Keaton watches its cash

Brendan Ryan | Thu, 28 May 2009 17:06
[miningmx.com] -- KEATON Energy (Keaton) intended concentrating this year on developing its long-life Delmas project for which it had declared a coal reserve of 25.9 million tonnes (mt) earlier in May.

Keaton MD Paul Miller said in the results statement for the year to end-March that development of Delmas was subject to regulatory approvals and commercial contract negotiations.

He told Miningmx that, “the world has changed and we do not intend being ‘gung ho’ about building the mine.

“We will get all our ducks in a row before we start development. Specifically, that means we must have the mining right in place as well as all the commercial contracts signed.”

Miller added Keaton was sticking to its intention of producing 2mt/year of saleable coal in the medium-term while looking to develop into a mid-tier coal producer with annual output of around 5mt/year in the longer-term.

In order to achieve this management had “refined its strategy” and intended following a two-tiered approach.

A limited number of large, long-life projects such as Delmas and Sterkfontein would be tackled at the same time as a portfolio of “smaller, quick-to-cash-flow projects” such as the Klip colliery and the Leeuwfontein project was developed.

The Klip colliery started operations in 2008 but is expected to shut down within the next 12 months. The Leeuwfontein and Braamspruit projects should come on stream in 2010 and 2011 respectively but Miller stressed this depended heavily on getting through the regulatory hurdles.

“We put in the new order mining right application for Delmas in March 2008 so the granting of that right should be imminent. We have yet to put in the mining right application for Leeuwfontein.”

Keaton had R373.7m in cash on hand at the end of March. Miller said that money would pay for Delmas but the board was taking an extremely conservative approach over how that cash would be spent.

Keaton’s results provide one small example of what can happen on the commercial front under current tough trading conditions because the Klip Colliery built up a stockpile of coal worth R7m by end-March when a buyer defaulted.

Miller commented, “We did not lose any money on that. The buyer had contracted to take the entire output from the mine but he was paying us monthly in advance for deliveries.

“When he defaulted it took a while to find alternative buyers during which period the stockpiles built up but sales resumed after the year-end.”

Keaton listed on the JSE in April last year after a private placement at R10 a share which compares with the current price of around 905c.

Miller said Keaton’s share price performance had been “pleasing under difficult market circumstances.”

He commented Keaton had traded at or above the placement price for much of the year to end-March.

From the time of the company’s listing until March 31, Miller pointed out the JSE/FTSE all share index had declined by 36%, the JSE/FTSE resources 20 index by 46% and the Nedsec junior mining and exploration index by 68%.

Miller added that Keaton “had raised a significant amount of capital to build its first major project making it unlikely that it will need to return to the equity markets or make use of debt markets.”