[miningmx.com] — Coal of Africa (CoAL) CEO John Wallington said on
Monday he had hoped the market would’ve taken the positives from the company’s
still inconclusive talks with Exxaro Resources over the Makhado project, admitting
he was left “frustrated’ by the share price’s indifferent reaction to the news.
The company announced on Monday it has agreed to an extension until September
30 for Exxaro to decide whether it would take an interest of up to 30% in Makhado,
a date that was originally set for last week Friday.
At 15:30 on Monday, CoAL’s JSE-listed shares were down 1.31% to R5.28, while
those traded on the LSE were lower 3.54%, at 40.5p “I thought people would see
this as a deal that is still very much on,’ Wallington told Miningmx. “It
seems now there is this view that the project is being delayed.’
Wallington has on numerous occasions expressed his desire for Exxaro to take up an
option that would give the diversified miner a 30% stake in the Soutpansberg-based
coking and thermal coal property at a 20% discount, hoping to leverage Exxaro’s
balance sheet and know-how in the development of a 5 million tonnes per annum
(Mtpa) asset. Makhado’s first phase is envisaged to produce 2.5Mtpa.
The capital investment alone would be about $500m, CFO Wayne Koonin said last
week, although the feasibility study hasn’t been published yet.
“Exxaro is not going to rush into anything that hasn’t been through a robust
process,’ Wallington said. “They have a bit of the old Iscor in them; there’s this way
of doing things diligently.
“Nothing is ever for sure until a deal is done, but I think we’re making good
progress.’
As part of the decision to extend the deadline, CoAL and Exxaro agreed on four
deliverables, including further analysis on the thermal coal yield in what has
primarily been regarded as a coking coal property.
Exxaro is also looking for an agreement that takes cognisance of the optionality
offered by CoAL’s adjacent properties in the Soutpansberg area, following the
successful acquisition of Rio Tinto’s Chapudi assets and a recent resource upgrade.
CoAL said last week the incorporation of the Chapudi assets had allowed the
company to upgrade its Soutpansberg resource from 2Bt to 8Bt.
Another “deliverable’ is progress in talks with ArcelorMittal SA (Amsa) over an
offtake agreement; this doesn’t, however, imply a deal with Amsa has to be in place
by end-September. “No, definitely not,’ Wallington said. “Ideally you’ll want to have
Amsa signed up, but it is not going to be the case.’
One analyst who did regard the announcement as positive was Imara SP Reid’s
Shihepo Kavambi. In a note titled “Exxaro is keen’, Kavambi said, “Exxaro agreeing
to the next phase of work confirms it is serious and still committed to the project’.
Shares in CoAL have been under pressure, falling to a low of R4.16/share in May
from R9.60/share at the beginning of 2011. The price has, however, recovered
somewhat to its current level of around R5.30 following last week’s resource update.
Said Kavambi: “We view the announcement [Exxaro’s] in a positive light. In spite of
this, ongoing discussions for an off-take agreement for Vele, the unresolved
discussions with farmers to be affected by Makhado, the funding position and
depressed thermal coal prices still pose risk to the upside potential for the stock.’
