[miningmx.com] – VILLAGE Main Reef’s (VMR’s) R76m investment in Australian-listed Continental Coal looks in danger after the coal miner said it may have to put itself into administration.
In an announcement to the Australian Stock Exchange, Continental Coal said it would seek a voluntary suspension of its shares while it attempted to hammer out new terms for $15m in convertible bonds which mature between November and February.
So far, the discussions had not led to an agreement even though Continental Coal had long recognised the importance of the refinancing. It appointed a special committee last year tasked with overseeing the discussions with bondholders.
A further announcement regarding the convertible note discussions was due on January 13 which may see the share suspension also lifted. Shares in Continental Coal were trading at 2 Australian cents/share valuing the company at A$14m and VMR’s stake at R26.6m.
VMR bought up to 19.9% in Continental Coal in March last year through a private placement and the purchase of oddlot shares. It was the first of an asset diversification strategy, said then CEO of VMR, Marius Saaiman.
An adverse development with Continental Coal – which was by no means certain at this stage – would surely place extra pressure on VMR’s strategy after it recently closed the Blyvoor and Buffelsfontein gold mining operations leaving its reliant on two remaining assets, Tau Lekoa and Consolidated Murchison. Shares in VMR increased 2.86% today.
The disappointing coal market over the last 18 months has pressured Continental Coal, but its cash-flow problems have been compounded by the slow ramp-up of its newly commissioned Penumbra mine in the Mpumalanga province.
The company raised $25m in debt from Absa Capital to build the mine, but it said today that difficulties securing continuous miners at the operation had led to lower-than-expected production. It warned of stress on its working capital requirements.
“Whilst production will be augmented by the implementation of an additional conventional drill and blast production section, the ramp-up of production from this is expected to take several months placing additional pressure on the company’s working capital requirement,” said Don Turvey, CEO of Continental Coal.
“If no acceptable restructure and/or refinancing arrangements can be agreed in the near term, the board considers that the appointment of a voluntary administrator to the company in Australia may be necessary, as it will have insufficient funds to meet the repayment obligations on the convertible notes and other creditors,” he said.
Continental Coal produced about 2.2 million tonnes of saleable coal in its last financial year and was hoping to achieve the same output with Penumbra replacing production from the nearly exhausted Ferreira mine.
Continental has one other operation mine in Vlakvarkfontein and a ‘company-making’ project in De Wittekrans, a proposed 1.6mpta mine with a significant export portion but requiring some $120m in capital.
Last year, however, it has sought to cut costs even sacrificing directors fees whilst selling off Botswanan exploration tenements. Other projects it owns were also open to joint ventures or divestments. The company was due to list on the Johannesburg Stock Exchange in November so that VMR shareholders had direct access to the stock.
In addition to the convertible notes, and loan to Absa Capital, Continental Coal had deferred revenue owing to trading partner, EDF which it said would be paid in installments from July this year. Total company borrowings were at $82m at the company’s year end on June 30.
