Optimum Coal’s loss is Metmar’s Gain

[miningmx.com] — THE R92m Peter Gain walked away with following
the R10bn sale of Optimum Coal Holdings to Glencore International is being pumped
into recapitalising Metmar, the metals trading company.

The deal sees Gain in a consortium consisting of colleagues from Beacon Rock, a
mining services company, take a 25% stake of Metmar and another slug of the firm
through subsidiary Metmar Investments. All in all, some R475m of value is being
pushed into Metmar, R250m of it in cash.

The balance comprises 55% of an anthracite deposit, called Fuleni. Gain says the
logic of the two-tiered investment is that the consortium is aligned with
management.

“We can make money from the left pocket or the right pocket and it doesn’t really
matter,’ he says from Optimum Coal’s offices. Glencore has given Beacon Rock
notice, so ties with Optimum Coal, which Gain had a hand in creating, are due to be
severed. Gain was instrumental in providing assets for Optimum while Beacon Rock
offered in-house administrative services to the company.

He concedes he wasn’t really looking for the Glencore offer and once it materialised,
would have preferred a bidding process from an Asian competitor. But the Swiss
metals trader had already bought more than a fifth of the company and had offered
a healthy price anyway.

“They [Glencore] are not kittens,’ Gain reflects. As for Metmar, an investment Gain
acknowledges has its risks, the plan is for the consortium to restructure the
company’s portfolio, while Metmar’s founding management will continue with the
marketing business.

Metmar has a number of small investments that provide it with the right to market
minerals, but no influence over the decisions the management of the investment
might make.

Gain won’t say where the restructuring will focus, but one has to wonder whether
Metmar will remain an investor in, say, Kalahari Resources, the manganese
development company in which it has a 8.3% stake, or Kivu Resources (8.9%).

If Metmar is rationalised, the emphasis will fall upon chrome and coal. “The nice
thing about coal is that it’s burned and gone,’ says Gain. There are no above-ground
stocks that can contribute towards supply surpluses, as is the case with platinum
currently.

There’s also the Fuleni anthracite mine, which Gain and colleagues is vending in to
Metmar Investments. Anthracite has a growing domestic and export market as a
cheaper substitute for coking coal where it’s used by steelmakers, for instance, as a
reductant. In SA, however, it’s only really abundant in KwaZulu-Natal, and only then
in little pockets.

Fuleni, however, has 319m tons of in situ anthracite; in other words, that’s the
mine’s potential, but now it requires tests to see whether it’s economically viable.
The reason Fuleni was so ignored was because it’s located in a former homeland, an
apartheid-era land allocation area that was consequently never drilled by the
corporates.

Metmar is well off its all-time high of about R6.90, but the year-to-date performance
of the stock has been impressive – largely as a result of the investment by the
consortium. It traded as high as R3.35/share after starting the year around
R2.12/share.

– Finweek