[miningmx.com] – COAL of Africa (CoAL) applied the brakes to its share
price free-fall today after agreeing to sell $100m in shares to China’s Beijing Haohua
Energy Resource Group.
The investment by Beijing Haohua, the first outside China by the Shanghai-listed coal
producer, follows disappointing news for CoAL that Exxaro Resources would not take
up an option for a 30% stake in CoAL’s Makhado coking coal project.
Exxaro Resources was, at one point, considering extending the option in Makhado to a
broader, strategic investment in CoAL. However, it today cited “other priorities’ and a
difficult mining market for its decision not to invest in CoAL.
Johannesburg-listed shares in CoAL were some 14% higher at R2.40/share soon after
the company unveiled terms which sees the Chinese buy the stock for a 64% premium
to CoAL’s September 27 close.
Beijing Haohua will take an initial 4.8% to 5.2% in CoAL in return for a $20m payment
pending the approval of the Australian Foreign Investment Review Board (FIRB) as
CoAL is principally listed in Sydney.
The balance of the $100m requires the approval of the relevant authorities in the
People’s Republic of China (PRC).
If approved, it will mean that CoAL has continued a major rebuild of its balance sheet
in the last year totalling $259.5m, equal to R2.15bn and in excess of its current
R1.95bn market capitalisation.
In November, CoAL issued $106m in shares which it followed in July with a $53.5m
share issue including some shares to Investec. It also refinanced a $40m loan,
replacing it with an Investec facility totalling $50m.
This tackles a fundamental problem in CoAL that CEO John Wallington described in the
past as a company that was under-funded given its lofty growth ambitions.
CoAL has a major exploration footprint in the coal fields of the Soutpansberg and
Limpopo, recently upgraded to an estimated 8 million tonnes. Wallington has said in
the past that the region could yield 10 million tonnes/year (Mtpa).
Acquiring Beijing Haohua as a strategic partner also means the appointment of two
directors of the Chinese company to CoAL’s Board, which has been heavily
reconstituted this year.
In August, CoAL said that it had appointed former Impala Platinum CEO David Brown
as its new chairman. Richard Linnell, who served on CoAL’s Board since 2001,
resigned from the Board, while Simon Farrell, once CEO of CoAL, and other non-
executive directors Steve Bywater and Mikki Xayiya also left the Board. Former Anglo
American executive Bernard Pryor was appointed a non-executive director of CoAL.
Commenting on the share placement with Beijing Haohua, Wallington said: “The
placement would expedite the development of CoAL’s projects and lead to the
formation of a strategic partnership and provide direct exposure to the world’s largest
coking coal market’. Brown described the transaction as “. pursuit of a company-
transforming transaction through capital investment’.
TOUGH TIMES
CoAL’s share price has been in free-fall this year, declining from R7.24/share as
thermal coal markets weakened, which reduced cash from CoAL’s producing mines,
Mooiplaats and Woestalleen in Mpumalanga province.
In addition, the Vele coking coal mine – a project closest to production – was delayed
15 months following opposition from environmentalists. More recently, a strike at
Mooiplaats has added pressure on CoAL’s cash generation and could result in a
restructuring of Mooiplaats.
Commenting in its full-year operational and financial results published today, CoAL
said production totalled 4.9Mt run-of-mine (ROM), including initial output from Vele,
which is slated to have a first phase output of 2.7Mt run-of-mine ROM.
Market conditions for thermal and coking coal “deteriorated significantly’ during the
period under review, with the spot prices falling 27% year-on-year.
Sales fell 2% to 3.37Mt although export sales increased 55% to 1.67Mt, the company
said.
The outcome was a net loss for the year of $138.9m, an improvement on the previous
year’s net loss of $219m that included the write-down of assets. As of the year-end,
the total cash and undrawn bank facilities totalled $37m.
