JOHANNESBURG (miningweekly.com) - TSX-listed coal-miner Homeland Energy was attempting to raise R70-million, which it required to invest in its Kendal operation, in South Africa's Mpumalanga province, in terms of an amended credit facility with Nedbank Capital, the company said on Wednesday.

Homeland said it had entered into an agreement with Nedbank Capital to amend the terms of an existing credit facility, which would require it to invest the additional funds by January.

The Kendal operation had experienced a funding gap in terms of the required capital expenditure to improve the Kendal plant's performance and the completion of phase two construction at the operation, as a result of the "slump" in global and local markets, tough competition and ongoing production start-up issues at the plant.

The coal-miner noted in a statement that its product sales in the third quarter of the year were, on average, 90% higher than that of the second quarter. However, demand from the domestic market had declined as a result of a slowdown in the global and local markets.

The required funding would be reinvested in the business through working capital, ongoing commissioning requirements and necessary capital expenditures, which were needed to establish the required infrastructure to access the life-of-mine reserves at the operation.

Homeland would, as the first step to meet this investment obligation, complete a private placement, in terms of which it would issue up to 10% of its current outstanding capital at a price to be determined based on the market price at the time of closing, expected to be in the week of November 23.

In anticipation of the private placement, Homeland's largest shareholder, GMR Energy, has provided the coal-miner with an advance of C$2,7-million.

Further, as required under the amendment of the credit facility with Nedbank, GMR had agreed to loan Homeland about C$4,2-million by November 30. The terms of this loan were still being negotiated.

In addition, the company noted that it was also exploring alternatives to raise the balance of the funds required to satisfy Nedbank, including a rights offering.

If such a rights offering was undertaken, GMR would be entitled to have the C$4,2-million loan repaid, to the extent of their participation in such rights offering, Homeland stated.

However, the company warned that it might require further funding from other sources if optimisation and market prices did not improve over the next year.

Nevertheless, it believed that the Kendal operation was well positioned for long-term productivity enhancements, following the capital improvements made this year.

KENDAL UPDATE

The life-of-mine plan for the Kendal operation required entry into four reserve blocks, three of which had already been accessed.

The fourth reserve area was expected to be accessed during 2010, but would come at a high cost and would deliver no coal for about three months.

On completion of this last boxcut, the operation would be well positioned for the next 12 years to 15 years to mine at steady-state costs, the company noted.

Further, it added that the phase two infrastructure implementation was nearing completion, which would allow for coal transportation to the washing plant by conveyor from Block D and the future Block E.

Investigative studies to reduce the amount of fines produced during mining operations to alleviate associated problems in the washing plant were under way. The correct sizing of coal from blasting was also being investigated to avoid oversize, Homeland stated.

A primary vibrating grizzly and jaw crusher is planned to alleviate the problem of excessive in-seam stone, which required the use of a mobile crusher prior to feeding coal to the plant, as the existing feeder breaker is not designed to crush the in-seam stone.

In addition, wet screening and spirals were also being planned to eliminate fines in the sized product, as well as increasing yields by reclaiming ultra-fine product presently discarded with the slurry.

COAL OFFTAKE

Meanwhile, Homeland was negotiating offtake agreements for its sized product within the steel and textile markets for 2010.

Several one-off high-tonnage offtake sales were being negotiated to help reduce the high volumes of saleable stock sitting on site.

As well as the spot sales of discard tonnage, the company was also negotiating a long-term offtake agreement, which was expected to take effect "very shortly".

The company was also still searching for a CEO to succeed Stephen Coates who resigned on June 5.