[miningmx.com] – COAL of Africa (CoAL) seems to have survived; or bought itself more time, at least.
The coking coal exploration and production firm has secured $100m in equity financing from Chinese firm Bejing Haohua Energy (BHE) for which it is to sell 24% of its total shares.
The share price is reflective, up more than double since the end of December and last trading at about R3.17/share.
Said CEO, John Wallington: “The biggest challenge for a junior is “do you have the balance sheet to ride out the bottom?’’. CoAL probably does have the financial firepower, but it was awfully close for a while.
Even now, there are headwinds. Wallington doesn’t expect the coal market to be great shakes in 2013 despite speculation at the McCloskey Coal Export Conference in Cape Town in January with delegates talking of renewed Chinese demand.
“I still think we’re in for a little bit of pain,’ said Wallington. “The market will bump along at the bottom.’
CoAL isn’t completely out of trouble. Net cash outflow is expected to be between $15m to $20m in the current quarter, up to a fifth of the cash CoAL raised from its sale to BHE. Its mature assets are also on their last legs.
The Vuna colliery is expected to be depleted by March and the restructuring process at Mooiplaats, a thermal coal mine in Mpumalanga province, has not yet been completed.
“It’s a schizophrenic company,’ says Wallington of CoAL’s asset mix. “The company is quite distracted by the thermal assets in Mpumalanga which did not necessarily contribute to value in company,’ he says.
CoAL’s future lies not in Mpumalanga but in Limpopo province, however. Much turns on how well CoAL can bring its projects into production. The second phase expansion of its Vele colliery begins in the second half of the financial year while a definitive feasibility study – which delivers the type of information against which capital is raised – is due for its Makhado project in the current quarter.
But Limpopo is a difficult place to operate. Apart from project development risk, CoAL’s biggest problem is political risk in the form of opposition to its coal mining activities from environmentalists, specifically “the Coalition’, a grouping of green lobbyists which recently withdrew from a memorandum of understanding with CoAL over Vele.
This raises the prospect that the Coalition could take its opposition to Vele’s continued development back to the courts. It’s the last thing Wallington wants. He doesn’t even think the opposition is representative of general attitudes to Vele.
“We are getting recognition from the provincial authorities and the communities,’ he says of the Limpopo province. But this doesn’t extend to the NGOs: “They are incapable of doing anything but oppose,’ he says, grumpily.
