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CoAL seeks greater self-sufficiency after transformational FY17

David Brown

Photo by Duane Daws

Coal of Africa Vele colliery

Coal of Africa Mooiplaats colliery

29th September 2017

By: Mia Breytenbach

Creamer Media Deputy Editor: Features

     

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JOHANNESBURG (miningweekly.com) – Following an “extremely positive and transformational year” in which South Africa-focused Coal of Africa Limited (CoAL) achieved significant milestones, such as the settlement of significant liabilities and transitioning into a coal producer with the acquisition of the cash-generative Uitkomst colliery, the company will be advancing further toward self-sufficiency.

“CoAL is looking forward to a potential secondary acquisition and/or the Makhado project coming to fruition within a short period of time,” CoAL CEO David Brown noted on Friday during a teleconference to discuss the company’s audited financial statements for the financial year ended June 30.

Discussing the way forward for the company, he noted that CoAL would progress the potential acquisition of a second cash generator in the second half of the 2018 financial year, adding that between one-million and three-million tonnes a year could be added through this acquisition, which would be “very favourable” for the company.

Strategies for the next financial year include completing the sale of the Mooiplaats thermal coal colliery, which Brown hoped would be sold for in the range of R150-million to R250-million.

Further, CoAL’s board this month approved the development of the Makhado Lite project, ensuring similar returns to the original Makhado project with lower capital requirements and a shorter construction phase.

To progress the project, which is the company’s key project focus, CoAL aims to finalise the surface rights for the project, complete geotechnical drilling, as well as to secure funding for the project. Construction activities are expected to start in the first half of the 2019 financial year.

The Makhado Lite project has an estimated 29-year life-of-mine (LoM) with run-of-mine (RoM) production of four-million tonnes a year.

“CoAL continued to ensure that it is well positioned to unlock near-term shareholder value from the flagship Makhado Lite project,” Brown highlighted, noting that as part of this, the company recognised the limited cash flow that would have been generated during Makhado's pre-production phase.

Going forward, a key consideration for CoAL will include a potential restructuring of the company’s stock exchange listings over the next year.

“We will look to reduce the Australian listing and look to [retain] the South African and London listings,” Brown said, explaining that these two countries account for the majority of CoAL’s shares.

The company has secured a debt facility of up to $18-million from the Industrial Development Corporation (IDC) to advance the development of the Makhado Lite project.

CoAL completed the first drawdown of $9.2-million during the period under review, which resulted in the IDC owning 5% of Baobab and, thereby, underpinning the South African government’s support for the project, Brown reiterated. The second tranche of the $9.2-million is available upon written request from Baobab.

Meanwhile, to settle its historic debt owed to diversified miner Rio Tinto for the acquisition of the Greater Soutpansberg Project (GSP) assets, in Limpopo, CoAL repaid the final $18.2-million during the period under review.

In terms of its project pipeline, CoAL will not mine all areas simultaneously at the GSP assets, but will aim to identify “sweet spots” for GSP and advance project design.

“Exploration and development of the CoAL prospects in the Soutpansberg coalfield are the catalyst for long-term growth of the company,” CoAL stated on Friday, noting that the Department of Mineral Resources is considering the company’s mining right applications for the Mopane, Generaal and Chapudi projects.

CoAL further awaits the granting of an integrated water use licence (IWUL) for the Makhado Lite project, after the suspension of the licence was lifted by the Water and Sanitation Minister. The granting of the licence is the final approval required for the stream diversion in respect of the plant modification project (PMP) and once all regulatory approvals are in place, CoAL will be able to consider the prevailing market pricing and conclude an investment decision for the PMP.

The Mooiplaats and Vele collieries, meanwhile, remain on care and maintenance. The IWUL for the Vele colliery has been renewed for a further 20 years and has also been amended in line with the requirements for the colliery's PMP.

The disposal of Mooiplaats is at an advanced stage, Brown said, adding that any proceeds from this transaction would be used to progress the development of the Makhado Lite project.

As all CoAL operations are currently on care and maintenance, the company generated no revenue during the period under review.

The company further reported noncash charges of $9.3-million, a decrease from $12.8-million in the 2016 financial year, including the impairment of an intangible asset of $10.6-million, as well as an unrealised foreign exchange gain of $2-million, as a result of the South African rand strengthening against the US dollar, CoAL CFO De Wet Schutte noted.

Total unrestricted cash balances at year-end, including cash held by operations available for sale, amounted to $9.6-million.

MARKETS
The hard-coking coal price recorded short-term supply constraints, owing to weather and infrastructure disruptions, while recent price movements reflect the tightness of world supply, which Brown believes is positive for longer-term pricing.

Thermal coal prices also reflected more positive fundamentals in the short term. 

“The coal price environment [is encouraging], underpinning for us that, as we move into a preconstruction phase for Makhado, we could supply our hard-coking coal and thermal coal into positive pricing environments,” Brown emphasised.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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