Bounty will purchase the interest from current InCoal joint managing directors Larry Cook and Amon Mahon for 20 million Bounty shares and the forgiveness of $A178,000 of loans.
On top of operating synergies, Tuesday’s acquisition will allow Bounty to access 100% of the cash flows, and will increase operating profits.
Bounty managing director Mark Gray told International Longwall News that even though Bounty had owned 51% of InCoal it was operated as an independent subsidiary, with Bounty providing mining equipment and operational infrastructure – including finance, accounting and corporate governance – on a fee basis.
“It’s a pretty untidy and often tricky situation – it is better we all have interests in the same company, we all jointly own the same equipment and just move forward on that basis,” Gray said.
“Larry and Amon may have views of where we should spend our capital expenditure dollar, which may not necessarily be the same as ours, so there has just been too much time and effort wasted on issues that really don’t need to be debated that far. Operationally, this is going to save both of us quite a bit of time and effort and we can focus more on production.”
American expatriates Cook and Mahon have entered into four-year exclusive management contracts, which will be backdated to May 15, 2005. Under the contracts they will be entitled to a cash bonus payment of up to $500,000, provided Bounty has sufficient cash reserves. Cook and Mahon will also be issued with a combined 30 million incentive options.
The deal is subject to shareholder approval, with a shareholder meeting slated for late March, early April.
“The appointment of Mr Cook and Mr Mahon to the board will increase the level of hands-on mining expertise and will better integrate the operating strategy of the Bounty Group mining, equipment hire and maintenance division,” Bounty said.
Cook holds 30 years underground coal mining experience in his native West Virginia, and was one of the original innovators of the continuous haulage system.
Mahon holds 15-20 years experience in thin seam coal mines in Kentucky and West Virginia.
Meanwhile, on the operational side Bounty finished up its contract at Centennial Coal’s Ivanhoe Colliery in December 2005, and in the same month commenced mining production at Anglo Coal’s German Creek Colliery.
Additional equipment from Ivanhoe has also been deployed to Aquila, with production scheduled in April/May 2006. Gray said good steady process had been made on the contract to date.
Gray told International Longwall News Bounty currently had a “couple of projects in the pipeline” and had “no shortage of opportunities to cut low profile coal”
Bounty recorded an EBITDA profit of $1.1 million on revenue of $9.6 million for the six months to December 2005, and expects to post a $5 million net profit for the full year.
Bounty closed trading on Tuesday at 34c.
