Cape Alumina merger deal gets its bauxite project under way

Cape Alumina is set to secure funds to progress its $396 million bauxite project under a merger deal with coal junior MetroCoal.

The companies have announced a scheme of arrangement merger that will create a $28m diversified resources house with the aim of developing the Pisolite Hills bauxite project, 50km northeast of Weipa on the Gulf of Carpentaria.

Cape Alumina chairman George Lloyd said it was difficult for junior companies to access capital markets to progress developments and the deal was an opportunistic move to enable the company to develop its flagship asset.

Shares in MetroCoal lifted on news of the deal and closed 15.38 per cent higher at 4c; Cape Alumina was up 1.43 per cent at 7c.

The deal will see MetroCoal offer about 1.12 of its shares for every Cape Alumina share. MetroCoal also will provide Cape Alumina with a $3m convertible note to help fund work on the Pisolite Hills project.

Resource Capital Funds, a major shareholder of Cape Alumina, also will convert its $5m convertible note into Cape Alumina shares at 12c a share before the merger proceeds.

MetroCoal is focused on thermal coal projects in the Surat-Moreton Basin in southeast Queensland, but with coal markets struggling these assets will be pursued more longer term.

"We see that the development of the coal assets is more likely to be six or so years into the future, whereas the bauxite assets are supported by a strong market," Mr Lloyd said.

"They are ready to go when the necessary engineering and environmental work has been completed."