SA Govt suspends licence for CoAL Makhado venture

COAL of Africa’s (CoAL’s) plans to start development of its Makhado coking and thermal coal project received a setback today when the South African government suspended the venture’s water use licence.

This followed an appeal to the Department of Water and Sanitation by Vhembe Mineral Resources Forum, and other parties – a development CEO of CoAL, David Brown, said was not completely unexpected.

Brown said the appeal had been anticipated, and that his company was in the process of “… preparing an urgent representation to the Minster of Water and Sanitation to request that the IWUL [Integrated Water Use Licence] remain in full force and effect pending the final conclusion of the appeal by the Water Tribunal”.

“We are actively engaging with the Department to resolve this appropriately,” said Brown in a statement. “We remain committed to the sustainable development of the Makhado Project, whilst recognising its potential to drive significant socio-economic transformation,” he said.

“We will continue to engage with all stakeholders to ensure the on-going implementation of our co-existent model, seeking co-operation between mining, agriculture and heritage land uses,” he added.

Delays in the development of Makhado would not be a train smash for CoAL, however, considering the difficulty of raising capital in the current market.

Brown told Miningmx in March that in lieu of financing Makhado according to its current timetable – with full production of about six million tonnes a year pencilled in for 2020 – the company might more easily finance regional consolidation using Universal’s footprint in Mpumalanga province as a platform.

“There are junior firms operating in Mpumalanga province on a standalone basis at these prices. So there is some logic to the strategy of combining operations in a greater quantum,” he said.

In December, CoAL announced that it had signed a memorandum of understanding to sell a 34% stake in the CoAL subsidiary that owns Makhado to Qingdao Hengshun Zhongsheng Group, a Chinese industrial conglomerate, for $114m.

The Chinese had undertaken to arrange debt. Brown anticipated a 50:50 debt to equity split as a financing structure for the project.

Some 26% of the project would be sold to local communities and entrepreneurs, possibly with the assistance of the Industrial Development Corporation and the Public Investment Corporation, state-owned institutions.

In a separate announcement, CoAL said that it had received acceptances from Universal Coal shareholders for the reverse takeover of the company totalling nearly 62% of shares in issue. It had also extended the date to accept the offer to 29 April.

In November, CoAL bid R1.29bn for control of Universal Coal comprising A$0.20c/share in cash and one new CoAL share per Universal share. The offer trumped the A$0.16c/share hostile takeover attempt of Universal’s 29.9% shareholder, IchorCoal, which was made on August 21.

Universal Coal is positioned to produce about 3.5 million tonnes a year of saleable coal from its Kangala and New Clydesdale Colliery in about a year’s time.