AIM listed mining groups Polo Resources Ltd (LON:POL) and Caledon Resources Plc (LON:CDN) have reached an outline agreement over a coming together of the two sides to create a coal-focused natural resources group.

If the deal proceeds, Polo will make an all share offer for Caledon at an exchange ratio of 11.4 Polo shares for every one Caledon share. That would value each Caledon share at 61.56p – a premium of 14.53% on its closing price yesterday. Polo already owns a 26.1% stake in Caledon and its executive chairman, Stephen Dattells, was the original founder of Caledon.

Neil Herbert, the executive chairman of Polo, said the transaction would provide all Polo shareholders with a renewed focus and direct exposure to the coking and thermal coal markets through 100% ownership of Caledon’s Cook mine and the Minyango project.

Mark Trevan, the managing director of Caledon, said: “The proposed combination offers diversification for Caledon shareholders through Polo's investments in resource companies and its joint venture in Mongolia, while retaining shareholders' exposure to the upside potential contained within our Cook mine and Minyango project.”

Separately, Polo has agreed to set up two loan agreements with Caledon including one which will see Polo provide a short term facility for up to £18 million to be used, if required, to aid funding of the repayment of Caledon's 8.5% convertible loan notes due July 5, 2010.

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