[miningmx.com] – David Brown, CEO of Coal of Africa (CoAL), has big plans for his company which, until now, has been engulfed in a battle for survival.
It last year agreed to sell shares worth $70m to China’s Beijing Haohua Energy (BHE) and also buried a number of legacy disputes including a $10m (R144m) liability settlement with the JSE’s logistics and ports group, Grindrod, and a $30m (R432m) dispute with Rio Tinto over final payment of Chapudi, an enormous coal deposit in South Africa’s Limpopo province on which CoAL is basing much of its future.
In order to clear the path for this, CoAL has sold most of its ageing Mpumalanga province coal mines, except Mooiplaats the sale of which to private group, Blackspear, fell through earlier this year. It also mothballed Vele, an operation that must count as South Africa’s most infamous coal mine.
Vele was built near Mapungubwe, the World Heritage site. Apart from the reams of administrative and legal papers cast CoAL’s way whilst it was fighting off the objections of environmentalists, Brown also discovered Vele wasn’t a very good mine in its then format.
The mine is due to restart production mid-2016 after a period of rebuilding, but even that may be put on the back-burner owing to CoAL’s surprise R1,29bn reverse takeover proposal for Universal Coal.
Unlike CoAL, Universal Coal has cash flow from operating assets, and a suite of its own development projects, mostly in Mpumalanga province where coal mining is less of frontier than in the Limpopo where the former Rio Tinto assets CoAL bought, now known as Makhado, are located.
If Brown can get the deal through, it will catapult CoAL into a new league. Brown has done much to stabilise the company but even if Vele came into production it would not be transformative in the same way as buying Universal Coal. And Makhado is years away from production.
In an interview with Miningmx, Brown said he hoped buying Universal would be the first of other acquisitions premised on the fact that coal assets in South Africa were now so cheap that it was easier to buy than to build them.
“There are a number of companies that are cash generative that are heavily marked down at this point in time,” he said.
“There is an opportunity in the current market and the 24 month outlook shows that, yes, we see at the moment valuations are far below the cost of building out a mine.
“So we would certainly look at opportunities,” he said, adding that CoAL would add its name to a list including Sibanye Gold that would be interested in making a bid for Anglo American’s domestic coal production.
There’s also the opportunity for CoAL to vertically integrate into a power producer. Brown wants to pursue a joint venture with an independent power producer (IPP) that could allow for a fully-fledged coal-to-power combination.
There is, though, a fly in the ointment.
The ‘fly’ is none other than Nonkululeko Nyembezi-Heita whose IchorCoal has already posted a bid for Universal Coal at some A$0.16 cents per share versus CoAL’s higher A$0.20c/share cash offer plus CoAL shares valued at A$0,05 cents/share.
The whispers from Perth sympathetic to IchorCoal, however, are that CoAL’s offer is like mixing ice-cream and cow-poo (in Johann Rupert’s memorable description of the Gengold/GFSA restructuring in 1997). CoAL has lost about $130m (R1.9bn) in the last two financial years and its capital base is heavily diluted owing to repeated equity issues it has approved to stay afloat, the whisperers say.
IchorCoal is also a 29.9% shareholder in Universal Coal and whilst CoAL needs only 50% plus one share to win the day (it already has 40% support), it’s quite possible Nyembezi-Heita will look to compete.
Asked to comment, IchorCoal CEO, Nonkululeko Nyembezi-Heita, said in a statement: “IchorCoal is aware of Coal of Africa’s competing offer for Universal Coal. We are considering our options and will make an announcement in due course”.
CoAL recently won approval from the Australian listing authorities, where it is also publicly floated, to either extend or improve its offer if the occasion required. Bidding war anyone?
