Keaton to re-scope project amid heavy write-downs

Loading at Richards Bay Coal Terminal

JOHANNESBURG-listed Keaton Energy is to post earnings and headline earnings losses for its 2016 financial year owing to two non-cash items including a R61.5m breach of contract with trading partner, Gunvor Group.

The Swiss trader, which is a shareholder in Keaton through a subsidiary company, was to have taken delivery of 600,000 tonnes of coal between January 2015 and October 31 this year from Moabsvelden, a project Keaton was developing.

This was in terms of an offtake agreement with Gunvor in which the South Africa miner was paid $4m (R57.8m at today’s exchange rate) upfront for the coal.

A delay in the granting of an integrated water use licence (IWUL) by South Africa’s Department of Mineral Resources (DMR), effectively dating from the time of the project’s acquisition in 2014, meant Moabsvelden is still on the drawing board.

The Moabsvelden property was bought with the A$19.7m takeover of Xceed Resources, a transaction first announced to the market in 2013, and consummated the following year. The project is in the vicinity to Vanggatfontein in Delmas, Mpumalanga province. Vanggatfontein is Keaton’s main source of income.

Keaton’s other main operation, Vaalkrantz, an anthracite mine in KwaZulu-Natal, is to be disposed via the sale of Leeuw Mining which also consists of two undeveloped projects – Balgray and Koudelager – and a third project, Klipfontein, which is related to the transaction. These assets have been listed in Keaton’s accounts as held-for-sale.

However, the lionshare of Keaton’s impairments is Leeuw Braakfontein Colliery (LBC), a project that was kept out of the Leeuw Mining sale because Keaton recognised considerable value in developing the asset at a later stage.

Keaton said it had impaired LBC for R159.2m after it decided to ditch plans to build the mine as a combined export and domestic operation. It cited difficult market conditions for its decision.

“The LBC project was planned as a combined export and domestic thermal coal operation. Continued depressed export pricing and a bleak medium-term outlook on the Richards Bay API4 Index has had a material impact on the economics of the project,” said Keaton in an announcement to the Johannesburg Stock Exchange after trading closed last night.

Keaton said it would continue to study “alternative options” around an exclusively domestic supply project for LBC.

The outcome of the two accounting entries is an earnings per share loss for continuing operations of up to 61.7 cents per share, a turnaround in fortunes year-on-year of up to 75.3 cents a share.

Including assets for sale, the loss per share could total 100.2 cents per share which compares to a loss of 13.8 cents per share in the previous financial year. Keaton is due to present its full-year figures on June 27.

The setbacks appeared to have been priced into the share however. Keaton has traded 37% higher year-to-date valuing the company at about R184m.