[miningmx.com] – VILLAGE Main Reef (VMR) will not follow its rights in Continental Coal’s (ContiCoal) A$35m ambitious cash raiser.
ContiCoal announced earlier this year that it intended to raise up to A$35m in a rights issue and had secured guarantees from “… institutional and sophisticated investors in Australia, Europe and South Africa as well as a number of commodity trading groups and specialist coal mining investment funds’.
However, there had been no contact with VMR with Dippenaar uncertain as to whether the firm would follow its rights.
Now, however, there is no intention to put more funds into the company which has been walking a fine line between solvency and liquidation.
Asked if the company had been contacted by ContiCoal regarding supporting the rights issue, Dippenaar, replied: “No they have not. And we’ll not be following our rights’.
VMR is also to write-down its investment in ContiCoal.
“Following the lack of information and progress on the planned recapitalisation of Continental Coal, a decision was taken to impair the remaining R12m of the initial R80m investment,’ Dippenaar said.
VMR took a 19% stake in 2013, becoming the coal producer’s single largest shareholder.
Shares in ContiCoal were suspended on January 8 after it emerged that months-long efforts to extend the terms of some $15m in bonds, maturing between November and February, had run into trouble.
In addition, ContiCoal has debt finance totalling $25m with ABSA Capital, and deferred revenue owed to trading company, EDF Trading.
ContiCoal said it would not require further finance once it had secured some A$35M in a rights issue notwithstanding the coal export price which is between $70/t to $75/t ex-Richards Bay.
“The company is profitable at these prices,’ said David Tasker, a spokesman for ContiCoal. “There is no urgent requirement for further raisings post the rights issue,’ he said in reply to e-mailed questions.
Commenting on VMR’s prospects, Dippenaar said he forsaw the company paying dividends, but it would require several quarters of stability at Tau Lekoa, its Orkney gold mine.
The balance sheet also require some additional shoring up with the sale of Lesego, the company’s platinum prospect, a possibility while liabilities at Buffelsfontein also requiring close control.
The sale of its Consolidated Murchion (Cons Murch), an antimony and gold producer, is being finalised. “This is the first quarter where the treasury has actually gone up so we need a few more quarters like them,’ said Dippenaar.
“But it gives us some alternatives. There are dividends or share buy-backs we could consider, but we can only discuss that when we’ve got the money and not before,’ he said.
“If there’s no leakage from Buffels, and we can keep Tau steady, and sell Lesego (a platinum prospect also in VMR’s portfolio) then we can be pretty cash generative,’ Dippenaar said.
Shares in the company have been volatile during the last 12 months. Twice in that time, the company has traded at 12-month highs, only for them to return to their former lows.
That may be the kind of stock VMR will become as Tau Lekoa will be its only operating asset. This leaves it vulnerable to stoppages and other output interruptions that can affect all gold mining companies – and single asset companies in general – but it also remains positively exposed to sudden rand weaknesses or upward dollar gold price shifts.
“It’s highly leveraged just like Harmony used to be,’ said Dippenaar referring to his former role as marketing director of Harmony Gold.
Last month, VMR posted a R54m improvement in bottom line fortunes registering a R22m profit after tax.
“Most mining companies only make their cash in the last few days of each month,’ said Dippenaar. “If you have an interruption in that time, it can wreck the quarter.’
