JOHANNESBURG (miningweekly.com) – South African coal producer Coal of Africa Limited (CoAL) on Friday posted a dramatic narrowing of its run-of-mine (RoM) coal production, from 202 910 t in the first quarter of the prior year to 7 068 t for the quarter ended December 31, 2013, which it attributed to the scaling-down of the company's loss-making collieries.

The entire quarterly production of 7 068 t could be attributed to the Vele colliery, in Limpopo – the company’s only remaining operation – which narrowed year-on-year production from 127 764 t, as a result of operations being scaled down pending the completion of the plant modifications in the first half of next year.

The colliery processed 3 957 t of RoM coal during the quarter, producing 907 t of export quality thermal coal.

ASSET DISPOSAL

As part of what the London-listed miner described as its five-point turnaround strategy, CoAL moved to dispose of five noncore thermal assets, namely the Woestalleen colliery, the Opgoedenhoop mining right, Lemur Resources, the Holfontein project and the Mooiplaats colliery.

As a result of the Mooiplaats colliery, in Mpumalanga, being placed on care and maintenance in the September quarter, no middlings coal was sold to State-owned power utility Eskom, while sales of export quality coal decreased from the previous quarter's 56 799 t to 7 677 t as a result of the offloading of CoAL’s nonperforming assets.

The R100.8-million sale of the Mpumalanga-based Woestalleen processing complex, which had also been placed on care and maintenance in September, and its undeveloped Opgoedenhoop mining right, continued to progress over the quarter.

The only condition to the sale that remained outstanding was Ministerial consent in terms of Section 11 of the Mineral and Petroleum Resources Development Act, but the company expected to receive these approvals, as well as the proceeds of the sale, in the near-term.

Disposal of the Mooiplaats thermal coal colliery – the third of CoAL’s offloaded assets to be placed on care and maintenance in September – continued during the period, with formal offers from prospective buyers expected by the end of March.

PLANT MODIFICATIONS

Meanwhile, at Vele, the company produced a sample of semi-soft coking coal for testing at ArcelorMittal South Africa (AMSA).

“The Vele colliery plant modifications will enable the colliery to simultaneously produce semi-soft coking coal, sized thermal coal, or export-quality thermal coal, and middlings coal for Eskom from 2015.

“AMSA undertook successful trials on a sample of semi-soft coking coal from Vele and the negotiation of a letter of intent indicates both parties' intention to conclude an offtake agreement for the colliery's metallurgical coal," said executive chairperson David Brown.

His comments followed the board over the quarter approving the R220-million plant modification.

Over the period, the company started with project-level fundraising activities as well as the formal process to appoint a contractor to undertake the detailed design and construction of the plant modification.

Tenders were received in early January and the company expected to appoint the engineering design contractor in February.

EXPLORATION

CoAL continued to engage the relevant government departments in relation to its new-order mining right and integrated water use licence applications, and was working towards finalising the black economic-empowerment aspects required prior to the granting of the mining right at its Makhado coking coal project, in the Soutpansberg coalfield.

In addition, at its Greater Soutpansberg project, or MbeuYashu, in Limpopo, the company continued the public participation programmes related to the environmental-impact assessment phase for the Generaal, Chapudi and Mopane projects.

The environmental management programmes for the three project areas were finalised and were distributed for public comment during the quarter.  

CASH POSITION

As a result of the scaling down of operations, receipts from coal sales for the three months decreased to $1.9-million from $22.7-million in the first quarter of the prior year.

The cessation of activities at the company's operating collieries during the previous quarter resulted in production expenses declining from $15.9-million in the first quarter of the prior year to $3.9-million, which included the costs to process discard dumps at Woestalleen and $2.2-million for care-and-maintenance costs at Mooiplaats.

During the three months to December, the company spent $5.3-million at the Vele colliery and a further $1.8-million on exploration in the Soutpansberg coalfield.

It also repaid the outstanding $1.1-million of the Investec Bank derivative-backed finance facility and drew down $10-million under the Investec working capital facility. These funds were used to fund ongoing operating and administration costs.

Looking ahead, expenditure on exploration and evaluation in the March 2014 quarter was expected to be $1-million, with $1.1-million spent on development, which included costs associated with the detailed design of the Vele plant modification.

Estimated production costs for the three months of $400 000 related to net expenses at the Mooiplaats and Woestalleen operations, while administration expenses of $2.3-million would be incurred to cover head office costs.

These would all be paid from the proceeds of noncore assets.

Available cash at the end of the period was $4.2-million.