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Emerging anthracite producer ZYL Limited (ASX: ZYL) has strengthened its hand in becoming a leading anthracite coal producer, acquiring an additional 30 per cent of its Mbila project and adding two more anthracite projects to its portfolio in South Africa.

Unlike many of its coal brethren, ZYL's Mbila Project is on track to begin producing in the near term, first production is slated in second quarter 2013.

ZYL has executed a binding Heads of Agreement (HoA) for the acquisition of 100% of York Energy NL (York) for a total consideration of A$12 million. This is subject due diligence and an independent experts report and obtaining shareholder approval.

The deal will add an additional 30 per cent of Mbila increasing ZYL's interest to a 74% interest.

In addition ZYL will gain:

- Rights to a 60% interest of Marble Project (located 30 km west of Mbila project)
- Rights to a 70% interest of Kangwane North Project (located 30km north of ZYL's Kangwane Central

This will increase ZYL's economic interest both in the Mbila Project and in the Kangwane Project area.

Significantly, this will improve flexibility through greater economies of scale.

In addition, the transaction will allow ZYL the opportunity to target both the domestic and export anthracite markets via multiple port and transport alternatives.

Deal terms

York currently owns 2% of the Mbila project and will own an additional 5% by paying US$2.8 million (Second Payment Date) upon the granting of Section 11 from the Department of Mineral Resources.

York has a call option to acquire an additional 23% in Mbila for an aggregate amount of US$14 million in cash escalated by 1% per month for each month settlement does not occur following the Second Payment Date.

Should York not exercise the call option 18 months after 16 September 2011, the vendors of Mbila will hold a put option to sell the 23% in Mbila to York for US$14 million.

ZYL will issue AU$12 million worth of shares in ZYL Limited to the shareholders of York Energy N.L. at a deemed issue price of AU $0.1797 per share (being the 30 day volume weighted average price of ZYL shares up to and including 30 April 2012).

At completion, the amount of consideration to be issued will be reduced by the amount of outgoings due and payable by York in respect of the JV Interests at the date of the binding Head of Agreement; and $1,175,000 worth of convertible notes to be repaid at settlement unless the notes were converted into York shares prior to settlement of transaction.

The ZYL shares to be issued as consideration to each Vendor (Consideration Shares) will be subject to voluntary escrow as follows:
(i) 33.33% of the Consideration Shares to be escrowed for 3 months from date of issue;
(ii) 33.33% of the Consideration Shares to be escrowed for 6 months from date of issue; and
(iii) 33.34% of the Consideration Shares to be escrowed for 9 months from date of issue

Assuming the notes are converted into York shares, the maximum number of new ZYL shares to be issued under the transaction is 62,368,743

CEO Ian Benning said of the deal: "The agreement with York consolidates ZYL's position within both the South African and international anthracite markets. ZYL will have a well-balanced pool of assets at various stages along the exploration and development value curve, allowing for the scheduling of development based on market demands."

"This places ZYL in a position to produce a diverse range of coal products, catering for a greater number of consumers and increasing flexibility in term of both mine gate sales and export options."

"The high level of interest received for the company's product from both the Mbila and Kangwane projects warranted pursuing increased anthracite holdings within South Africa and the acquisition of York provides that opportunity."

ZYL has received non-binding Expressions of Interest (EOIs) of over 4.0Mtpa, which exceeds full saleable production from both its Mbila and Kangwane projects.

"The Transaction will provide a solid combination of both greenfields and brownfields assets with significant upside potential," Mr Benning said.

Analysis

The deal adds economic benefits to ZYL, taking it further down the road with the near term producing Mbila project and becoming a larger presence in the much sought after anthracite market in South Africa. Selling at the Mbila mine gate enables ZYL to tap the heavy domestic demand for anthracite without the infrastructure issues or capital expenditure. Margins are significant

The recent macro pullback in equity prices affords an opportunity for an investors. This has meant that ZYL is trading at an EV/Resource tonne basis of around $0.22, considerably below the ASX coal sector average.

However, the ability to move into production in 2013 and fully in 2014 to a buoyant domestic market without requiring export markets holds the key to ZYL. Current valuation of around $65 million will appear very low in time.

Helix Resources' (ASX: HLX) is likely to gain more market attention as it and joint venture partner Mungana Goldmines (ASX: MUX) progresses the Tunkillia Gold Project in South Australia.

The joint venture partners have begun a A$3 million exploration campaign comprising 8,000 metres of diamond and reverse circulation drilling designed to infill and extend the current Resource.

Tunkillia currently hosts a JORC Resource of 15.6 million tonnes at 1.6 grams per tonne for 803,000 ounces of contained gold.

This next phase of drilling will begin with a series of metallurgical and geotechnical holes to confirm pit design and recovery factors.

Previous testwork has indicated high recoveries of 92% in the oxide zone and 90% on the primary zone.

Importantly, the drilling campaign will progress the Feasibility Study on the project and begin the search for additional deposits within the region.

This presents the potential for Tunkillia to rapidly advance to a medium-scale project with strong financial returns.

An earlier Scoping Study has determined the project is likely to be a "robust, medium-scale project".

At prices of A$1,500 to $1,700 per ounce of gold, the project could produce a pre-tax operating surplus of between $115 and $210 million and internal rate of return of between 20.9% and 35.4%.

With average cash costs of $983 per ounce, this equates to a project with the potential for robust financial returns.

Pit optimisations run as part of the Scoping Study indicated that the open pit operation could be developed in stages to provide faster access to mill feed, expediting production and commercialisation.

Further improving the financial standing of the project is the relatively straightforward metallurgical processing requirements, keeping costs down.

Information to date indicates that metallurgical processing of ore from Tunkillia could follow a standard gold flow sheet, comprising crushing, grinding and carbon-in-leach gold and silver extraction.

Realising the value of the asset

With Mungana looking to increase its stake in Tunkillia from 55% to 65% by the end of the year, Helix has a number of options to realise the value of the asset.

Based on the quality of the project and the interest from the market, Helix can look to stay in as a joint venture partner as Tunkillia comes into production, or the company can realise the asset by selling to a third party at a suitable time.

The upside for Helix is as Mungana continues to spend money on advancing Tunkillia it increases the value to Helix.

Tunkillia project

The Tunkillia project is located in South Australia's Gawler Craton, about 600 kilometres northwest of Adelaide.

Helix holds a 45% stake in Tunkillia, with Mungana owning the remaining 55%. Based on its current exploration expenditure, Mungana looks to increase its earn in position to 65% by December 2012, and could increase it further in 2013 by spending an additional $11 million.

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Exterra Resources (ASX: EXC) continues to deliver on the potential of its Linden Gold Project, which surrounds the historical Devon gold mine in Western Australia, with current drilling showing visible gold and confirming the continuity of high grade gold at depths.

Highlighting the progress being made at Linden, Exterra is nearing a Resource upgrade in late June/early July, ahead of the start of a Feasibility Study into the development of the Second Fortune mine.

The third and fourth holes drilled at Second Fortune returned extremely high grades of gold, including intersections of 0.3 metres at 65.1 grams per tonne (g/t) and 0.4 metres at 25.4g/t.

These results are consistent in width and the high grade of earlier reported intersections of 0.8 metres at 31.98g/t gold and 0.6 metres at 43.5g/t gold.

Importantly, the first four holes all contained visible gold, and the results confirm the continuity of the high grade Second Fortune main lode system at depth below the current resource.

Exterra is testing the continuity of the high grade lode system below and along strike of the deepest drilling completed to date at around 250 metres.

Holes in the current drilling program will test the lode system to 300 metres.

Worth noting here is that there have been no holes drilled at these sorts of levels since about 1985.

Second Fortune

A diamond drilling program completed by Exterra last year confirmed the high grade nature of the Second Fortune lode system.

That program delivered a maiden Inferred JORC Resource of 207,000 tonnes at 7.9g/t for 52,270 ounces of gold for the mine.

A mining lease has been granted over the Linden Project, which contains established infrastructure from the historic operation.

The project has near-term development potential with toll treatment options.

Surrounding the historical Devon gold mine, these three tenements contain 2.3 kilometres of north and south extensions of the magnetic structures that host the Devon mine.

Devon produced 6,800 ounces of gold at 19.6% gold between 1911 and 1927.

The Linden tenements have been under plaint since 1997, with no exploration completed over the past 15 years, and only limited exploration prior to 1997.

Last year Exterra increased its holding at Linden with the acquisition of a 100% interest in an exploration licence contiguous with the existing tenements.

Exploration progress

Exterra is targeting an increase in the Inferred JORC Resource as well as an upgrade in the Resource to the higher confidence Indicated category.

Following the completion of the current 2,600 metre drilling program this month, assays are expected by mid-June ahead of a Resource upgrade in late June, early July.

The Feasibility Study will then begin with completion anticipated for the September quarter.

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