CoAL in farm swap agreement with Rio

Perth-based Coal of Africa Ltd has entered into an agreement with a joint venture held by Rio Tinto and Kwezi Group of South Africa to exchange certain coal tenements.

Kwezi Mining and Chapudi Coal, the JV companies held by Rio and Kwezi, have signed a memorandum of understanding with CoAL that will allow it to have access to certain projects.

Under the agreement, CoAL will be acquire certain prospecting rights and interest that are close to its Makhado coal project. The acquisition is expected to boost the economics of a proposed 5 million tonne per annum operation due to start in June next year.

In return, CoAL will grant Chapudi certain rights and interests over some of its farms located in the Limpopo Province.

CoAL managing director Simon Farrell said the agreement was in a bid by both companies to bring the collective properties closer to production.

The agreement is subject to due diligence and shareholder approval.

Below is the full announcement:

Coal of Africa Limited, the AIM/ASX/JSE listed coal development company operating in South Africa (ticker: CZA), is pleased to announce that it has entered into a Memorandum of Understanding ("MOU") with Kwezi Mining and Chapudi Coal ("Chapudi"), joint venture companies held by the Rio Tinto Group and the Kwezi Group of South Africa, pursuant to which the parties intend to formalise agreements for:

1. Chapudi to grant access to and cede to CoAL ownership in certain prospecting rights and interests over certain project areas ("Farms") that are contiguous to CoAL's Makhado Hard Coking Coal Project located in the Limpopo Province. This is expected to add significant highly prospective acreage to the current project area and improve the economics of the proposed 5mtpa mining operation planned to commence in June 2009;

2. Chapudi and CoAL to enter into a Joint Venture Agreement ("JV") in respect of prospecting rights over certain Farms owned by CoAL and Chapudi in the northern part of the Limpopo Province. It has been agreed that Chapudi will be the operator of the JV and both companies believe that the area is likely to contain a significant coal resource; and

3. In return for the prospecting rights over Farms that Chapudi will cede to CoAL as described in 1 above, the Company will cede to Chapudi prospecting rights and interests over certain other Farms, also located in the Limpopo Province.

This rationalisation of Farms owned by Chapudi and CoAL provides significant benefits to both companies in terms of bringing the collective properties into commercial production. Managing Director of CoAL, Simon Farrell, commenting on the MOU stated, "It is very pleasing to bring these discussions to finalisation. CoAL is committed to bringing its Limpopo properties into production in the second half of next year and this agreement certainly contributes to achieving that goal in a very major way."

Conditions Precedent

The proposed transactions for the exchange of prospecting rights and JV agreement described above ("Transactions") require formal documentation and are subject to the following conditions precedent:

1. the completion of due diligence by CoAL and Chapudi ("the Parties);

2. the passing by directors and shareholders of any resolutions required in approving the Transactions;

3. CoAL obtaining any necessary consents to the Transactions required from joint holders or parties with participatory interests in applicable prospecting rights;

4. the waiver of certain confidentiality obligations and all other consents and authorisations as may be required by the Parties; and

5. the Minister of Minerals and Energy granting approval for the transfer and cession of relevant prospecting rights and interests in such prospecting rights in terms of Section 11 of the Mineral and Petroleum Resources Development Act, 2002.

The Company will provide further updates on the progress of discussions and formalisation of the Transactions in due course.