SENTULA Mining announced last week that it has entered into an agreement with its empowerment partner Shanduka Resources to merge their coal assets to create a strong mid-tier coal producer and mining services company.

The proposed transaction will be structured through the issue and allotment of about 627million new Sentula ordinary shares to Shanduka Resources, whereby Sentula will acquire about 30percent of the entire issued share capital of Shanduka Coal as well as about 30percent of the entire share capital of Kangra Coal, held via the subsidiary Shanduka Coal Investments.

Through this transaction Shanduka Resources will control 51,9percent of the new group, for a total consideration of nearly R2,1billion.

The proposed transaction will create a company with a portfolio of exploration, near-development and operational coal mining assets and will transform Sentula from primarily being an operator of mining services and exploration drilling businesses into a mid-tier mining services and coal mining company.

The assets in the combined group will comprise an almost 30percent shareholding in Shanduka Coal's operating mines - Graspan Colliery, Middelburg Townlands Colliery and Springlake - as well as another 30percent share in Kangra Coal's assets.

Sentula will be invested in a portfolio of producing coal assets with total resources of about 435million mineable tonnes (mt) in situ, and annual production of some 12,5mt.

The group will also have access to Kangra Coal's estimated 2,0mt of annual RBCT (Richards Bay Coal Terminal) entitlement.

In addition to the portfolio of operating mines and resources, this strategic deal introduces a credible and substantial broad-based black economic empowerment partner, bolstering the group's BEE credentials significantly. The merged entity will be able to leverage off Shanduka's brand and high quality institutional backing and it will be competitively positioned to act as a catalyst in the consolidation of the country's junior coal mining sector.

Robin Berry, chief executive of Sentula, said: "Consistent with our strategy, this transaction will transform Sentula from primarily a mining services provider into a mid-tier coal mining business. The combined assets in the new group will be treble the size of our previous coal assets and it will create further complementary opportunities to enable growth in contract mining services.

"By partnering with Shanduka we believe that the broader group, with credible empowerment credentials, provides a more robust platform for generating sustainable shareholder value over the long-term," he said.

The transaction is subject to conditions typical for a deal of this nature and is expected to be concluded towards the end of July, after shareholders have voted at a general meeting and other necessary regulatory approvals have been received, including the competition authorities.

Once all the conditions have been met and the transaction is approved by the competition authorities, the company will be renamed from Sentula to Shanduka Mining Limited with effect from the effective date.