalfi will also issue 1,657,143 share
purchase warrants ("Amalfi Warrants") to shareholders of Amalfi, on the basis of
one-half Amalfi Warrant for each post-consolidation Amalfi Share held
immediately prior to the completion of the Business Combination. Each whole
Amalfi Warrant shall entitle the holder to acquire one Amalfi Share at a price
of US$0.50 for a period of two years from the closing of the Business
Combination. Amalfi will also issue an aggregate of: (a) US$500,000 principal
amount replacement convertible debentures, which debentures shall be convertible
into Amalfi Shares at a conversion price of CDN$0.50 per share; (b) US$5,000,000
principal amount replacement convertible promissory notes, which notes shall be
convertible into Amalfi Shares at a conversion price of US$0.50 per share; and
(c) CDN$375,000 principal amount replacement convertible debentures, which
debentures shall be convertible into Amalfi Shares at a conversion price of
CDN$0.50 per share, which replacement debentures and promissory notes shall,
subject to adjustment, be exercisable on the same terms and conditions as the
currently outstanding CDR convertible debentures and promissory notes, not
converted or repaid prior to the closing of the Business Combination.
About CDR
CDR is a privately held coal exploration and production company, incorporated
pursuant to the Business Corporations Act (Ontario), headquartered in Toronto,
Ontario, Canada with a regional office in Hazard, Kentucky, U.S.A. CDR is
concentrating its efforts on developing producing surface coal mining operations
in the Central Appalachian coal producing region of the United States, which
includes parts of West Virginia, Virginia, Kentucky, Ohio, and Tennessee.
Financial Information of CDR
Based on unaudited management prepared financial statements of CDR for the six
month financial period ended June 30, 3009, CDR had current assets of
CDN$2,372,294, other assets including principally mineral property interests of
CDN$6,229,855, total assets of CDN$8,988,382, current liabilities of
CDN$2,243,732 and shareholders' equity of CDN$6,744,650.
CDR Financing
CDR has recently completed a non-brokered private placement ("CDR Private
Placement") of 4,354,445 Units of CDR ("Units") at a price of US$0.45 per Unit,
for total gross proceeds of US$1,959,500. Each Unit is comprised of one common
share of CDR (a "CDR Share") and one common share purchase warrant (a "CDR
Warrant"), each CDR Warrant being exercisable for one CDR Share for a period of
two years at a exercise price of US$0.50 per share. CDR paid an aggregate of
US$183,620 in cash commission to certain agents ("Agents), all of which were at
arm's length to each of CDR and Amalfi. CDR also issued CDR Broker Warrants as
follows: (a) 29,167 CDR Broker Warrants were issued to Harp Capital Corp.; (b)
5,600 CDR Broker Warrants were issued to Wingate Investment Management; (c)
240,878 CDR Broker Warrants were issued to Transglobe Financial Advisors Inc.;
and (d) 29,166 CDR Broker Warrants were issued to Max Capital Markets Ltd. Each
CDR Broker Warrant entitles the holder to purchase one CDR Share at a price of
US$0.50 for a period of two years from the date of issue.
Big Branch Acquisition
The Big Branch Mining Project is located proximate to Hazard, Kentucky and has
the necessary permits for initial production. On September 30, 2009 (the
"Closing Date"), CDR acquired the Big Branch Mining Project Assets for a
purchase price of US$7,300,000, subject to reduction as described below. The
purchase price for the Big Branch Mining Project Assets was payable as to
US$2,300,000 in cash and as to US$5,000,000 through the issuance by CDR to the
vendor of a convertible note (the "Convertible Note"), bearing an annual
interest rate of 12%. Amounts outstanding under the Convertible Note may be
converted, at the option of the holder, into CDR Shares at a Conversion Price of
US$0.50 per share. Pursuant to the terms of the Convertible Note, if CDR pays
the holder the sum of US$3,500,000 on or before the date that is 90 days from
the Closing Date, the principal amount of the Convertible Note shall be reduced
by US$1,500,000 to US$3,500,000 and shall be considered to be paid in full.
In order to finance its acquisition of the Big Branch Mining Project, CDR
borrowed US$4,300,000 (the "Loan") from Juno Special Situations Corporation
("Juno"), a private company which owns approximately 22% of the outstanding CDR
Shares. The Loan has a term of 18 months from the date of issue, which may be
extended to 30 months at the option of Juno, with 18% interest payable annually
plus: (a) a US$2 per ton royalty, which royalty is capped at US$4,300,000; and
(b) a US$0.50 per ton royalty.
Sid Mining Project
CDR acquired the Sid Mining Project in October 2008 for a purchase price of
US$1,700,000 in cash and a 2% override royalty from all sales of all coal mined
from the property.
The Sid Mining Project covers approximately 850 acres and lies within the
drainage areas of Cam Johnson Branch and Bowling Creek of the Middle Fork of the
Kentucky River, lying in Perry and Breathitt Counties, Kentucky. The seams
include the Fireclay (Hazard No. 4), Haddix, Hazard No. 5A, Hazard No. 7, Hazard
No. 8, and Hindman (Hazard No. 9). The current permitted area of the Sid Mining
Project is 330 acres, with a pending amendment (the "Lease Amendment") to the
lease terms which may add 76.38 acres.
Currently all mining operations on the Sid Mining Project are idle. CDR
concluded its drilling program after the drillhole PKM-09-05 was drilled in
October 2008 and no further drilling activity was undertaken. Core drilling is,
as of this date, not taking place on the Sid Mining Project.
Sid Report
The following is information extracted from the Sid Report. A full text version
of the Sid Report has been filed on SEDAR and is available at www.sedar.com.
According to the Sid Report, the work done to prepare the two prior existing
technical reports in respect of the Sid Mining Project area which were reviewed
by Summit was not sufficient to classify the historical estimates as current
mineral resources or reserves in accordance with NI 43-101. Summit has used the
Canadian Institute of Mining, Metallurgy and Petroleum ("CIM") Definition
Standards on Mineral Resources and Reserves ("CIM Definitions") adopted by the
CIM Council on December 11, 2005 during the classification, estimation and
reporting of mineral resources and reserves for the Sid Mining Project.
According to the Sid Report, in calculating the in-place and recoverable tons
for potential mine site areas on the Sid Mining Project, potential reserve areas
were created by Summit in SurvCADD, which is a computer modeling program that
utilizes three-dimensional analysis to estimate reserve volumes. In-place tons
are calculated by the computer based modeling of applicable parameters (seam
thickness and elevation). The model is interpolated, using mostly core data, by
the inverse distance squared method. Coal density was assumed to be 80 lbs per
cubic foot and rock density was assumed to be 160 lbs per cubic foot.
According to the Sid Report, Summit did not conduct any field work for the
preparation of the report and relied on the results of exploration documented in
various public and company reports, including drillhole database, mapping, and
other information. Of the general sources of information used in the Sid Report,
Summit reviewed on-going core drilling data, previous coal reserve studies, mine
permit data, economic analyses, and coal quality information provided to CDR by
Sid and provided to Summit by CDR.
The author of the Sid Report conducted two site visits to the Sid Mining Project
and reviewed the previous mining which had been conducted on the mineral
property, the proposed mine plan, the proposed backfill plan, site access roads,
and reviewed the current excess spoil storage areas.
According to the Sid Report, the core samples collected and submitted for
analysis were handled using methods that are standard for the coal industry. The
standard method of coal core handling is for the drillers, once the cores are
retrieved to the surface, to place the cores in core boxes designed to accept
core of the diameter being drilled. Samples are then trucked from the field to
independent laboratories for sample testing.
The sample data received by Summit from CDR originated from the Acculab Coal,
Water and Soil Testing Laboratory. Certain date verification procedures were
typically employed in order to derive a level of confidence with respect to the
integrity of these samples, including, the use of sample labels, sample seals
and chain-of-custody recording of the samples.
Resource And Reserve Classification
Potential reserves were classified by Summit as surface mineable (area, point
removal and contour mineable), highwall mineable, or auger mineable reserve.
Summit based its Sid Mining Project calculations on coal seam thickness instead
of total seam (coal plus rock) thickness. Therefore when estimating the
recoverable tons, a mining recovery factor was used, and no plant loss was taken
into consideration. The mining recovery factor for area, point removal and
contour mineable reserves were calculated as 85% of in-place tons for all seams.
Reserves classified as highwall mineable had a mining recovery factor of 45% of
in-place tons for all seams, and reserves classified as auger mineable were
given a mining recovery factor of 30% of in-place tons for all seams.
According to the Sid Report, exploration data on the Sid Mining Project
currently under lease allows for all reserves to be classified as either proven
or probable reserves. According to Summit, lease negotiations may add potential
inferred resources to the property. Potential inferred resources are reported as
an in place tonnage and not adjusted for mining losses or recovery. Minimum
mineable seam thickness and maximum removable parting thickness are considered;
coal intervals not meeting these criteria are not included. Resource tons are
estimated by the average thickness times area method. The area is calculated by
Summit from the SurvCADD generated coal seam outcrop and by potential lease
lines, and the average thickness is assumed to be approximately equal to the
average thickness generated for measured and indicated reserves.
The following table details the results of Summit's reserve and resource
estimation based on data obtained up to September 30, 2008.
SID MINING PROJECT
ESTIMATED RESERVES & RESOURCES
----------------------------------------------------------------------------
MINERAL RESOURCE TONS MINERAL RESERVE TONS
----------------------------------------------------------------------------
MINING
SEAM TYPE MEASURED INDICATED INFERRED PROVEN PROBABLE
----------------------------------------------------------------------------
Fireclay Contour 234,000 841,000 0 199,000 715,000
----------------------------------------------------------------------------
Auger 223,000 747,000 0 67,000 224,000
----------------------------------------------------------------------------
Haddix Point
Removal 54,000 0 0 46,000 0
----------------------------------------------------------------------------
Contour 260,000 529,000 0 221,000 450,000
----------------------------------------------------------------------------
Auger 150,000 177,000 0 45,000 53,000
----------------------------------------------------------------------------
Hazard Point
No. 5A Removal 71,000 0 0 60,000 0
----------------------------------------------------------------------------
Contour 388,000 172,000 0 330,000 146,000
----------------------------------------------------------------------------
High-wall 756,000 196,000 0 340,000 88,000
Miner
----------------------------------------------------------------------------
Hazard N/A 0 0 0 0 0
No. 7
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Hazard Point 20,000 0 0 17,000 0
No. 8 Removal
----------------------------------------------------------------------------
Area 198,000 0 0 168,000 0
----------------------------------------------------------------------------
Hazard Point 9,000 0 0 8,000 0
No. 9 Removal
----------------------------------------------------------------------------
Area 104,000 0 0 88,000 0
----------------------------------------------------------------------------
Total Surface: 1,338,000 1,542,000 0 1,137,000 1,311,000
----------------------------------------------------------------------------
Total Auger/HW
Mining: 1,129,000 1,120,000 0 452,000 365,000
----------------------------------------------------------------------------
Sub Total: 2,467,000 2,662,000 0 1,589,000 1,676,000
----------------------------------------------------------------------------
Total Measured and Indicated Mineral Resource: 5,129,000 tons.
----------------------------------------------------------------------------
Total Proven and Probable Mineral Reserve: 3,265,000 tons.
----------------------------------------------------------------------------
According to the Sid Report, ongoing lease negotiations may add approximately
13,500,000 tons of inferred resource tons to the existing property. These
additional potential inferred resource tons are located south of Bowling Creek
and north of Route 28. If these leases are obtained, additional exploration will
be required to classify these resource tons as reserve tons.
According to the Sid Report, as of June 30, 2008, the Kentucky Office of Mine
Safety and Licensing ("Kentucky OMSL") listed 38 licensed mining operations in
Perry County, Kentucky. The counties surrounding and adjacent to the Sid Mining
Project in Perry County include Knott, Breathitt, Owsley and Leslie Counties.
Another 63 mines are licensed in these counties making a total of over 100 mines
licensed in the area. The most recent production records from the state of
Kentucky are through the end of 2006, which indicate that a total of over 27
million tons of coal were produced from the five county region near and adjacent
to the Sid Mining Project.
Economic Analysis
According to the Sid Report, a cursory project economic review was done by
Summit to address the adequacy of financial projections, operating costs,
manpower, proposed capital expenditures, and production forecasts for the
project. The review was based on a mine plan and proforma financial projections
that were provided by Sid. According to Summit, the projected production
tonnages are reasonable based on the reserves associated with the property.
Annual mine production is forecasted to be 360,000 tons for the first year. The
Sid Mining Project mine plan assumes that full production will be around 480,000
tons per year at an estimated selling cost of $70 per ton delivered in 2009,
which, according to Summit, is based on the spot coal prices at the time of the
preparation of the Sid Report. According to Summit, the estimates of required
capital, manpower, and equipment for the surface mine operations are realistic.
The "start of production" net present value ("NPV") was calculated to be US$19.8
million. This NPV, in current dollars applies to the project once production has
commenced and the CDR forecast coal sale rate and selling price are achieved.
The forecast coal sales rate ranges from 32,000 tons to about 39,600 tons of
coal sold per month except for the first five months of production build-up. A
cash flow forecast was proposed for a "base case" using coal price variations
provided by CDR for 2009, 2010 and 2011. To assess the impact of price on
project economics, the sensitivity cases sent out in the table below were
prepared which considers the effect of discount rate variation with changes in
the selling price on the start-up NPV.
----------------------------------------------------------------------------
SID MINING PROJECT
COAL PRICE, DISCOUNT RATE, PRODUCTION
AND CAPITAL COSTS
SENSITIVITY ANALYSIS ($US)
----------------------------------------------------------------------------
Base Case
----------------------------------------------------------------------------
NPV $ 19,813,179
----------------------------------------------------------------------------
IRR 414%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Coal Price + 10%
----------------------------------------------------------------------------
NPV $ 29,690,761
----------------------------------------------------------------------------
IRR 574%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Coal Price - 10%
----------------------------------------------------------------------------
NPV $ 11,038,398.75
----------------------------------------------------------------------------
IRR 264%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Discount Rate: 15%
----------------------------------------------------------------------------
NPV $ 22,327,716
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Discount Rate: 25%
----------------------------------------------------------------------------
NPV $ 17,662,654
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Production: + 10%
----------------------------------------------------------------------------
NPV $ 24,195,392
----------------------------------------------------------------------------
IRR 545%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Production: - 10%
----------------------------------------------------------------------------
NPV $ 15,430,966
----------------------------------------------------------------------------
IRR 309%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Capital Costs: + 10%
----------------------------------------------------------------------------
NPV $ 19,467,798
----------------------------------------------------------------------------
IRR 376%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Capital Costs: - 10%
----------------------------------------------------------------------------
NPV $ 20,158,560
----------------------------------------------------------------------------
IRR 461%
----------------------------------------------------------------------------
Proposed Exploration and Mining Program
The Sid Mining Project is located approximately two miles northeast of Buckhorn
Lake and is approximately one mile south of Crockettsville, at approximately
Latitude (North) 37-22-24 and Longitude (West) 83-27-16, in northern Perry and
southern Breathitt Counties.
According to the Sid Report, production will begin on the area covered by the
Kentucky Department for Surface Mining Reclamation and Enforcement ("DSMRE")
Permit 813-0313 ("Sid Permit") issued in respect of the Sid Mining Project with
a point removal on the east side due to the availability of spoil storage on an
existing strip bench and haul road off of Cam Johnson Branch. While mining the
point removal, Sid will begin work on the first cut-through. The beginning
months will see production in the Hazard No. 5A and Haddix seams.
Once the point removal is completed, mining of the Hazard No. 5A seam will begin
at the cut-through in the Bowling Creek Area. Sid will contour mine the No. 5A
seam and the Haddix seam in the area of Hollow Fill No. 4. Contour mining will
continue in the Hazard No. 5A seam towards the second cut-through. The second
cut-through will complete the mine plan for the first year.
According to the Sid Report, a U.S. Army Corps. of Engineers, 404 Permit (the
"404 Permit") will be sought in this time, and the majority of the second year
of mining will occur in the Fireclay Seam in the Bowling Creek Area. At the end
of year two, mining will be conducted in the Hazard No. 5A seam using excess
spoil from the Hazard No. 5A seam to complete the backfill of the Fireclay Seam.
In year three, mining will continue in the Fireclay Seam placing spoil in the
hollow fills then the mining the Hazard No. 5A seam with excess spoil
backfilling the Fireclay Seam. Contour mining of the Haddix and Fireclay Seams
will consist of auger mining those seams. Contour mining of the Hazard No. 5A
will consist of high-wall mining of the Hazard No. 5A seam.
According to the Sid Report, the extent of drilling within the project area has
been defined of seven coreholes within the project area. Three of these
coreholes (PB-01-92, PB-02-92 and PB-03-92) were drilled for another company in
1992. Core holes PKM-09-02, PKM-09-03, PKM-09-04, and PKM-09-05 were drilled by
Sid in 2008, and Sid currently intends have plans to drill two more holes
(PKM-09-01 and PKM-09-06). According to Sid, the additional coreholes will allow
for more distinct classification of the reserve and for expanding the reserve
base in the future.
The costs associated with completing the drilling of the coreholes is estimated
to be US$12,000 per corehole. In order to resume mining on the Sid Mining
Project, in accordance with the mine plan discussed above, the anticipated costs
associated are disclosed in the following table derived from the Sid Report. The
drilling costs, including the use of equipment and footage charges, consumables
and the costs of labour and materials, are based on information provided to
Summit by Sid. In addition, other support activities including site preparation,
water and power supply, the safe removal and disposal of effluent and a survey
control site may be required. The costs for these activities have been generated
internally by CDR.
Road Building and Site Preparation US$5,000
Drilling Rig Usage US$5,000
Labour and Materials US$2,000
------------
US$12,000
It is anticipated that the proposed program will be commenced in early 2010, and
completed by the end of Q2 2010.
Recommendations of the Sid Report
According to Summit, the information it reviewed indicated that there exists a
coal resource on the Sid Mining Project worthy of additional exploration and
further development.
Upon review of existing site conditions, according to Summit, adding the
additional lease space disclosed in the Sid Report, which includes a haul road
for property access, will be of benefit. The mine plan should be enhanced by the
existing mine benches which may be utilized for excess spoil storage. The
existing and proposed permitting appears to be adequate for the existing
reserves. Additional permitting will be required to expand the operation.
According to Summit, the pursuit of the issuance of the 404 Permit for the site
is extremely important for the project success. The planned drilling of
coreholes PKM-09-06 and PKM-09-01 should be continued within the next six to
twelve months after the commencement of mining activity to further define the
coal reserve, along with additional drilling as adjacent properties are leased.
While estimates of required capital, manpower, and equipment for the surface
mine operations are realistic, a regional shortage of qualified labor will have
to be addressed upon the project start up and future expansion.
The completion to the present date of any aspects of the feasibility study work
that may require time-dependent revision should be addressed. According to
Summit, the selling price for the coal has most likely changed since the
feasibility work was most recently done.
Summit further recommended that the orderly extraction of the coal reserve in
this area should proceed as planned.
The Big Branch Mining Project
The Big Branch Mining Project covers approximately 2,750 acres in the Eastern
Kentucky Coalfields, and is bounded to the north by Troublesome Creek, to the
south by the town of Amburgey near Elklick Fork of Lotts Creek, to the east by
Kentucky Route 1231, and to the west by Clear Creek and Walter's Branch. The
project area is located within Knott County, Kentucky. The coal seams include
the Hazard No. 5A, Hazard No. 7, Hazard No. 8, Hindman (Hazard No. 9), Skyline
(Hazard No. 10), and the Hazard No. 11 seams.
On September 30, 2009 CDR completed the acquisition of the Big Branch Mining
Project, being certain coal and surface leases in addition to being named
operator under surface mining DSMRE permit 860-0393 (the "Big Branch Permit") on
the terms as disclosed above.
According to the Big Branch Report, the Big Branch Permit is an active permit
within the property area, but as of the date of the Big Branch Report, only
reclamation and mining related to reclamation activities were taking place on
the permit area. At least 14 drillholes, including 13 geological logging systems
digital logs, have been bored in the property area. Core drilling is not
currently taking place on the property.
The Big Branch Report
The following is information extracted from the Big Branch Report. A full text
version of the Big Branch Report has been filed on SEDAR and is available on
www.sedar.com.
According to the Big Branch Report, Summit was aware of no previous reserve
estimates for the subject property. However, in February of 2008 an exploration
map was prepared by Big Branch for the unpermitted area to the north of the Big
Branch Permit. The Big Branch Permit showed prospect holes CRCC-07-18 through
CRCC-07-24 within the northern area. Summit incorporated these logs within the
results shown in the Big Branch Report. Summit used the CIM Definitions during
the classification, estimation and reporting of reserves for the Big Branch
Mining Project.
In calculating the in-place and recoverable tons for potential mine site areas,
potential reserve areas were created by Summit in SurvCADD. Coal density was
assumed to be 80 lbs per cubic foot and rock density was assumed to be 160 lbs
per cubic foot.
According to the Big Branch Report, Summit did not conduct any field work, other
than site reconnaissance, for the preparation of the report and relied on the
results of exploration documented in various public and company reports,
including drillhole database, mapping, and other information. The general
sources of information used in the Big Branch Report which Summit reviewed
include recent core drilling data, mine permit data, and coal quality
information provided to CDR by Big Branch, which information was provided to
Summit by CDR.
The author of the Big Branch Report conducted a site visit to the property and
reviewed the previous mining which had been conducted on the Big Branch Permit
area within the property, the proposed mine plan, the site access roads, and the
proposed backfill plan.
According to the Big Branch Report, the core samples collected and submitted for
analysis were handled using methods that are standard for the coal industry. The
standard method of coal core handling is for the drillers, once the cores are
retrieved to the surface, to place the cores in core boxes designed to accept
core of the diameter being drilled. Samples are then trucked from the field to
independent laboratories for sample testing. The sample date received by Summit
from CDR originated from Big Branch and SGS North America, Inc. Certain data
verification procedures were typically employed in order to derive a level of
confidence with respect to the sample integrity, including the use of sample
labels, sample seals and chain-of-custody recording for the samples.
Reserve Classification
According to the Big Branch Report, potential reserves were classified as
surface mineable (area, point removal and contour mineable), highwall mineable,
or auger mineable reserve. Summit based its Big Branch Report calculations on
coal seam thickness instead of total seam (coal plus rock) thickness. Therefore
when estimating the recoverable tons, a mining recovery factor was used, and no
plant loss was taken into consideration. The mining recovery factor for area,
point removal and contour mineable reserves were calculated as 85% of in-place
tons for all seams. Reserves classified as highwall mineable had a mining
recovery factor of 45% of in-place tons for all seams, and reserves classified
as auger mineable were given a mining recovery factor of 30% of in-place tons
for all seams.
According to the Big Branch Report, exploration data on the Big Branch Mining
Project currently under lease allows for all reserves to be classified as either
proven or probable reserves. According to the Big Branch Report, on-going lease
negotiations may add potential inferred resources to the property. Potential
inferred resources are reported as an in place tonnage and not adjusted for
mining losses or recovery. Minimum mineable seam thickness and maximum removable
parting thickness are considered; coal intervals not meeting these criteria are
not included. Resource tons are estimated by the average thickness times area
method. The area is calculated by Summit from the SurvCADD generated coal seam
outcrop and by potential lease lines and the average thickness is assumed to be
approximately equal to the average thickness generated for measured and
indicated reserves.
According to the Big Branch Report, as of June 30, 2008, the Kentucky OMSL
listed 30 licensed mining operations in Knott County, Kentucky. The counties
surrounding and adjacent to the Big Branch Mining Project in Knott County
include Perry, Letcher, Magoffin, Breathitt, Floyd and Pike Counties. Another
326 mines are licensed in these counties making a total of over 350 mines
licensed in the area.
The most recent production records from the state of Kentucky are through the
end of 2006, which indicate that a total of over 67 million tons of coal was
produced from the seven county region near and adjacent to the Big Branch Mining
Project.
According to the Big Branch Report, Big Branch began operating the surface mine
on May 19, 2004. As of the date of the Big Branch Report, only reclamation and
incidental mining in the Hazard No. 9 seam related to reclamation activities
(totaling approximately 15,000 tons since February of 2009) had taken place on
this permit area. The Big Branch surface mine has produced about 765,000 tons
since 2004.
The results of the reserve study for the Big Branch Mining Project are
summarized in the table below:
----------------------------------------------------------------------------
BIG BRANCH MINING PROJECT
ESTIMATED RESERVES AND RESOURCES
----------------------------------------------------------------------------
Mineral Resource Tons Mineral Reserve Tons
----------------------------------------------------------------------------
Seam Measured Indicated Inferred Proven Probable
----------------------------------------------------------------------------
5 Top 477,767 182,881 0 406,102 155,449
----------------------------------------------------------------------------
5 Middle 928,788 325,328 0 789,470 276,529
----------------------------------------------------------------------------
5 Bottom 1,351,884 306,816 0 1,149,101 260,794
----------------------------------------------------------------------------
7 1,492,389 64,913 0 1,268,531 55,176
----------------------------------------------------------------------------
8 Top 294,674 0 0 250,473 0
----------------------------------------------------------------------------
8 Middle 505,454 0 0 429,636 0
----------------------------------------------------------------------------
8 Bottom 398,992 0 0 339,143 0
----------------------------------------------------------------------------
Sub Total: 5,449,948 879,939 0 4,632,456 747,948
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Totals: 6,329,887 Mineral Resource Tons 5,380,404 Mineral Resource Tons
----------------------------------------------------------------------------
According to the Big Branch Report, an economic analysis of mineral resources
for the property was done by Summit to address the adequacy of financial
projections, operating costs, manpower, proposed capital expenditures and
production forecasts for the project. According to Summit, the projected
production tonnages are reasonable based on the reserves associated with the
property. Annual mine production as forecasted to be approximately 1,200,000
tons when full production is achieved. The estimated sales price used is US$60
per ton delivered in 2009, which, according to Summit, may be slightly high
based on the spot coal prices as of the date of the Big Branch Report.
Approximately 5,450,000 Measured Resource tons are within the property, of which
about 4,630,000 Proven Reserve tons exist. Approximately 880,000 Indicated
Resource tons are within the property, of which nearly 750,000 Probable Reserve
tons exist. Therefore, the portions of the mineral resources that are not
reserves (about 950,000 tons) do not have demonstrated economic viability.
The "start of production" NPV was calculated to be approximately US$82.4
million. This NPV, in current dollars applies to the project once production has
commenced and CDR forecast coal sale rate and selling price are achieved. The
forecast coal sales rate range from 60,000 tons to about 100,000 tons of coal
sold per month except for the first few months of production build-up. A cash
flow forecast was proposed for a "base case" using coal price variations,
provided by CDR for 2009, 2010 and 2011. To assess the impact of price on
project economics, the following sensitivity cases set out in the table below
were prepared which considers the effect of discount rate variation with changes
in the selling price and capital cost on the start-up NPV.
----------------------------------------------------------------------------
BIG BRANCH MINING PROJECT
COAL PRICE, DISCOUNT RATE, PRODUCTION
AND CAPITAL COSTS
SENSITIVITY ANALYSIS
----------------------------------------------------------------------------
Sensitivity Analysis 0
----------------------------------------------------------------------------
Base Case
----------------------------------------------------------------------------
NPV $ 82,410,467
----------------------------------------------------------------------------
IRR 582%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Coal Price + 10%
----------------------------------------------------------------------------
NPV $ 103,347,811
----------------------------------------------------------------------------
IRR 777%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Coal Price - 10%
----------------------------------------------------------------------------
NPV $ 63,865,504
----------------------------------------------------------------------------
IRR 399%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Discount Rate: 15%
----------------------------------------------------------------------------
NPV $ 95,829,140
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Discount Rate: 25%
----------------------------------------------------------------------------
NPV $ 71,471,796
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Production: + 10%
----------------------------------------------------------------------------
NPV $ 90,887,686
----------------------------------------------------------------------------
IRR 739%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Production: - 10%
----------------------------------------------------------------------------
NPV $ 73,933,247
----------------------------------------------------------------------------
IRR 453%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Capital Costs: + 10%
----------------------------------------------------------------------------
NPV $ 81,763,658
----------------------------------------------------------------------------
IRR 522%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Capital Costs: - 10%
----------------------------------------------------------------------------
NPV $ 83,057,275
----------------------------------------------------------------------------
IRR 658%
----------------------------------------------------------------------------
Proposed Exploration and Mining Program
The primary coal seams that have been historically mined in close proximity to
the project area are, in a stratigraphic ascending order, the Hazard No. 5A,
Hazard No. 7, Hazard No. 8, Hindman (Hazard No. 9), Skyline (Hazard No. 10), and
the Hazard No. 11 seams.
According to the Big Branch Report, CDR is projected to begin production on the
Big Branch Permit in 2009. The operation will utilize two spreads of equipment,
with the first spread starting production in the first month and the second
spread starting production in the third month. A partial third spread of
equipment may be necessary in order to ramp up and maintain production at
100,000 tons per month. However, for the purposes of the preliminary mine plan
there are only two spreads of equipment. The seams being mined are the Hazard
No. 5, Hazard No. 7, and Hazard No. 8 seams.
According to the Big Branch Report, production for the first spread is estimated
to begin in the first month and will begin in Area A, working south-east from
the current pit operations in the Hazard No. 5 seam. Operations in this area are
projected to end during the ninth month of operation. The first spread will then
move to a second area for another month, and then to the western side of the
lease area, where it will begin contour, point removal and area operations until
the end of the twenty-first month.
Production for the second spread is estimated to begin in the third month and is
projected to remove this point until the eighth month, where operations will
then continue with another area until the eighteenth month. The second spread
will then move to where it will begin contour, point removal and area operations
until the end of the twenty-first month.
According to the Big Branch Report, the extent of known drilling within the
project area has been characterized by the drilling of 14 known coreholes
(including digital logs) within the project area. Additional coal sections were
taken by Big Branch. According to the Big Branch Report, no additional corehole
drilling is planned at this time. However, additional coreholes will allow for
more distinct classification of the reserve, in both the northern area of the
property and in possible remaining 11 seam reserves, and for expanding the
reserve base in the future.
The anticipated start-up capital expenditures associated with the Big Branch
Project are noted below. The costs for these activities have been generated
internally by CDR.
Insurance US$124,128
Ancillary Equipment US$199,775
Cat Equipment - Lease Prepayment US$414,656
Working Capital US$2,429,441
Undercarriage Replacements US$250,000
Other Development US$282,000
---------------
US$3,700,000
Recommendations of the Big Branch Report
According to Summit, the information it reviewed indicated that there exists a
coal resource on the Big Branch Mining Project worthy of additional exploration
and further development.
Upon review of the existing site conditions, Summit indicated that acquiring the
Big Branch Permit will be of benefit to mining operations. Most of the reserve
left in this area lies in the Hazard No. 5A, Hazard No. 7 and Hazard No. 8
seams. However, one small knob may contain reserves in the Hazard No. 11 seam.
Also, the existing mountaintop removal areas located within this permit could
enhance the overall mine plan by providing additional areas to place excess
spoil. The planned drilling of additional coreholes should commence as adjacent
properties are leased.
Existing and proposed permitting appears to be adequate for the existing
reserves. Additional permitting will be required to expand the operation. Summit
recommended that the issuance of the USACE 404 Permit for the Big Branch Project
should be diligently pursued.
Estimates of required capital, manpower, and equipment for the surface mine
operations are realistic. A regional shortage of qualified labor will have to be
addressed upon the project start up and future expansion.
The completion to the present date of any aspects of the feasibility study work
that may require time-dependent revision is recommended. According to Summit,
the selling price for the coal has most likely changed since the feasibility
work was most recently done.
Summit further recommended that the orderly extraction of the coal reserve in
this area should proceed as planned.
Qualified Person
Phillip Lucas, P.E., P.L.S., of Summit Engineering, Inc., a Professional
Engineer in the State of Kentucky, West Virginia, Virginia and Arkansas, a
member of the Society of Mining Engineers of Kentucky, is the author of the Sid
Report and an independent Qualified Person in accordance with the requirements
of NI 43-101. He has reviewed and approved the technical disclosure in this news
release.
Conditions Precedent to Closing the Business Combination
The completion of the Business Combination is subject to the approval of TSX
Venture and all other necessary regulatory approval. The completion of the
Business Combination is also subject to additional conditions precedent,
satisfactory completion of due diligence reviews by the parties, board of
directors approval of Amalfi and CDR, the entering into of a formal agreement,
the entering into of employment and non-competition agreements with certain
senior officers of CDR, and certain other usual conditions.
Trading of the Amalfi Shares will remain halted pending receipt of certain
documentation by the TSX Venture.
As indicated above, completion of the Business Combination is subject to a
number of conditions, including but not limited to, TSX Venture acceptance and
shareholder approval. The Business Combination cannot close until the required
shareholder approval is obtained. There can be no assurance that the Business
Combination will be completed as proposed or at all.
Investors are cautioned that, except as disclosed in the Information Circular of
the Corporation to be prepared in connection with the Business Combination, any
information released or received with respect to the Business Combination may
not be accurate or complete and should not be relied upon. Trading in the
securities of the Corporation should be considered highly speculative.
Except for historical information contained herein, this news release contains
forward-looking statements that involve risks and uncertainties. Actual results
may differ materially. Neither Amalfi nor CDR will update these forward-looking
statements to reflect events or circumstances after the date hereof. More
detailed information about potential factors that could affect financial results
is included in the documents filed from time to time with the Canadian
securities regulatory authorities by Amalfi and CDR.
The securities of Amalfi being offered have not been, nor will be, registered
under the United States Securities Act of 1933, as amended, and may not be
offered or sold within the United States or to, or for the account or benefit
of, U.S. persons absent U.S. registration or an applicable exemption from U.S.
registration requirements. This release does not constitute an offer for sale of
securities in the United States.
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